A blockchain is new approach to securing transactions. It was developed as a way to help track and secure cyrptocurrency. However, transaction clearing houses are exploring its use in their operations. Why? Well let’s look at how the current model works
In the traditional setup “NoShade’s Credit Company” has thousands of customers and they are making 10’s of thousands of transactions daily. I need to move each transaction to a central data center for processing and tracking. I can’t afford a data center of my own so I contract a 3rd party data center to manage this for me and I have to trust their security and practices to protect my customers.
In the traditional model you have to imagine your data is stored like money in a bank vault. There is a big lock on the front door and your money is reasonably safe from someone physically getting at it. In the internet age though things are very different.
An attacker doesn’t need physical access to the vault to access your data. They can sit in a coffee shop thousands of miles away and gain access to your data in just a few seconds or minutes. The reason for this… The front door may be locked but your data is just sitting there unprotected behind it. Once I get in the front door I have access to everything.
Blockchain improves security in a couple of key ways.
Firstly your data is stored on a per transaction basis called a block. Between each block is hash that contains some of the data from each earlier block, and a timestamp. This is called the chain. The best way to picture this is to imagine your data like train cars. Your data make up the cars and the hash is the linkage between them.
The hash protects your data from being viewed or altered by a third party that may intercept it. Remember the hash contains data from each record in the chain and a timestamp. If the data is modified in any record it will corrupt the hash at each link in the chain thus invalidating all of the data.
That brings us to the second key change in blockchain cryptography. The removal of a centralized processing center. Using blockchain allows your data to be encrypted and stored in a “peer-to-peer” network that can exist across the globe. This removes the “bank vault” problem we discussed earlier. There is no single point of failure for your data to be exposed to hackers.
Blockchain does have a few negative points at this point in time though.
Processing Speed
Right now records can be added to a blockchain at about 5 records per second. This sounds pretty fast. Until you realize that a company like Visa can process about 24,000 records per second.
This will improve over time as the algorithm that makes bockchain work improves, and more dedicated processing networks come online.
Scalability
Due to the nature of this design, where the chains have data from each block in the database, each computer that processes records in the database must have a complete copy of the entire file. Depending on the nature of your business and the number of records you have to process, you could rapidly run out of storage space.
The future of blockchain is an interesting one. This may be the first time you’ve heard anything about it. It won’t be the last though. As we move toward our “connected future” there will be a need of accounting for, and securing, the data that passes back and forth between them. Blockchain, or a derivative, will likely be used for this purpose.
If you interested in reading more on this topic I would suggest you start here. It should help fill things in a little more for those of you that are truly curious.
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