When most people think of banks, they probably think of buildings with vaults guarded by two-ton doors and a security guard. Of course, that kind of banking went away as soon as digital funds became an efficient option. Thanks to blockchain technology though, we may not need a banker or even a bank account to safely send and receive money in the future.
Think that’s a stretch?
Simply put, a block chain is a list of transactions that are combined to determine if new transactions are valid.
Imagine you are shipping a train car worth of goods across the country. If you were using the traditional system, you would give your train car full of goods to a shipping company who keeps track of what is on each train and makes sure it arrives. We will call this railroad A.
Imagine that there was another option called railroad B. The difference between railroad A and railroad B is that instead of a shipping company keeping track of what goes on each train and making sure it arrives like railroad A, railroad B uses an unalterable database that tracks trains and makes sure every car goes exactly where it should. It keeps the cars in order by giving each one a number based of the car in front of it, so that the cars are not only always in order but you also cannot add or take away a car without disrupting the order and stopping the train. Once you put your goods on a railroad B train, the details of the shipment are entered into the database and after that no one can change the shipment information to redirect your goods. Once your goods arrive at the proper customer, that is entered in the database and you get your money shipped back to you on another train.
So, if someone knew you were shipping something and wanted to have the railroad ship it to them instead of your customer, they couldn’t change the destination of the shipment because that information has already been permanently published within the database.
In this oversimplified scenario a traditional bank is railroad A and blockchain technology is railroad B. Blockchain’s main advantage over traditional banking is the fact that no one needs to monitor the database, or in in blockchain’s case ledger, that keeps track of moving digital funds or other types of data because once data is published in the database it cannot be altered or manipulated making banks an unnecessary middle man.
But how can blockchain be so sure that its ledger is secure and its data can’t be altered?
The ledger can’t be altered because it is distributed among the computers of everyone who uses it. For example, Dave and Andy are using a blockchain database with exactly half of the data stored on one computer and half on the other. Dave has his computer hacked and the hacker has access to his half of the database and all seems lost. However, blockchain ledgers cannot be altered unless one person has control of 51% of the database. In the case of Dave and Andy, the hacker came very close but still cannot edit the information in the database without also hacking Andy’s computer.
Now imagine that there are thousands of other people using the database with Dave and Andy, each with a divided percentage of the database stored on their computer, and you can see the monumental task taking over a blockchain ledger would be.
So, hackers can’t redirect data to steal it using when it is entered in a blockchain ledger, but what if all they need to do is see it?
When vulnerable information is sent over a blockchain ledger, it is essentially scrambled so that it cannot be read unless unscrambled. This is called hashing. For example, you want to send a voice recording to someone with vulnerable information. When you send it over a blockchain, your message is hashed, and if anyone wants to access it they will have to reorder the hash using a decryption key to unlock it. If a blockchain encrypts information with 265-bit encryption, that means someone would have to guess 256 values out of a range of values that numbers in the hundreds of thousands of billions in order to read the information. On top of that, you would know if the message was tampered with because the hash would be different than the one stored in the unalterable blockchain ledger.
So, will Blockchain technology disrupt the banking industry and cause a complete collapse? Probably not, but it has the potential to cause a huge shift among the banking industry and several others. Even if you aren’t interested in potentials, understanding the power and ideas behind how Blockchain works is a step ahead of hackers and a step towards cybersecurity for you and your business.