Blockchain is not just the technology behind the Bitcoin cryptocurrency; it also has the potential to revolutionize many areas of our everyday lives. But there is still a long way to go.

Try asking Google whether the earth is flat. The answer is clearly a simple ‘no’, but the search results will include plenty of dissenting opinions. This is because the Internet is decentralized in both its organization and logic. The fact that it is not subject to a central authority has many advantages, but also means that there is no one to vouch for any of the information it offers.



Most states are the polar opposite with a centralized logic and organization. They are subject to the control of an institution (the government) that guarantees content and prescribes procedures (e. g. through laws). Then there are systems with a centralized organisation and decentralized logic. They are managed institutionally, but allow for individual use. A Word file is a good example, as it can be processed on any computer outfitted with the same software. The workflows are predefined by the program, while the contents can be individually edited by each user.



This is the system theory that underlies our experience of everyday life. A fourth option – a system that is logically centralized and organizationally decentralized, independent and yet reliable – seemed improbable. Then along came blockchain.

The larger the network, the more secure the blockchain

A blockchain is basically an endless data chain. Like a booking system, it captures and stores any and all activity in the system, whether money transfers, land registry entries, or concluded contracts. What makes a blockchain special is that unlike in other systems, information is not saved on one local server. Data is simultaneously stored on multiple computers in a network. This adds another layer of security, since falsifying information would mean hacking into many servers instead of just one. The larger a network is, the more secure the blockchain becomes. At the same time, a blockchain is very transparent, as all network users have access to the information.



So the organization of blockchains is decentralized, but the logic is central, since all users are subject to the same rules in their transactions. With Bitcoin cryptocurrency, for example, transactions involve transfers between two users. As soon as a transaction is posted in the blockchain – and thus on all computers in the network – it cannot be altered in any way. Each computer checks whether the transaction complies with the rules, so that only approved transactions can be carried out in the network. The blockchain allows for exact “joint accounting” without the need for a centralized administration.



Many experts regard blockchain technology as revolutionary because it is considered tamper-proof and transparent, and it is especially popular with privacy advocates. The potential areas of application extend far beyond bitcoin and other cryptocurrencies and range from smart contracts and forgery-proof licenses to secure electronic document folders. Easy and tap-proof data exchange among doctors, pharmacies and health insurance companies, for example, would have wide-ranging economic and medical implications. Blockchain technology could also render future elections absolutely tamper-proof.

The more transactions, the higher the fees

But will blockchains really soon be part of our everyday lives? According to experts, there are still a few bugs to work out first. Expanding a system is particularly troublesome, and when the number of transactions in a network increases faster than the available computing power can handle, data jams occur. This is a familiar issue to anyone who has ever used Bitcoins. The cryptocurrency introduced a transaction fee to prevent data jams caused by an excessive number of small transfers, eliminating the quasi free transfer advantage Bitcoin users so prized. In summer 2017, the average transaction fee had risen to almost seven euros.



Blockchains are also slow compared to credit card transactions. The fastest cryptocurrencies can handle a maximum of 20 transactions per second, and Bitcoin only three to seven. Not much when you consider that Visa processes an impressive 1,700 transactions every second in the USA. Blockchains are also very energy intensive. Estimates vary widely, but as a ballpark figure, one cryptanalyst, Alex de Vries, calculated around 222 kilowatt hours for a single Bitcoin transaction in November 2017. This roughly corresponds to the monthly power consumption of a single-person household in Germany, and credit card transactions are around ten-thousand times more efficient today.



From a security standpoint, the so-called ‘51 percent’ attack is the most notable potential threat to blockchains. Although the decentralized network protects against external attacks, the system could be hijacked from the inside. If someone managed to gain control over more than half – 51 percent – of a blockchain network’s computing power, they could manipulate or delete transaction data at will, at least in theory. So the danger for blockchains is less likely to come from weak links than from those threatening to grow too strong.



All these misgivings aside, blockchains still have the potential to revolutionize the future of business, communications and administration. There is a very good reason banks are investing billions in research into the technology and gearing up to launch their own cryptocurrencies. It is not yet possible to say for sure whether blockchains will prove useful outside of payment applications though. Some experts are even predicting that a newer technology – the so-called tangle – could soon overtake the blockchain. According to development teams testing the system using the lota cryptocurrency, tangles could offer free transactions that are faster, and more stable and secure. But rest assured, while it might feel like it’s all moving much too fast, we’ve got a ways to go before blockchains and tangles make real inroads into our everyday lives.