Blockchain — The basics you need to know
Have you ever wondered if there was an easier way to complete transactions without dealing with online wallets, banks, or third-party applications? There is, and it’s called blockchain.
What is blockchain?
Most of us are familiar with the concept of cryptocurrency or at least have heard of Bitcoin. The technology on which they run is known as a blockchain. Blockchain technology has made cryptocurrency much safer, decentralized, and protected by robust encryption algorithms.
The fact that blockchain was designed to be decentralized and distributed on a network of numerous computers was to make it immune to any form of data tampering, manipulation, or counterfeiting.
However, even though it was designed to power cryptocurrencies, blockchain is capable of much more than its original purpose. From financial transactions to medical records and pretty much any other form of data imaginable, blockchain can record information in a very unique way.
What makes blockchain so unique?
Many people wonder what exactly makes blockchain different from other commonly used data recording and tracking technologies. What’s unique is the way blockchain stores information in batches called “blocks” and links them together in chronological order to form a “chain” — hence the term “blockchain.”
Another reason is the digital signature used to identify the parties involved in a transaction. Instead of using your name or real identity, a digital signature is another verification method that uses exclusive technology to identify a node or user.
In today’s world, we do not directly show our business or financial records to other parties whenever we engage in transactions. Instead, we rely on intermediaries to do the work for us. The intermediary helps us do business by verifying our records while respecting their confidentiality and building trust between the parties involved. Despite reducing risk exposure, the entire process is costly and time-consuming.
However, if our data are stored using blockchain, we can cut out the middleman and make the entire process more convenient. After the blocks have been verified and marked as real, the parties involved can show their information stored on the blockchain and save a considerable amount of time and money.
How does blockchain work?
Whenever a transaction occurs, just about every type of information is recorded in a blockchain. The blockchain includes insightful data such as transaction value, the actual balances held by the parties involved, and transaction time. Moving forward, if a change is made in a particular block, instead of rewriting or modifying that blockchain, the difference is made in an entirely new block. This new block shows the date and time of data ‘X’ changes to ‘Y.’ For many readers, this should ring a bell. In principle, it is quite similar to a much older form of record-keeping, the general financial ledger method.
Consequently, blockchain is a similar non-destructive method of data-keeping that eliminates any room for shortcomings or erroneous data.
Additionally, blockchain technology uses a system that involves extensive verification to make sure the transaction is, in fact, legitimate and genuine. After the checks have been performed, the transaction data is stored in a block containing both the buyer’s and the seller’s digital signatures. The block is given a unique code called a hash. The hash is a distinct and secure code used for the identification of that specific transaction. The particular block cannot be added back into the chain before it has been hashed. Once hashed, the block is inserted into its proper position by the technology.
Is blockchain secure?
Blockchain is arguably one of the most secure and safest ways for people to share valuable data without having to worry about any form of attack or threat. The trust created in data by blockchain is another reason why the technology is so unique. Firstly, a highly complicated cryptographic puzzle needs to be solved for a block to be created. The computer that solves the work then shares it with all the other nodes or computers on the network. All the computers in the system then verify the solution or create what’s more accurately known as a “proof of work.” If the answer is correct on all networks, the block is added to the chain.
Bitcoin and blockchain, are they the same?
As we try to understand what a blockchain is, it is vital to understand the difference between the technology and the role of Bitcoin. Bitcoin is a cryptocurrency that was launched in 2009 with the fundamental purpose of simplifying transactions by bypassing governmental control over the currency. Whereas the actual transaction occurs using bitcoins, the data and information generated in the transaction are stored on a peer-to-peer network called a blockchain. Therefore, in broad terms, we can think of blockchain as an operating system, while Bitcoin is just one of many applications that run on the network.
Despite this fundamental difference, both technologies have a handful of similarities with each other. Both Bitcoin and blockchain are cost-effective, as they increase the speed of a transaction and reduce hidden costs. Both are highly effective and useful to users. Once a transaction has been completed, the information is available on a public network where it can be easily viewed by all parties through a distributed system. The transactions made by using Bitcoin and blockchain cannot be manipulated or tampered with. Instead, they can only be reversed with another transaction that is also clearly visible and accessible on the blockchain.
However, the Bitcoin blockchain has a few limitations. As it is open and public, everyone on the network can view the details and nature of transactions that have taken place. But since it uses a digital signature instead of names or other essential information, it is impossible to pinpoint the exact identities of the entities involved in the transaction. As a result, it takes a considerable amount of computing power to daunt any fraudulent activity. In addition, the Bitcoin network has a hard limit of 7 transactions per second, which is far from adequate to satisfy the needs of practical on a global scale.
Despite these limitations, Bitcoin remains the most well-known and valuable cryptocurrency in existence. Its creation was a technological milestone that set the entire blockchain revolution in motion. Since then, more modern technologies have been created to address Bitcoin’s shortcomings. However, as two different technologies, Bitcoin and blockchain have forever transformed the future of transactions and currency.
Thanks for your attention.
👏 If you liked it
✏ Feel free to comment.
—
👁🗨 Follow us on [Twitter] [LinkedIn] [Facebook]
🎥 Watch our latest videos on Youtube
👉 Join our Reddit COMMUNITY.
🚀START building your first blockchain app for FREE here.
