Understanding Blockchain Technology in Simple Terms
The term blockchain has become a household name in the money market. However, only a few people know what the term means.
This article will demystify in simple terms what’s blockchain and also unravel the relationship, if any, between bitcoin and blockchain. In addition, the article will delve into other terminologies that are related to blockchain technology and their application. Finally you will also learn how other business sectors are geared to applying this technology in their daily operations.
Blockchain
Blockchain is a decentralized, digital ledger where all cryptocurrency transactions are recorded in a chronological manner. Blockchain is made up of a growing list of records known as blocks which are connected back-to-back and protected by cryptography.
Each record (block) has a cryptographic hash function of the previous record, transaction data, and a timestamp. Blockchain is designed in a way that the data in a block cannot be copied or deleted, but it can only be distributed.
To cast more light on blockchain technology it is important for one to understand what a block is and its role in the blockchain.
Block
A block is a file where cryptocurrency transactions are recorded permanently. A block records the most recent transaction that has not been entered in the previous block. Therefore, a block is like a page of a record book or a ledger. The moment a block is ‘complete’, a new block is created in the blockchain. Information in a block is stored permanently and cannot be changed or deleted.
There is countless number of blocks in a blockchain system connected to each other linearly and chronologically like a chain-link.
Blockchain users are able to retrieve information regarding their balances and addresses right from their first transaction to the recent one.
It is worth noting that every blockchain has different block time. This is the average time taken to generate a new block after a completion of the previous one. In practice, this is the time when cryptocurrency transaction happens. Therefore, a shorter block time implies a faster transaction.
Blockchain technology uses distributed ledger technology (DLT) and ad-hoc message passing networking to eliminate risks that come with centralized data. Also, the technology uses watertight security measures such as public key that allows only the designated user access to their assets. The public key cryptography makes it difficult, if not impossible, for computer crackers to access investors’ information in the system.
Each node (communication endpoint) in the blockchain has a copy of the entire system. The quality of the data within the system is maintained by huge database computational trust and replication. There is no original copy exists and no user is more trusted over the others. All the transactions are done using a software and messages delivered on a best-effort terms.
Blockchain use different time-stamping method like proof-of-work, to effect changes and proof-of-stake as an alternative agreement method. However, the growth of a blockchain is bedeviled by the risk of a communication endpoint being centralized since the computer resources needed to process huge amount of data prove to be rather expensive.
Relationship between Blockchain and Bitcoin
Up to this point, I believe you may be asking yourself if there is any correlation between blockchain technology and bitcoin. Wonder no more because after reading this section your questions would be answered.
To start with, bitcoin is a digital currency or cryptocurrency that is transacted through a distributed ledger technology (DLT) also known as blockchain. In other words, bitcoin is built on blockchain technology, thus the two are mutually interconnected. Also, it is believed that blockchain and bitcoin were invented by Satoshi Nakamoto in 2008.
The Future of Blockchain
As we have seen, blockchain technology is more secure than the conventional centralized system. Also, due to its digital nature, it cuts cost of keeping and maintaining records in an institution. For these reasons, blockchain is gaining traction not only in stock exchanges and financial corporations, but in the Internet of Things (IOT) and insurance sector. Legal practitioners have also suggested that the distributed ledger technology could come in handy during voting and registration of vehicles by governments.
Unlike in previous years when banks were skeptic about blockchain technology, pegging their fears on potential fraud, today, they are seeking how they could integrate blockchain in their operations so as to cut on cost of doing business. Therefore, it is increasingly evident that blockchain technology is the future of how people would be transacting their business.
The Bottom Line
Most people, if not, have heard about the term blockchain. But there are only a few who know what it means. Blockchain is simply a digitized, decentralized ledger that keeps record chronologically.
Due to its decentralized nature, the records in it cannot be changed, deleted or copied because when a transaction is made, copies of the same transactions are distributed across the entire system.
In addition, blockchain uses a file called block where all transactions are recorded permanently. Blocks make it difficult for hackers and system crackers to tamper with the information in the blockchain. Whenever a block is complete, the blockchain automatically generates a new block for the next transaction.
Finally, blockchain is gaining traction globally due to its watertight security features. Many business enterprises are opting for this new technology because of the many benefits that comes with it. Therefore, it is right to state that blockchain is going to revolutionize the world of business in the near future.