Blockchain, like the internet back in 1990s, will change the rules of many industries. So far, the government, finance, logistics, entertainment, and other industries have actively invested in the research of blockchain technology.
Blockchain is a technology in which a public record of transactions, known as a ledger, is recorded and duplicated across a distributed, encrypted, computer network. Each computer on the network is known as a “node”.
How is Bitcoin and Blockchain Related?
Blockchain is the underlying technology and infrastructure of Bitcoin, and Bitcoin is the most famous blockchain-based technology because it was the first.
Today, there are thousands of different blockchain-based currencies known as “cryptocurrencies”.
If you’re wondering how a technology became a currency, these cryptocurrencies are the incentive people earn as a reward for participating in a blockchain.
Think of it like Uber or AirBnB: people pay you money to stay in your house and to use your car and driving services. With blockchain, you’re paid for the use of your computer to keep the blockchain going, but instead of dollars or Euros, you are paid in Bitcoins.
How a Blockchain Works
Blockchain is a decentralized distributed database, which is also a ledger composed of a series of cryptographically related data.
The three basic features of blockchain are:
1. Distributed database (system).
2. Cryptographic hash functions to ensure that data cannot be tampered with.
3. Consensus algorithm to ensure the validity of new data and to prevent malicious attacks.
In an active blockchain, there are thousands, and even millions in the case of Bitcoin, of machines around the world owned by different people participating in the blockchain. Each node serves as a redundant copy of the public ledger. Therefore, any changes or new transactions to the ledger requires consensus among the majority of participants (more than 50%).
This make it very difficult and expensive for bad actors to maliciously alter the blockchain of a popular cryptocurrency such as Bitcoin.
Thus, economists call it a “machine of trust” because its core philosophy is “decentralization”. As illustrated earlier, data on the blockchain is also transparent and cannot be tampered with.
Blockchain Use Cases
Keeping a record of financial transactions isn’t the only use of blockchain technology. Other use cases include:
· Securing confidential data (like passports)
· Fighting fraud
· Preventing plagiarism
· Storing medical records securely
· And many more
For example, the Ethereum blockchain serves as a “supercomputer” that anyone can rent to perform complex computations. Use of this decentralized computing platform is paid for using the “Ethereum” cryptocurrency.
