Blockchain technology in 5 minutes
Blockchain technology is a brilliant invention created to power huge and voluminous transactions in our digitally evolving world.
Blockchain is a digital ledger or database used to record virtually all forms of value exchange. Simply put, it can be called a transactional diary that allows people to store information visible to all and transact between one another. Data stored on this ledger can be a token of value or cryptocurrency (digital money).
Blockchain is a value exchange protocol.
Although, it was first seen as what powers and manage digital currencies like Bitcoin and Ethereum amongst many others. However, its application has gone beyond digital currencies and it can be applied in many ways especially in systems that require large data storage and usage e.g. Health System, Real Estates, etc. To a large extent, this technology has brought us closer to the future that we once imagined, and it is a constantly evolving system.
Blockchain is a solution to the issue of trust in our daily transactions.
This technology is designed to be a decentralized system which means that when we carry out transactions, we do not need to rely on a central point of control or authority to maintain or secure it.
Imagine having to worry less about the validity and reliability of the Middleman in business transactions. The trust we need to carry out transactions is shared and redistributed by all parties instead of a single authority e.g. a Bank. Here, everyone is aware of all transactions. This attribute makes Blockchain a trustless network of data storage that operates on a peer-to-peer basis (P2P) i.e. among users.
The decentralization of information minimizes the ability for data corruption and creates a system that is fairer and transparent.
Decentralized systems powered by Blockchain are the next logical step in the evolution of the internet. Centralized systems are vulnerable and easily overtaken by a malicious third party or sometimes, unfair decisions by the authority in charge. Blockchain prevails independently of Government bodies or private institutions.
How does it work?
Blockchain, as the name implies, is a group of blocks that contain information and are linked together to form a chain. Each block is unique and it stores information in such a way that it is difficult to change it.
Each block contains 3 major things: Data, Hash - which is the signature or unique fingerprint and the Hash of the previous block. Because the hash of a Block is unique, any change to it will change the Blockchain. This is what makes data storage secure.
All blocks apart from the first block, stores the hash of its previous block. Therefore, a change to the hash of one block will be noticed by the next block.
E.g. If the hash of block B is tampered with, block C will no longer be storing the valid fingerprint of B, therefore, data stored in block B cannot be validated by C. This will cause a ripple effect on the rest of the blocks on the chain.
Transactions on the Blockchain make use of an agreement across a network of nodes (computers) to validate and record data in a manner that is incorruptible. When a new block is created, it is sent to everyone for validation. Each node verifies that the Block has not been compromised, and then adds the new block to their Blockchain. Blocks that are tampered with will be rejected by everyone in the network. Hence, any attempt by an individual to nullify or invalidate a block (data) will be impossible because there are multiple copies of data, accessible to all and it will require a complex agreement before the stored information on the chain can be edited.
There are millions of transactions on a Blockchain and these transactions are verified before a successful transition can be done. A transaction is made valid through a process called Mining.
Mining is the process that powers the decentralized Blockchain. Miners are simply independent and interconnected nodes that use computing power to verify transactions and add them to the public ledger - (Blockchain).
When a group of nodes (i.e. computers) use their complete resources to create a block of valid transactions, the miners are rewarded with newly created digital currencies in addition to transaction fees distributed evenly among the whole network.
Therefore, we can say that Blockchain proffers an honest and accurate way of data storage that is considerably more secure than a centralized transactional system.
The advantages of Blockchain technology are numerous, here are but a few;
- It is cheaper, compared to the cost of transactions in a trusted system.
- It is made public to ensure transparency and accountability, yet, built to ensure privacy of users due to a complex cryptography.
- Data stored are immutable. I.e. it cannot be erased, lost or corrupted as it not stored in a central location. It is spread across multiple devices in a peer to peer (P2P) network.
- It is a value transfer system that no malicious third party or central authority can tamper with.
- A gigantic volume of transactions is executed swiftly and efficiently on a Blockchain thereby increasing productivity.
Blockchain is constantly evolving and one of its most recent creations is Smart Contracts. These contracts are programs that allow predefined transactions to go on smoothly automatically thereby increasing efficiency.
Blockchain technology can be applied to various uses e.g. Election poll, Disaster emergency recovery fundraise, Health care system regulation, Fashion Industry, Real Estates, Art etc. It offers a solid platform for a wide range of opportunities.