What is Blockchain Technology?

Forks are generally resolved quickly, because one chain will become longer as additional blocks are added. The blockchain then continues along the longest fork. Any data contained within the ‘orphaned block’ (on the rejected fork) will be added back to the pending queue to be reprocessed. For this reason, a block should not usually be considered to be a definitive part of the blockchain until several blocks have been mined on top of it. Bitcoin transactions, for example, are not usually considered final until at least six blocks have been mined.

Updating the blockchain: hard forks vs soft forks

Just as updating the blockchain file is not simple, any proposed update to the underlying protocol (the software’s code) must be carefully managed. There are two ways to update the software:

  1. Soft fork: this is a backwards compatible software update, meaning that users are not required to run the update to maintain access to the network. A soft fork is considered complete once a majority of users have updated their software.
  2. Hard fork: this is a more radical change, where users are required to update their software to maintain access to the network. It can happen when a network cannot reach consensus on an update, causing a minority group to break away to implement it on a separate blockchain. Both blockchain files will be identical until the point of the split, but be completely separate thereafter.

What can blockchain technology be used for?

For cryptocurrencies like bitcoin, the blockchain is used to store transaction data. But a blockchain can be used to store any type of digital data (for example, documents, photos or computer code) or to manage permissions. This makes the technology very versatile and means the potential applications are practically limitless.

Blockchain technology could be used to create new secure systems – for example, systems to record votes in an election, act as an unalterable archive, ensure citizens pay their taxes, or keep track of intellectual property rights. Some networks, such as the Ethereum network, also allow users to build decentralised software applications on the blockchain, and add ‘smart contracts’. These contracts are written as lines of code and automatically enforce their clauses.

For these reasons, some analysts have suggested that blockchain technology could be the most disruptive invention since the internet, with nearly six in ten large companies considering implementing some form of blockchain technology, according to a survey by Juniper Research.

Given its potentially disruptive nature, investors have already begun the search for blockchain investments, with the markets often moving quickly in response to blockchain announcements.

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