The use of encryption ensures that users can only modify the parts of the blockchain that they “own” in the sense that they have the private keys, without which they cannot write to the file. In addition, encryption ensures that copies of the distributed blockchain are synchronized for all users.
Imagine a digital medical history: each record is such a block. This entry has a label: the date and time this entry was made. Initially, it is considered mandatory to prohibit retroactive changes to records, because it is necessary that records of diagnosis, treatment, etc. do not allow different interpretations and remain in their original form. The records can only be accessed by a doctor who has one private key and a patient who has another. This information will then only be accessed by those to whom one of these users provides his private key (for example, a hospital as a whole or an individual specialist). For example, blockchain technology can be used in a medical database.
The blockchain technology was originally built with security at the database level. The blockchain concept was proposed in 2008 by Satoshi Nakamoto. It was first implemented in 2009 as a component of the digital currency – bitcoin, where the blockchain plays the role of the main common ledger for all operations with bitcoins. Thanks to blockchain technology, Bitcoin became the first digital currency to solve the problem of double spending (unlike physical coins or tokens, electronic files can be duplicated and spent twice) without the use of any authoritative authority or central server.
Security in blockchain technology is ensured through a decentralized time-stamping server and peer-to-peer network connections. As a result, a database is formed, which is managed autonomously, without a single center. This makes blockchains very useful for event logging (eg, medical records) and data manipulation, identity management, and source authentication.
Visual display of a decentralized bitcoin server
How does blockchain technology work?
Blockchain technology is sometimes referred to as the “Internet of Value” and we think this is a good metaphor.
Everyone can post information on the Internet, and then other people can access it from anywhere in the world. Blockchains allow you to send any value anywhere in the world where the blockchain file will be available. But you must have a cryptographically generated private key to only allow you access to the blocks that you “own”.
By giving someone your private key, you are essentially giving that person a sum of money that is stored in the corresponding section of the blockchain.
In the case of bitcoins, such keys are used to access the addresses at which certain amounts of currency are stored that are of direct financial value. This implements the function of registering the transfer of funds, usually banks perform this role.
In addition, another important function is implemented: establishing a relationship of trust and confirming the identity of the person, because no one can change the blockchain without the corresponding keys. Changes not confirmed by these keys are rejected. Of course, keys (like physical currency) can theoretically be stolen, but protecting a few lines of computer code is usually not expensive. (Compare, for example, with the costs of storing gold reserves in the notorious Fort Knox).
This means that the main functions performed by banks – identity verification (to prevent fraud) and the subsequent registration of transactions (after which they become legal) – can be performed by the blockchain faster and more accurately.
Why is blockchain technology important?
Today we are all accustomed to sharing information through a decentralized interactive platform on the Internet. But when it comes to sending valuables (money), we usually have to rely on the services of the old centralized financial institutions (banks). Yes, online payment methods were introduced immediately when this network was born (the most obvious example is PayPal), but they usually require integration with a bank account or credit card, otherwise they cannot really be used.
Blockchain technology offers a tempting opportunity to get rid of this “extra link”. It can take on all three important roles traditionally played by the financial services sector: registering transactions, verifying identity, and concluding contracts.
This will be of immense importance as the financial services market is the largest in terms of market capitalization worldwide. The transfer of at least part of this system to blockchain technology will lead to the severing of a large number of ties in the field of financial services, but at the same time will significantly increase the efficiency of these services.
A third possible role for this technology (contracting) can be very useful outside the financial services sector. In addition to putting another currency (bitcoin) into circulation, blockchain technology can also be used to store any type of digital information, including computer code.
This piece of code can be programmed to execute only when both contracting parties enter their keys, thereby agreeing to a contract. This same code can receive information from external data streams (stock prices, weather reports, news headlines and everything else that can be analyzed by a computer) and draw up contracts that will automatically register when certain conditions are met.
This mechanism is called “smart contracts” and the possibilities of their application are almost endless.
For example, an intelligent thermoregulation system can transmit energy consumption data to a smart grid. When a certain amount of electricity is consumed, another blockchain automatically transfers the required amount from your account to the account of the energy company. As a result, the meter and the billing process are automated.
In our medical record example, a doctor or patient could pass their private key to a medical device, such as a blood sugar monitor. Then this device can automatically, in compliance with safety requirements, record the values of the patient’s blood sugar, and then, for example, communicate with an insulin injection device, which will automatically maintain a normal level of this blood parameter based on these data.
You can also use this approach to control the use of intellectual property by determining how many times a user can access, share, or copy information. It can also be used to create anti-falsification voting systems, disseminate information without censorship, and much more.