15 Dec Biting Gold: Why the Blockchain Makes Your Cryptocurrency Transactions Safer Than Banks
Pirates and their high seas adventures have held generations spellbound. It’s not only iconic literary works like Treasure Island, mirroring the tales of infamous figures from Henry Morgan to Blackbeard, that highlights the continuing appeal; Disney’s Pirates of the Caribbean franchise is estimated to have earned some $4.5 billion worldwide.
But amongst all their swashbuckling, rum-swilling, high jinks and treasure seizing, one stereotypical habit has always seemed a puzzle – why did pirates bite their gold coins?
The fact is it had to do with proving the gold coin really was a gold coin. Gold is a soft metal, you see, so biting on a pure gold coin would leave a clear indentation. At a time when harder metals (silver, copper) were frequently alloyed with gold, the bite test was the quickest way to discover if the coin was authentic gold.
These days, pure gold coins are rare, but concerns over a currency’s authenticity are just as real as they have always been. It’s especially true with cryptocurrencies, for which ensuring transactions are indisputably true has become a critical priority.
The good news is that there is an incontrovertible method to prove the authenticity of cryptocurrencies. It’s called, the Blockchain.
Is Blockchain’s Security Really That Good?
It’s quite a thing to claim that the Blockchain can make a cryptocurrency transaction safer than banks. But there must be something to it when banks themselves are getting in on the action. In fact, HSBC, KBC, Deutsche Bank and Rabobank are among the big-name financial institutions involved in the we.trade blockchain platform, a joint-venture which went live in July designed to let companies manage and track transactions with advanced security through blockchain technology.
Not only that, but media reports have revealed that the Pentagon is interested in adopting the technology to use as a cybersecurity shield, while in April this year, Mastercard filed a patent for a blockchain system that can provide a more accurate verification process and ‘prevent the fabrication of such [financial] data’.
What Is The Blockchain & How Does It Work?
In simple terms, the Blockchain is a Digital Ledger. And just like those old, dusty ledger books, they store detailed chronological evidence of transactions in and out of an account. Every time a bitcoin is sent from one person’s digital wallet to another, this ledger is updated with information on the receiver of the coin, the sender of the coin, and the new account balances of both.
What is important is that every update is retained; not simply cast aside. This creates a growing line of updated account balances, or ‘blocks’ of information, which in turn creates a chain of evidence relating to all account activity. Thus, a ‘Blockchain’ is established.
So, how can the Blockchain achieve the same in the crypocurrency market? Well, there are several aspects that help to guarantee an open, accountable and trustworthy system everyone can count on.
1. The Blockchain Cannot Be Changed – Only Updated
The Internet already has a pretty poor reputation when it comes to accountability. Think about all that fake news Donald Trump harps on about, and the fact anyone with a laptop can publish anything they want without having to back up their claims.
This is arguably the biggest concern people have with digital currencies. Can’t anyone claim to have any amount of digital cash they like? And when a transaction is completed, how can it be confirmed?
The Blockchain provides guaranteed accountability because no block can be changed; it can only be updated.
Every time a transaction takes place, the new balance is provided along with confirmed balances of everyone else listed in the ledger. Nothing is erased or crossed out, and every transaction is time stamped, so a clear chronological history is maintained.
This means no existing block can be tampered with without causing a ripple effect throughout the whole chain, making it invalid.
2. All Transactions Are Traceable
As I’ve just mentioned, each ‘block’ in the Blockchain contains all of the vital information necessary to guarantee the validity of each cryptocurrency coin balance. There are only 4 details needed:
- a hash of the new block (also called the Genesis Block)
- a hash pointer linking the new block to the previous block in the chain
- a timestamp confirming when the transaction took place
- relevant transaction data confirming how many coins were sent by whom to whomever
Why is this important? Well, imagine you wanted to buy some antique Roman artifacts and found a dealer who offered you a 2,000-year-old silver vase he said was from Caesar’s table itself. How do you know you’re getting what he claims? You need Provenance – documentation that proves when and where the item was found and all changes in ownership. A block is like the Provenance of the transaction.
3. The Cryptography Involved
Every hash pointer is a unique, alphanumeric code dozens of characters long, which acts as a kind of fingerprint identification. True, it looks like a chaotic jumble of letters and numbers, but in fact, it is cryptography at its best.
Make any change to these details, and the block automatically becomes new. That results in a completely new hash being created to identify it, which means it no longer corresponds with the hash pointer of the next block.
The hash pointer is crucial to the security of the Blockchain system. Why? It provides a clear link to the previous block in the chain. So, the sequence can never be altered, and changes can never be made without disrupting the entire chain.
4. Blockchains Rely On Consensus
Finally, no Blockchain is an island. In fact, it operates within a network, often numbering in the thousands. Each one of these members has copies of the Blockchain that automatically updates whenever a transaction takes place. They have open and full access so absolutely nothing is secret.
Now, you might think having so many individual members with their own copies of a ledger would only make it easier to doctor figures and make amendments. In fact, the opposite is true.
Because the network allows individuals to continually communicate with each other, isolated changes stick out and discrepancies are easily discovered. As long as every new block is agreed upon by the members, the Blockchain is fine. This agreement is called, the Consensus.
The days of coin-biting may be over, but the need for certainty is alive and well. With the Blockchain, certainty in the virtual financial worlds over digital currencies can at least be enjoyed.