What is… blockchain?

A monthly tech explainer series about the technology shaping our world today, from the Garage.

By Jeff Wise — September 20, 2022

The eponymous “blocks” — in the blockchain, a system of recording information, aren’t much to look at. To most of us, they appear as a jumble of code organized in a prescribed way. What might seem to be an indecipherable string of ones and zeros is actually a very special type of container, one that can record — for anyone to see — thousands of digital transactions.

Taken collectively (and linked together in a chain), they form a universally accessible, distributed, unforgeable database that’s continuously growing as anyone, anywhere adds their data and forms new blocks (a process that happens on average, every 10 minutes). 

As practical as that might seem, it’s a technology that’s been riven by controversy. To supporters, it could transform almost every kind of business. “What the internet did to publishing, blockchain will do to about 160 different industries,” founder Patrick Byrne has declared. To detractors, it’s a broken concept that has done nothing but defraud rubes, launder ill-gotten wealth, and accelerate global warming. In the words of noted computer scientist and skeptic Nicholas Weaver, it should “die in a fire.”

The a-ha moment

Blockchain traces its origin to the financial meltdown of 2007, when the US stock market lost more than half its value and big banks were bailed out. What if, some wondered, a new form of currency could be created that could operate beyond bank and government oversight and interference? In 2008, an unknown person who called themselves Satoshi Nakamoto published a white paper explaining how a new digital currency called “bitcoin” could be created using the principles of cryptography. 

Illustration by Eric Chow

How it works

The core of his idea was something called a blockchain, essentially a publicly-viewable database that is stored collectively by users all over the internet. Anything stored on the blockchain is impossible to erase, and no one entity has control over it, as owners of proprietary systems do. The database is composed of blocks that are added in sequence as time goes by. The only way to write to the blockchain is to solve a labor — intensive math problem — a challenge called “proof of work.” People who solve these problems are called “miners” and are rewarded in a cryptocurrency called bitcoin. Other blockchains can use different currencies and alternatives to proof of work. The Ethereum blockchain, for instance, uses a cryptocurrency called Ether.

What it means for everyday life

Blockchain’s novelty and abstractness has made it something of a blank canvas for ambitious tech innovators. One idea was that the blockchain’s transparency and immutability could be used to verify the identity of items in a sensitive supply chain — things, for instance, like sustainably harvested tropical hardwoods, or votes, or doses of medicine. However, in practice high cost and low transaction speed has proved a massive stumbling block. While the Visa payment network can process 1,700 transactions per second, bitcoin’s blockchain manages about five. Some say that no significant practical applications have yet emerged even after years of constant experimentation. 

How it might change the world

So far, blockchain technology has mostly been used for speculation, because it’s extremely well suited to creating all kinds of novel digital assets. Among them: altcoin currencies, NFTs, and flashmob — like investment clubs called DAOs (for “decentralized autonomous organization”). It’s a key technology for use in the metaverse, where many projects are blockchain-based. All of these have generated intense media interest and investor enthusiasm.

The downside is that digital assets have yet to produce any useful economic activity outside virtual markets, but instead are chits in a zero-sum game that requires tremendous amounts of energy just to exist. The cryptocurrency ecosystem consumes as much electricity as Norway or Argentina. We’re currently in the midst of a so-called “crypto winter” that has seen bitcoin and other cryptocurrencies lose more than half of their value, with fraudulent schemes imploding regularly and hackers swiping billions of dollars. 

But the technology has been through tough times before, and each time — it’s come roaring back. In the next 10 years, some techno-optimists predict blockchain technology will underpin a decentralized digital banking system, support smart contracts that can execute themselves when stipulated conditions are met, and secure sensitive information like medical records. Don’t count the blockchain out yet.


READ MORE:  What is… XR?