- Blockchain ledgers were originally developed to track cryptocurrency exchanges
- Efficiency and security are ensured by distribution across multiple machines
- The future of this technology extends beyond bitcoin
Blockchain is the perfect example of a technology where the true benefits are buried beneath the hype. Most people have heard of it, and many associate it with cryptocurrencies like bitcoin, but that’s often as far as their knowledge goes.
If you don’t know much about this digital ledger system, you’re not alone – experts are having trouble nailing down what it is and what it will become. But most agree that it’s going to be big. Economic growth estimates for a 2024 blockchain market size range from $7.59 billion to $60.7 billion.
To help cut through the noise, we talked with Scott Shackelford, associate professor and Cybersecurity Program Chair at Indiana University to get to the bottom of this misunderstood technology.
So, what is it?
As Shackelford puts it, a blockchain is “a shared, trusted, distributed ledger that everyone can inspect, but which no single user controls.”
The idea is that if everyone is watching, it’s impossible for users to get away with any deceitful shenanigans.
Imagine that you’re giving a stranger money in exchange for interest on the loan. This person could take your money and simply claim that you never gave it to them. Traditionally, you get a third party (like a lawyer) involved to have a record of this transaction. This is the old way of doing things.
Under a blockchain model, instead of a lawyer or notary witnessing this exchange, countless people are aware of the transaction and all of the observers will know if the stranger doesn’t pay you back. On top of that, you repay them for this service by watching over their transactions too.
That said, many people still doubt blockchain’s future. As Shackelford explains, switching from the old way of doing things requires some cognitive reframing.
“At its root, blockchains allow industries and the internet more generally, to return to a decentralized internet, but this will only happen when it becomes accepted that decentralized is safer than centralized,” says Shackelford.
It may only be a matter of time before people begin to accept blockchain as a viable alternative to traditional security methods. Until then, the only course of action is to continue to educate the public.
Blockchain is attempting to solve problems that stretch back a few decades, to what Shackelford describes as “the predawn of the Information Age.”
“In 1981, researchers were already trying to solve varied privacy, security, and cryptographic concerns in the still nascent [internet] network,” says Shackelford. “Multiple techniques were tried, but regardless of the proposed solution, due to the involvement by third parties such as credit card processors, insecurity persisted.”
“Some proponents even became jaded. One researcher, Nick Szabo, theorized a “God Protocol” in 1998 that would designate a divine being as the trusted third party and in so doing finally grant security to the rapidly scaling global internet.”
As it turns out, the “God Protocol” was never needed. As with many innovations, blockchain was born out of the failure of an earlier system.
“During the financial crisis, an anonymous developer known as Satoshi Nakamoto outlined a new protocol that left divine intervention out the of equation,” says Shackelford. “It leveraged peer-to-peer technology using distributed computation to create the cryptocurrency that would become known as Bitcoin.”
And thus, blockchain technology was born. The Great Recession created doubt that current financial systems were sustainable, and decentralized cryptocurrencies began to seem like a viable alternative.
But people needed a way to track these cryptocurrencies that didn’t involve the big banks that had wrecked the economy to begin with. Rather than bringing in a third party, blockchain lets every single user be a participant in their own transactions as well as an observer of others’.
Cryptocurrency is just the start
Although blockchain is actively being used in the economy of cryptocurrencies, experts like Shackelford believe that’s only the beginning. The distributed nature of this technology could be used for a wide array of security purposes, and many organizations are scrambling to figure out exactly what those purposes are.
“From making businesses more efficient to recording property deeds to engendering the growth of ‘smart’ contracts and even securing medical devices, blockchain technology is now being investigated by a huge range of organizations and is attracting billions of dollars in venture funding,” says Shackelford.
“Even the U.S. Defense Advanced Research Projects Agency (DARPA) is investigating blockchain technology to create an unhackable messaging system, as is IBM and Disney. IBM has helped Walmart deploy the technology in its massive supply chains.”
That said, it’s important to realize that blockchain isn’t some magical cure that will fix all of the world’s problems. In fact, Shackelford recommends cautious optimism.
“I think the technology has a lot of exciting applications, but our enthusiasm should be tempered – it is not the answer, regardless of the question being asked,” says Shackelford.
He continues, “To me, though, real progress has already been made in the supply chain and fintech contexts. There is also the potential that the technology could help secure vulnerable certificate authorities, and even promote sustainable development.”