Blockchain Technology

For all you’ve probably heard about?Bitcoin,?Ethereum, and?other cryptocurrencies?lately, many financial experts say it’s the technology behind crypto you should really be paying attention to.

“The underlying technology that most cryptocurrencies rely on — which is blockchain — is a transformative technology,” says?Lule Demmissie, president of Ally Invest. “And cryptocurrency just happens to be one of those transformations.”

Some believe blockchain technology has the potential to change nearly every facet of our lives, far beyond crypto’s impact on our financial portfolios.?Dr. Richard Smith, executive director of the Foundation for the Study of Cycles, a nonprofit organization dedicated to studying recurring patterns throughout economies and cultures, calls it a “revolution.”?

Even crypto skeptics see the value in blockchain technology. The real jewel is blockchain, says?Chris Chen, CFP?of Insight Financial Strategists in Newton, Massachusetts. He believes blockchain is likely to have a lot more staying power than popular cryptocurrencies like Bitcoin, which he calls a flash in the pan. “Blockchain will continue to change the way that we do things.”??

That all sounds great, but what exactly does it mean? Here’s what you need to know about blockchain, and what a blockchain revolution might look like.

What Is Blockchain?

Think of a blockchain as a novel, digital form of record-keeping.?

Blockchain is the underlying technology that many cryptocurrencies — like?Bitcoin and Ethereum?— operate on, but its unique way of securely recording and transferring information has broader applications outside of cryptocurrency.

A blockchain is a type of distributed ledger. Distributed ledger technology (DLT) allows record keeping across multiple computers, known as “nodes.” Any user of the blockchain can be a node, but it takes a lot of computer power to operate. Nodes verify, approve, and store data within the ledger. This is different from traditional record-keeping methods which store data in a central place, such as a computer server.??

A blockchain organizes information added to the ledger into blocks, or groups of data. Each block can only hold a certain amount of information, so new blocks are continually added to the ledger, forming a chain.?

Each block has its own unique identifier, a cryptographic “hash.” The hash not only protects the information within the block from anyone without the required code, but also protects the block’s place along the chain by identifying the block that came before it.

Once information is added to the blockchain and encrypted with a hash, it’s permanent and unchangeable. Each node has its own record of the full timeline of data along the blockchain, going back to its start. If someone tampered with or hacked into one computer and manipulated the data for their own gain, it wouldn’t alter the information stored by other nodes. The altered record can be easily distinguished and corrected, since it doesn’t match the majority.

“The way that the system works, it’s almost impossible for someone to replicate the computing power that happens on the back end to reverse engineer it, and somehow figure out what all those hashes are,” Agarwal says.

A Blockchain-Based Future

For many of us, one of the most impactful use-cases of blockchain technology may be protecting and securely transferring personal data.

Imagine if your banking information was stored on a blockchain. When you open an account with a new financial institution, or transfer information between institutions, a blockchain ledger could help quickly and securely ensure the transfer or new account is accurate and legitimate using your already-stored information. “That has the ability to reduce a lot of costs, a lot of overhead, and also become a good way to reduce fraud,” Agarwal says.

He predicts blockchain technology has potential across nearly every industry, “because every industry has some type of information that they’re trying to exchange in a very secure way.” An election run on blockchain technology could benefit from a voting record that gets locked in and cannot be altered after the fact. Businesses could maintain?more accurate inventory records?using blockchain. Blockchain could even help consumers make more informed purchasing decisions with better transparency around product supply chains. The technology may help food suppliers?more efficiently trace recalled products, or allow consumers to avoid goods created using?exploited labor practices.

Uses like this illustrate blockchain’s appeal not only for security, but also what Chen calls the integrity of information. “Blockchain has the potential to give people more security and assurance around that,” Agarwal says.?