Since you ask: Here we explain baffling stock market terminology – and how you might stand to profit… this week – Blockchain
What is blockchain?
A blockchain is an online ledger that stores information which is ‘distributed’ or shared across a network of computers.
There should be many applications for this technology which provides a decentralised and secure record of transactions. Indeed, in theory, its potential should be limitless, and billions of venture capital cash has been invested in this bright future.
Digital links: A blockchain is an online ledger that stores information which is ‘distributed’ or shared across a network of computers
But, at present, blockchain is best known for its key role in the systems for the buying, selling and storage of cryptocurrencies such as bitcoin.
Blockchain is also used in the systems for NFTs. These are non-fungible tokens, or digital works of art.
The most famous of these is The Merge, by an anonymous artist called the Pak, which sold for $91.8million a year ago.
To what other uses could blockchain be put?
Much has been made of its power to disrupt traditional payment systems for shares and other financial assets.
The world’s big banks aspire to substitute blockchain for their current high-cost and cumbersome international payment systems, for example.
One of blockchain’s key attractions is its status as a ‘trustless’ network, so-called not because the participants do not trust each other, but because they do not have to do so, the blocks being ‘immutable’ or tamper-proof.
To date – presumably for the lack of other opportunities – people seeking to exploit blockchain’s potential have backed cryptocurrencies.
Some have made fortunes: bitcoin’s price reached $68,000 in November 2021. But it is now $16,582, largely as a result of the recent collapse of the FTX crypto exchange.
How does blockchain actually work?
Usually the data in a database is structured into tables. But in a blockchain, the data is structured into blocks that are strung together in a chain.
When a block detailing a transaction is added to this chain it is given an exact timestamp.
As a result, the information is permanently recorded – and should be viewable by anyone since the ledger is decentralised.
Did a single person invent blockchain?
Not exactly. Two American scientists – Stuart Haber and W Scott Stornetta – came up with the idea in 1991. Later they entered into a collaboration with Satoshi Nakamoto.
This is the pseudonym of the person (or persons) who are said to have developed bitcoin and put together the first blockchain database. To date, attempts to discover the true identity of the individual, or team, concerned have proved unsuccessful. Haber and Stornetta are definitely real people though.
Why are we hearing so much about blockchain just now?
The collapse of FTX, once a $32billion business, has severely dented confidence in bitcoin and other cryptocurrencies.
It has also shaken faith in blockchain, although the FTX’s failure seems largely to have been caused by large scale fraud.
So the outlook for blockchain is gloomy?
Actually no. Governments around the world are contemplating launching their own crypto currencies, with Venezuela having already done so.
The Bank of England is looking into whether it should launch a central bank digital currency based on blockchain technology.
This could be part of the post-Brexit reforms for the City, unveiled late last year by the chancellor. This currency would be used to pay for things online or to transfer money to other people.