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Blockchain explained: It builds trust when you need it most

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This is part of "Blockchain Decoded," a series looking at the impact of blockchain, bitcoin and cryptocurrency on our lives.

These days, we're having a harder and harder time trusting each other.

Trust is an essential part of ordinary living, whether it's picking mechanics based on Yelp reviews, sliding credit cards into gas station fuel pumps or heeding our doctor's advice. But our trust has been eroding for years. In the US, only 33 percent of us felt we could trust our government in 2017 -- a decline of 14 percentage points from 2016, according to Edelman's annual trust barometer study. Trust in businesses dropped from 58 percent to 48 percent, too, while media (fake news!) and social networks also took a hit.

That's a problem. The less trust you have, the harder everything becomes. Did that job candidate really graduate from college? Did your brother-in-law really repay that loan?

But there's an unlikely solution that might help restore enough faith in strangers to make our lives a bit easier: an encryption technology called blockchain.

Blockchain is best known as the technology behind the cryptocurrency bitcoin -- a digital currency whose value soared above $19,000 over the last year before slumping to half that when the frenzy subsided. But blockchain is so much more, potentially easing the doubts and uncertainties that dog so much of life -- whether buying a used car from a stranger, having faith that a piece of fruit really is organic, or knowing that a prescription drug isn't counterfeit. Blockchain, in effect, hard-wires trust into transactions or data that we might otherwise be more cautious about.

"It's revolutionary," said Mark Siegel, an investor at Menlo Ventures.

Bitcoin's value has soared and plunged over the last year, and it's hard to separate the sensible from the scams among the 1,500 other cryptocurrencies. But blockchain has enjoyed more stable appeal.

Indeed, staid companies like IBM, Microsoft and Intel are offering blockchain as just another software tool to get business done. Other companies dabbling in blockchain include Goldman SachsNasdaqWalmart and Visa.

Because blockchains work as a secure digital ledger, a bumper crop of startups are hoping to bring it to votinglotteriesID cards and identity verificationgraphics renderingwelfare paymentsjob hunting and insurance payments.

A lot of that revolution could be invisible to you, taking place inside and among businesses. But it's potentially a very big deal. Analyst firm Gartner estimates that blockchain will provide $176 billion in value to businesses by 2025 and a whopping $3.1 trillion by 2030.

How does blockchain actually work?

OK, strap yourself in, because this gets a bit hairy.

A good place to start is the name: a blockchain is an ever-growing set of data blocks. Each block records a collection of transactions -- for example, that you now hold the title to the car you bought or that you paid a car dealer to get it.

That may sound simple, but here's a difference between blockchain and the Department of Motor Vehicles. Today, the government stores the information on its own central computer. Blockchains, though, distribute it across a group of computers -- maybe even thousands of them. Each has its own copy of the blockchain transactions.

That decentralization and synchronization means no single party controls the data. If one business sells an asset to another, each sees the same data. There's no need for lawyers at one company to call the other if their accounting databases disagree, because there's only one accounting database.

Cryptography -- mathematical methods of keeping data secret and proving identity -- now enters the picture when it comes to recording transactions. Blockchain uses the same cryptographic key technology that keeps hackers from sniffing your credit card number when you type it into an e-commerce website. One digital key ensures only you can enter a transaction to the blockchain involving your assets, and another digital key lets someone else confirm it really was you who added the transaction.

"You can take a network of parties that didn't have prior experience working with each other -- that didn't have reason for trust -- and still find a way to build a transaction record or a history of the truth," said Brian Behlendorf, executive director for the Linux Foundation's Hyperledger project for blockchain software.

Indelible ink

Another fundamental part of the blockchain is called immutability -- its resistance to tampering or other changes. To understand it, you need to understand another cryptographic concept called the hash.

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Tuesday, 19 November 2019

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This is part of "Blockchain Decoded," a series looking at the impact of blockchain, bitcoin and cryptocurrency on our lives.These days, we're having a harder and harder time trusting each other.Trust ...
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