What is a Blockchain?

Explore blockchain technology — what it is, how it works, and what are its most important advantages!

What is a Blockchain? | Source: Forbes

A blockchain is a network of multiple computers that work together to validate and store transactions on a public ledger.

A ledger is a public database that holds all the transactions ever made through a blockchain, as well as the balances and other important financial information.

The Bitcoin blockchain, for example, holds the record of every transaction made through its network. So, if John Doe sent 10 BTC to Jeremy Doe in 2011 on a random Tuesday, the Bitcoin blockchain remembers that.

Key Advantages of Blockchain Technology

Now, why would a business, or any other entity, start using blockchain technology over existing databases?

Here are the advantages that Satoshi Nakamoto’s creation brings to the table:

Security: Blockchains are decentralized, which means the data is stored in hundreds of locations all around the world — reducing the risk of single-point failure to a minimum. On top of that, the data is encrypted, leaving no room for fraud or unauthorized access.

Global Reach: Yes, the current traditional finance channels are also global (meaning that you can send money from Argentina to Germany, for example), but these channels come at a huge cost and take a lot of time. With blockchains, the same amount of money can be sent in seconds at a fraction of the cost.

Immutability: The information recorded on a blockchain can never be altered. Once a transaction is recorded on Bitcoin, for example, it cannot be deleted, ensuring the integrity of the data.

How Does a Blockchain Work?

How Blockchain Works | Source: The Motley Fool

Understanding the construction of a blockchain is easy, especially when you pay attention to its name. A “blockchain” is literally a chain of blocks that contain transaction data.

At the top of the chain or at the closest data block, a user will see the most recent transactions that happened today or yesterday. Moving down the chain will show older and older transactions recorded on the same blocks. Eventually, the user will get to the first block created, which is often referred to as the “genesis block.”

Another way to describe a blockchain is to name it a ledger (“public ledger” or “immutable ledger” are also terms you’ll often hear.) Blockchains are named public ledgers because they work similarly to how a bank’s balance sheet would work. The blockchain tracks all the money flowing into, out of, and through the network.

However, the biggest difference between a blockchain and a bank’s books is that a crypto blockchain isn’t maintained by any individual or organization — meaning it operates in a decentralized way. Instead, the blockchain is secured by a large P2P network of computers running open-source software. These computers are constantly checking and securing the accuracy of the blockchain.

Blockchain Use Cases

The very first blockchain, Bitcoin, was developed with finance in mind — to help people transfer money without and intermediary.

With time, blockchains have evolved to become the underlying technology for hundreds of companies in tens of different activity fields.

Here are just some of the most important blockchain use cases that already exist and are used by real companies:

Supply Chain Management

VeChain, one of the biggest crypto projects on the market, is a blockchain created to facilitate supply chain management.

It enables end-to-end visibility, tracking and verification of products and their associated data. For instance, Walmart China utilizes VeChain to track the origin and authenticity of its products, enhancing consumer trust.

IBM has also created a blockchain named Hyperledger Fabric to help track food from farm to table. IBM’s decision is used by Nestlé, Coca-Cola, and many more S&P 500 companies to ensure safety and authenticity.

Cross Border Payments

Ripple’s XRP Ledger has been integrated by financial institutions to provide fast and cheap international payments.

Santander’s One Pay FX service uses XRP Ledger to offer same-day international transfers, improving the traditional banking system that can take several days to transfer money and incur significantly higher fees.

However, blockchains can also completely eliminate banks from the equation. Every blockchain, starting with Bitcoin, can facilitate financial transactions.

Some (e.g., Bitcoin and Ethereum) have high fees and take longer to process, but blockchains like Polygon, Tron, Solana, or BSC have extremely cheap fees and work instantly.

Digital Identity

The Sovrin Network enables users to own and control their digital identities without relying on a central authority.

For example, the City of San Francisco uses Sovrin to provide homeless individuals with digital identities.

This helps them access social services without needing traditional identification documents.

Real World Assets

Real World Assets, or RWAs, are tangible assets (e.g., gold, real estate, commodities, fiat currency) that exist outside the digital spectrum and can be tokenized and brought on the blockchain.

Mantra, for example, is one of the first Layer 1 blockchain focused on tokenizing RWAs. As of July 2024, Mantra has signed a deal with the Dubai-based real estate developer MAG Group to tokenize $500 million worth of real estate.

However, the biggest category of real-world assets tokenized on blockchains is stablecoins. Yes, stablecoins are, essentially, fiat currencies tokenized on blockchains like Ethereum and Tron. The total market capitalization of stablecoins goes over $150B as of June 2024.

Healthcare

Managing patient records has always been a problem, especially given the sensitive nature of the information stored there.

MedRec leverages the Ethereum blockchain to create a decentralized, immutable medical record management system.

It allows patients to securely share their medical history with various healthcare providers, ensuring data accuracy and privacy.

This system addresses issues of data silos and interoperability between different healthcare providers.

Closing Thoughts

Blockchain technology is revolutionizing a diverse array of industries by providing a secure, transparent, and decentralized way to record transactions and manage data.

As blockchain adoption continues to grow, its impact on different industries is likely to extend even further, unlocking new opportunities for innovation and collaboration across the global economy.