The Bitcoin protocol is built on a blockchain. In a research paper introducing the digital currency, Bitcoin’s pseudonymous creato referred to it as “a new electronic cash system that’s fully peer-to-peer, with no trusted third party.”2

The key thing to understand here is that Bitcoin merely uses blockchain as a means to transparently record a ledger of payments, but blockchain can, in theory, be used to immutably record any number of data points. As discussed above, this could be in the form of transactions, votes in an election, product inventories, state identifications, deeds to homes, and much more. 

Currently, there are tens of thousands of projects looking to implement blockchains in a variety of ways to help society other than just recording transactions. For example, to use blockchains as a way to vote securely in democratic elections. The nature of blockchain’s immutability means that fraudulent voting would become far more difficult to occur. For example, a voting system could work such that each citizen of a country would be issued a single cryptocurrency or token. Each candidate would then be given a specific wallet address, and the voters would send their token or crypto to whichever candidate's address they wish to vote for. The transparent and traceable nature of blockchain would eliminate the need for human vote counting as well as the ability of bad actors to tamper with physical ballots.

Blockchain vs. Banks

Blockchains have been heralded as being a disruptive force to the finance sector, and especially with the functions of payments and banking. Banks and decentralized blockchains are, however, vastly different.

To see how a bank differs from blockchain, let’s compare the banking system to Bitcoin’s implementation of blockchain.

Let’s say a hacker, who also runs a node on a blockchain network, wants to alter a blockchain and steal cryptocurrency from everyone else. If they were to alter their own single copy, it would no longer align with everyone else's copy. When everyone else cross-references their copies against each other, they would see this one copy stand out and that hacker's version of the chain would be cast away as illegitimate. 

Succeeding with such a hack would require that the hacker simultaneously control and alter 51% or more of the copies of the blockchain so that their new copy becomes the majority copy and thus, the agreed-upon chain. Such an attack would also require an immense amount of money and resources as they would need to redo all of the blocks because they would now have different timestamps and hash codes. 

Due to the size of many cryptocurrency networks and how fast they are growing, the cost to pull off such a feat would probably be insurmountable. Not only would this be extremely expensive, but it would also likely be fruitless. Doing such a thing would not go unnoticed, as network members would see such drastic alterations to the blockchain. The network members would then off to a new version of the chain that has not been affected. This would cause the attacked version of the token to plummet in value, making the attack ultimately pointless as the bad actor has control of a worthless asset. The same would occur if the bad actor were to attack the new fork of Bitcoin. It is built this way so that taking part in the network is far more economically incentivized than attacking it.

What a blockchain does, is to allow the data held in that database to be spread out among several network nodes at various locations. This not only creates redundancy, but also maintains the fidelity of the data stored therein: if somebody tries to alter a record at one instance of the database, the other nodes would not be altered and so would prevent a bad actor from doing so. If one user tampers with Bitcoin’s record of transactions, all other nodes would cross-reference each other and easily pinpoint the node with the incorrect information. This system helps to establish an exact and transparent order of events. This way, no one node within the network can alter information held within it.