Ever since blockchain is known to the public, it’s undeniably one of the ingenious developments worldwide. With blockchain’s development, all credits go to the person or group of people behind the pseudonym “Satoshi Nakamoto”. In recent years, blockchain has grown into something massive. Hence, its popularity yields every person’s curiosity, asking the common question: What is Blockchain?
If you’re a newbie and interested to know the basics of blockchain, you’ve stumbled on the right platform. In this guide, we’ll describe in the simplest way possible to help beginners, like you, understand blockchain, what it is for, and how to apply blockchain in the mainstream.
What Is Blockchain?
Like other networks in the world of technology, cryptocurrencies like Bitcoin still depend on infrastructures or databases to track and process massive transactions and make them confidential. Hence, the primary solution of the majority of digital currencies worldwide is blockchain technology.
Blockchain’s technology was initially implemented in 2009; however, it was revolutionized in 2015 as “Blockchain 2.0”. By definition, blockchain technology comprises blocks that hold records of timestamped transactions. As such, each block is associated with previous blocks through a cryptography scheme; hence, creating a “chain”.
In a more digitally-connected era, cryptocurrencies are becoming more popular and attractive to emerging markets that don’t have any traditional financial/banking infrastructure. For example, many developing countries have developed blockchain-based national currencies, and they’re adopted by numerous charity initiatives to assist people without bank accounts.
In addition, blockchain technology offers the potential of developing a fraud-proof scheme for online transactions and other transaction exchanges. That said, blockchain has the possibility for non-digital currency applications. Aside from that, the technology is attracting interest among standard financial institutions and other businesses or companies.
Simplified Explanation of Blockchain
Speaking of cost, blockchain technology has infrastructure costs but transaction costs don’t exist at all. Hence, this technology is a simple yet ingenious method of exchanging information from point A to point B in a 100% automated and secure process. One party to a specific transaction creates the process by making a block. The new block is then verified by a massive group of computers distributed around the internet. The authenticated block is eventually added into the public ledger which is stored across the web. The block doesn’t only create a new record but also a new record with a unique history. Tampering a single record would mean tampering with the whole chain in millions of transactions. Hence, it’s never possible. Although Bitcoin is made by blockchain technology for monetary transactions, it can be applied in a diverse range of components.
For example, let’s take the train company for describing how blockchain works in real-world applications. In a railway company such as Trainline, users purchase train or bus tickets on a mobile app or the company’s website. When making payments, the credit card company charges a fee for processing the transaction. With blockchains, the railway company can eliminate credit card processing fees. Aside from that, the whole ticketing process is switched to the blockchain. As a result, there are only two parties involved i.e. the passenger and the railway company. The train or bus ticket is a block that will be added to a blockchain of tickets. Since monetary transactions on a public ledger are unique, your ticket purchase is also unique and unfalsifiable.
Lastly, the final blockchain i.e. ticket contains a record of all transactions. For example, they can either be every journey completed, every ticket sold, a specific train route, or even the whole train or bus network.
The major advantage of using blockchain is eliminating third-party clients; thus, making it more affordable and secure to transact. That said, the new technology doesn’t only store and transfer money but also replaces all business models and processes that depend on having a processing fee for every transaction.
Like Trainline, other real-time applications that can benefit from technology include Uber, Fiverr, Airbnb, financial/banking institutions, selling recorded albums, and even eBooks.
How Does Blockchain Technology Work?
As mentioned, a blockchain system comprises two types of records, namely blocks and transactions. Transactions are considered the users’ actions made at a specific time. The new transactions that were made are stored together as a block.
What makes blockchain more exceptional is that every block has a cryptographic hash of the previous one; hence, creating a chain. The cryptographic hash’s work is to accumulate the data from the previous block and convert it into a compact data string. Since the strings are very challenging to find, any modification within the chain is easily identified.
The method indicates that blocks don’t require serial numbers since the cryptographic hash itself makes them uniquely recognized as well as authenticating their integrity. Every block authenticates the validity of the previous block at the beginning of the chain.
With blockchain, the linking of blocks isn’t the only aspect that maintains the security of the chain. As such, the whole system is decentralized. Each computer with the software configured has the blockchain’s copy that is consistently updated. A centralized server hosting the transactions doesn’t exist. Since every new block should meet the standards of the chain, no one can’t overwrite or tamper with previous transactions.
How Secure Is Blockchain?
Due to blockchain’s complex cryptographic protection scheme, this technology provides a more advanced and optimized secure experience compared to traditional banking. As mentioned, blockchain technology is decentralized and cannot be modified which makes it appropriate for banking institutions and financial transactions as well as storing confidential information.
In addition, blockchain provides the confidentiality of users making online payments. As such, a Bitcoin network powered by blockchain technology doesn’t reveal the user’s identity when sending or receiving payments online.
What Processes Are Suitable In Blockchain?
The blockchain system offers internet users the capacity to make value and verified digital information. Hence, you’re probably wondering what type of new businesses will emerge from using blockchain technology. As an overview, here are some of the areas that will benefit when implementing blockchain technology in their systems:
- Anti-Money Laundering
- Data Management
- File Storage
- Identity Management
- Intellectual Property Rights
- Internet of Things
- Land Title Registration
- Prediction Markets
- Ride-Hailing Apps
- Smart Contracts
- Stock Exchange
- Supply Chain Management
- Thriving Economy