A lot of people know blockchain as the technology Bitcoin uses (and oh, they’re not wrong). However, the potential uses of blockchain technology far extend just digital currencies.
Blockchain is on the verge of changing IT in almost the same manner that open-source software impressively did some fifty years ago. Also, in a similar fashion that Linux took several years to emerge as a cornerstone in the development of modern applications, Bitcoin will also need several years to emerge as a less costly and more efficient method of sharing information between private and open networks.
Due to the fact that blockchain is modeled on a peer-to-peer and distributed topology with data been stored on a host of servers worldwide (users on the network will be able to view the entries of others in real time), it is almost impossible for a single entity to assume control of the network.
The invention of blockchain technology – a creation of an individual or group of individuals known as Satoshi Nakamoto – is undoubtedly an ingenious one. Since then, though, it has developed into something of greater value and importance, with one question largely in the minds and mouths of people: What is Blockchain?
Simply put, a blockchain can be defined as a transaction ledger that is append-only. What this entails is that new information can be written in the ledger, but any previous information that has been stored in blocks can’t be adjusted, changed or edited. This is made possible by making use of cryptography to join the contents of the new block with every one of the blocks before it. This ensures that any tweak in the previous block of the chain will make all the data in all subsequent blocks invalid.
Blockchains are driven by consensus. A host of computers establish a connection with the network and in the hope of decreasing the abilities of attackers wanting to maliciously include transactions in the network, users contributing to the blockchain have to vie to provide a solution to a mathematical proof. The results are then shared with the rest computers available on the network. The nodes or computers that are connected to the network have to come to an agreement on the solution which results in the term “consensus.”
This also ensures that the appending of data to the virtual ledger is decentralized. This means that no individual or group of individuals will be able to control the information available on the blockchain. What this means is that a single entity shouldn’t be trusted since there’s a reliance on an agreement by several entities instead. A good thing about this construct is that all the transactions that are recorded can be verified and published publicly so that anybody can be able to view the blockchain’s contents and authenticate the events that have been recorded in the chain.
How does blockchain work?
Blockchain technology is decentralized (meaning a central authority doesn’t have control of it). While orthodox currencies are issued and controlled by central banks, there is no central authority responsible for the control of either bitcoin or blockchain. However, the blockchain is controlled and maintained by a group of people referred to as miners.
These miners – also referred to as “nodes” on the said network – are individuals that run computers that are purpose-built, vying to solve complicated mathematical problems for the purpose of completing a transaction process. For instance, let’s say a handful of people are conducting bitcoin transactions. Each of these transactions come from a wallet that possesses a private key. This digital signature presents mathematical proof of the authenticity of a transaction and that it has emanated from the wallet’s owner.
Okay, just imagine thousands of transactions taking place throughout the entire globe. These transactions are then bundled into a block that is organized by stringent cryptographic rules. This block is then transferred to the network which comprises of people that run high-powered computers. These computers will then compete with the goal of validating the transactions. This will be done by solving mathematical puzzles of very complex nature. Anyone able to do this will then receive an award in the mold of bitcoin. The block that has been validated will subsequently be added to the previous blocks which will then create a chain of blocks referred to as a blockchain.
Decentralization and its importance
As you should know by now, blockchain technology possesses the ability to confirm transactions without the need for a third party and also no singular authority can assume control of the network. This is the reason for its decentralization. But why exactly is this so important?
First of all, decentralization is assuredly secure. To put things in context, a decentralized blockchain’s security features are very safe to the extent that it is near impossible for hackers to penetrate. For centralized networks, let’s use Yahoo as an example. They are comfortably one of the biggest companies across the globe and they offer a handful of services including email, video content, and news. All of the company’s data is stored on a centralized server. This is actually fine, but problems could occur if or when the centralized server has issues. Something like this happened two years ago when hackers found a way to assume control of their servers which meant they could access over 3 billion email accounts.
Decentralization is also important for equality. Every user engaging with the blockchain possesses the ability to add something to the system. Also, with every single transaction available to see on the network’s public ledger, it ensures that transparency is provided. There will be no fraud, corruption or inequality.
How blockchain can be used in reality
In the real world, the blockchain technology can be used in almost any sector or industry. By doing away with centralized servers and embracing the decentralized blockchain, companies, individuals and governments can benefit from the numerous benefits offered by blockchain which include speed, transparency, and security. There are a lot of industries that could benefit from blockchain, but I’ll mention just a few.
- Cross-Border Payments
- Supply Chain
Well, that’s the end of this article. I hope it was helpful? Yes, the concept might sound a lot complex in the beginning, but I’m confident that this article would’ve gone a long way in explaining things to you. By now, you should know exactly what blockchain is, just how it works and some of the numerous benefits it has.
This article was created for the sole purpose of informing the user. In no way is there any partnership or collaboration with the organisation, product or service mentioned in this article.
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