Blockchain made simple
If you’ve been keeping up with technology trends especially in the last decade, you must have heard of blockchain. Although this buzzword has been largely associated with bitcoin and other cryptocurrencies, blockchain technology is applicable in other fields.
What Exactly is Blockchain?
Blockchain refers to a series of perpetual, shared and cryptographically linked online lists or ledgers that record digital transactions. These ledgers form ‘blocks’ of data that are linked to form a ‘chain’. Perpetuity means data in a blockchain is long-lasting and cannot be tampered with.
Features of Blockchain
You might be wondering how different blockchain is from other technologies that perform digital transactions. The following 4 aspects make it unique:
One of blockchain’s biggest selling points is its democratic and transparent nature. Unlike other transactions whose details are contained in a central server, data in a blockchain is distributed across the entire peer-to-peer network.
No one person or entity owns the data in this network. Without central storage, it’s hard for the data to be compromised.
In a blockchain, each block has a cryptographic hash of the previous block. This enables data to be shared across the entire network without being duplicated.
Coupled with decentralization, cryptography makes blockchain transactions secure without the need for third-party cybersecurity providers. Because it also doesn’t depend on central servers, users are not charged high transaction costs.
This function provides an accurate record of the exact time each transaction is created and processed. Trusted timestamping improves a transaction’s security because it doesn’t allow for the timestamp to be changed, even by it’s an initiator.
- Transaction Data
All data in a blockchain is verified and organized in chronological order. This prevents duplication of transactions and other forms of tampering. It is especially important for cryptocurrencies because it eliminates the problem of double spending.
The above features make blockchain the most secure and affordable peer-to-peer technology around. It is solely responsible for the widespread acceptance of Bitcoin and altcoins like Ether and Litecoin. Its success has also led to huge growth, from an internet fad a decade ago to mainstream adoption today.
How Blockchain Works
A blockchain transaction has both public and private components. A good example of such a transaction would be if you decide to transfer Bitcoin to another person. Since data is shared in a peer-to-peer network involving millions of computers, certain aspects must be public.
When a transaction is initiated, it is added to a public record and becomes part of a data block. For more sensitive aspects, such as actual authorization of the transfer of cryptocurrencies, you’ll need private keys.
When you send Bitcoin, a distinct digital signature is generated with your private key. By scrutinizing this signature and it’s a public key, the transaction can be verified without its private key being revealed. Once the funds are received, you cannot reverse the transaction.
Types of Blockchain
Since the introduction of Bitcoin, the blockchain technology that powers it has elicited intense interest from various entities. This has led to its classification into 3 main categories:
- Public Blockchain
As the name suggests, it’s accessible to everyone in the network. It can be publicly reviewed and modified due to its decentralized nature. There are mechanisms, such as proof of work (PoW), to ensure any updates to this type of blockchain are for the network’s good.
- Private Blockchain
This type of blockchain belongs to an individual or private organization. As opposed to the more democratic public blockchain, it can only be reviewed and modified by an appointed entity.
- Consortium Blockchain
This type of network operates as a group of entities with similar interests. The parties involved come up with a system of verifying transactions or updates to the chain. A good method is a system that allows modifications only if a certain percentage of stakeholders vote for it.
Applications of Blockchain Technology
Other than cryptocurrencies, blockchain is being adopted by many other increasingly mainstream industries. Some of these include:
- The sharing economy whose companies depend on peer to peer networks. A good example that you probably use frequently is the taxi-hailing app Uber.
- Crowdfunding initiatives such as Gofundme.
- Governance and smart contract projects. Other than being transparent and publicly visible, these projects proceed to the next phase only after the set conditions for the previous phases have been fulfilled.
- Know your customer (KYC) protocols.
- The Internet of Things (IoT).
- Stock trading and prediction markets.
Research into other possible applications of blockchain is growing with each passing day.
On That Note
Blockchain is a wonderful technology whose full potential is yet to be unlocked. Its emphasis on decentralization and cryptography makes it a central pillar of any technological product you might be interested in.