If you want to know what cyberspace is – it’s where your money lives. Never has this been more true than today, when digital online transactions form an increasing part of all economic activity.
But from the beginnings of digital financial systems such as online banking, there has been an issue of security; if numbers in cyberspace can be manipulated, money can be diverted. As digital financial transactions increase, so does the need for absolute security in transactions.
At the same time, the way we interact with cyberspace is changing, with more devices becoming connected into an ‘Internet of Things’ (IoT), where everything from household utilities to traffic systems can be tied into one enormous grid.
So how can the demands of online security and the IoT be reconciled? The solution may come through the digital technology known as blockchain.
The integration of blockchain and IoT has been regarded as being revolutionary, but how will this impact society?
What is Blockchain?
In short, Blockchain is a digital ledger, storing financial transaction data in a secure way. Because that data is distributed, it is not vulnerable to an attack on a central point; and because it is encrypted, it is only available to whoever holds a digital key. Blockchain technology is the foundation of cryptocurrency systems, for example Bitcoin, maintaining security within transactions. Blockchain guarantees accuracy and security for data records, while effectively generating trust without the requirement of third-party monitoring.
Essentially Blockchain is as the name implies a chain of blocks that electronically stores data. Once data is recorded in a block, it is hard to damage or alter; thus, making Blockchain an extremely secure network. In addition to this, it is a large database that continually adds new blocks with every transaction. This data is not owned by an association or group, which means it can be accessed for free by various individuals at one time, but only if they have the correct access codes.
A block has 3 components:
- Data: sender, receiver, and amount traded
- Hash: each block has a unique code, i.e., like a fingerprint
- Hash of former block: each block is connected to one another; this makes it a chain
Due to the anatomy of a block, if there are minor changes to a block, it can adversely impact the whole blockchain.
When transactions first take place, for example in a cryptocurrency such as Litcoin or Bitcoin, it needs to be verified before being added to a blockchain.
This is verified and authenticated by a decentralised network of computers. As opposed to traditional databases, this ensures that decision-making is conducted fairly and is equally distributed among a network, as a way to reduce bias.
A decentralised network is linked together through ‘nodes’ that confirm whether a new block is legitimate before being added to the digital ledger; this process ensures further security for blockchain as it makes it impossible to tamper and hack into blockchain. Neil Gray, a partner in Fintech practices at Duane Morris LLP states ‘Blocks are securely linked together, forming a secure digital chain from the beginning of the ledger to the present’.
A private blockchain is a partially decentralised system and differs from a public blockchain. In a public blockchain network, anyone with the correct codes has access, whereas a private blockchain is controlled by a single organisation and is not open to the public.
Often known as managed blockchains, private blockchains control and authorize who has access to the network as well as participation in consensus. Alongside this, these platforms are regulated differently from other platforms, for instance, nodes must follow certain rules to guarantee a company’s flow.
What is IoT?
Simply put, the Internet of Things (IoT) encompasses everything that is connected to the internet. It is made up of various devices, for instance, smartphones and sensors that are linked to one another. Fundamentally, it is a network of physical objects, which are implanted with software, sensors, and other technologies, to exchange and connect data to other systems and devices that are on the internet. These devices span from industrial tools to normal household products, for instance, lightbulbs that are switched on utilising an app on your phone. Currently, there it’s estimated that there are 7 billion individuals using IoT devices, with experts predicting that by 2025 this will grow to 22 billion.