BLOCKCHAIN TECHNOLOGY
Blockchain technology is the concept behind the running of the blockchain. Blockchain technology makes cryptocurrencies (digital currencies secured by cryptography) like Bitcoin work.
What is blockchain?
A blockchain is a decentralized and distributed database or ledger shared among a computer network’s nodes that records transactions. Internet web-based ledger system that is distributed among nodes of a peer-to-peer network in a way that ensures transparency, security, and immutability. Blockchains were popularized by the anonymous person (or group) Satoshi Nakamoto, when they released the Bitcoin Network in 2009.
Block is a collection of data that contains a set of transactions in a public ledger, the Blockchain. These transactions have been verified and recorded by the network of nodes through the consensus process and are linked together in a chronological order to form a chain and this chain cannot be deleted or altered, creating an immutable record of all transactions on the network.
How does a blockchain work?
Blockchain is a distributed ledger, that is similar to the balance sheet of a bank. Like a bank’s ledger, the blockchain tracks all the money flowing into, out of, and through the network but unlike a bank’s books, a crypto blockchain isn’t maintained by any individual or organization, including banks and governments. Which means, it isn’t centralized at all. Instead, it is secured by a large peer-to-peer network of computers running open-source software. The network is constantly checking and securing the accuracy of the blockchain. Where does new cryptocurrency come from? Every so often, around every ten minutes in the case of Bitcoin, a new chunk of transaction information (or a new block) is added to the chain of existing information. In exchange for contributing their computing power to maintaining the blockchain, the network rewards participants with a small amount of digital currency.
A crypto blockchain is distributed across the digital currency’s entire network. No company, country, or third party is in control of it; and anyone can participate. The network is constantly checking and securing the accuracy of the blockchain.
What are some advantages of blockchains? Imagine a world where you can send money directly to someone without a bank or intermediaries in seconds instead of days, and you don’t pay bank charges or fees, this is just one of the benefits blockchain technology provides.
Transparency and Immutability: Transactions recorded on a blockchain are transparent and tamper resistant between counterparties who do not need to know each other. Transactions are only executed when programmed conditions are met by both parties. Once a transaction is added to the blockchain, it’s extremely difficult to alter, providing a trustworthy record of events.
Global Accessibility: It means that cryptocurrencies can be sent across the planet quickly and cheaply.
Lower Cost: In the traditional finance system, you pay third parties like banks to process transactions. The blockchain eliminates these intermediaries and reduces fees.
Private Transactions: Cryptocurrency payments don’t require you to include your personal information, which protects you from being hacked or having your identity stolen.
Decentralization: Blockchain does not store any of its information in a central location. Instead, the blockchain is copied and spread across a network of computers. Whenever a new block is added to the blockchain, every computer on the network updates its blockchain to reflect the change. By spreading that information across a network, rather than storing it in one central database, blockchain becomes more difficult to tamper with.
What are some disadvantages of blockchains? While blockchain technology offers numerous advantages, it also comes with several disadvantages and challenges:
Scalability: Blockchain networks can face challenges in handling a large number of transactions simultaneously. As the number of transactions increases, the network’s performance can degrade, leading to a slower transaction processing time.
Technology Cost: Although blockchain can save users money on transaction fees, the technology is far from free. For example, the Bitcoin network’s proof-of-work system to validate transactions consumes vast amounts of computational power.
Lost Private Keys: Blockchain users must manage their private keys carefully. Losing access to private keys can result in the loss of access to funds or data. Cryptocurrencies are stored in your cryptocurrency wallet (your wallet is like your bank account, except only you can access it and have the passwords) where only you control your money.
You are your own bank: this is great! But if you lose your seed phrases (the list of words that give you access to recover your wallets) there is no recourse (compared to banks where you can reset your password). Your money is lost forever.
Blockchain is a software protocol that tells the internet how to transfer money or assets. There is a blockchain layer and Bitcoin is an application, just one of many cryptocurrency kinds of applications. It deals with money. One reason we need something like blockchain is because it’s a decentralized financial Network.
