The year was 2008. Someone, or a group (the mystery is still alive and well) by the pseudonym Satoshi Nakamoto introduced a proposal that would end up becoming a huge phenomenon – Bitcoin. You probably regret not jumping on the bandwagon back then — but don’t worry, I’m right there with you.
The simple fact that 1 Bitcoin is roughly worth around $3,800 today would have anyone feeling a little envious, but that’s not why you’re here. It’s all about the hidden technology that underlies bitcoin – blockchain.
What is Blockchain?
Blockchain is used to record bitcoin transactions, and it’s at the heart of other virtual currencies, but it can also be used for other purposes that could prove worthy for municipalities.
Essentially, a blockchain is a decentralized, digital, public ledger that keeps track of transactions between participants. These transactions can be anything from tracking records, smart contracts that facilitate business affairs and even purchases made. These transactions are permanently stored in a “block” that is linked to and from respective blocks. Still a little lost? All of this tech talk can be confusing; thankfully Harvard Business Review identified the 5 basic principles behind the open source.
Now that you've got the gist of how a blockchain works, you may be asking yourself what makes a new organizational method so exciting? There are many ways that a municipality, and the organizations and businesses within it, could benefit from blockchain technology. For example, in July, Delaware signed a $738 million contract with IBM to design a business filing system that is built on blockchain tech to track stocks and collateral assets in real-time.
More benefits associated with a blockchain include the following:
A Sense of Security
This particular network differs from what we’re used to seeing online. How so? Blockchain security methods involve encryption technology, making it harder for hackers to infiltrate this method compared to the old “username/password” system. That’s just the tip of the iceberg, so stay with me on this one.
The larger your blockchain, the more secure it is. According to CSO, in order for a hacker to compromise a blockchain, the attacker needs to compromise over 50 percent of the participants or blocks — and do so faster than new blocks are created. Still not sold? Let’s talk decentralization.
Decentralization
Because a blockchain is decentralized technology, the data being stored within the blocks is stored across its entire network. The exclusion of a central authority adds another sense of security due to the simple fact that there is no central point that is exposed to hackers and it puts the individual participants in control.
Cut Out the Middle Man
Another decentralization perk: there’s no need for banks, lawyers or accountants. Rather, this distributed ledger gives you the benefit of utilizing consensus protocols when validating transactions. Not only are you saving money, but you're also minimizing the human error that could come along with third-party involvement. What’s a consensus protocol?
A consensus protocol is an agreement between various devices across a network. Essentially, it's the rules that all participants within the blockchain must follow when communicating and completing transactions with each other.
So there it is, your quick lesson on blockchains. There are so many bits and pieces that go into this complex technology, and there is still much that needs to be understood. But why not get a head start by getting a better understanding on how the digital ledger works and keeping an eye out for cities that incorporate the emerging application? After all, the adoption of this technology could possibly move us closer to a more cost-efficient, secure and fast future that is the digital age.