Words such as Blockchain, Blockchain Technology, Bitcoin, Cryptocurrency are popping across the financial sector. They have the potential to disrupt the current financial ecosystem. Almost everyone has caught word of 'Blockchain' and that it is excellent. But not everybody knows how it runs. This article explains blockchain for dummies and shows that a Blockchain isn't mysterious at all.
But before jumping on to a conclusion, it is necessary to understand what all these terms mean. Let us figure it out.
Getting to know the basics before knowing what is blockchain technology
Let us first understand what a spreadsheet is.
A spreadsheet is a way of storing information. A spreadsheet is for a person or a small group of individuals. The presentation makes it easy to access information. But, if a lot of data is fed to a spreadsheet, it gets complicated.
In contrast, a database collects information and stores them digitally in computer systems. Data or information are recorded in a structured form, usually in a table format, that allows easier access, search, and filtering data for a particular piece of information. A large database is maintained with the help of powerful computers. From hundreds to thousands of computers are deployed for large storage capacity necessity and so that many users can access their data simultaneously. A database is owned by a large corporate. Famous examples are Amazon, Microsoft, Tencent, etc. The control of these databases is in few hands.
Now let's get to know what is a blockchain and what does blockchain means.
What is a blockchain?
A blockchain is also called: a diary, a digital way of record-keeping, and a database.
A blockchain or blockchain technology is a growing list of blocks that contain records of transactions where each block gets linked to the other block using cryptography. The technology involved here is digital ledger technology (DLT). Every block has some information. These blocks are chained together.
What do we mean by chain?
Every block has three things, a timestamp, a cryptographic has from the previous block, and the transaction data. Due to the hash or the unique number of the previous block and next block written to each block, the word 'chain' is used in the blockchain technology.
It also makes a blockchain a hack-proof solution. For example, in a typical database, if someone hacks through the security, or gets access to the authority handling the safety of data, then the intruder can easily alter or steal the data. It can put an individual, a company, or even a whole nation at risk. But cryptographic hashes are made from solving complex equations, and not even computers can generate a hash quickly.
What is the storage structure in a Blockchain?
There is an important difference between a typical database and a blockchain. It is how the data is structured. In blockchain technology, a blockchain holds a set of information after collecting the information in groups, also known as blocks. A block has a fixed storage capacity. The information left is added to a new block, which is further chained to the previous block when it fills.
The database contains data in a tabular form, but in a blockchain, the data is stored in the blocks connected and chained with each other. So, we can say that all blockchains are databases, but not all databases are blockchains. Every block has a timestamp that further makes the block data hack-proof.
A blockchain transaction
- First, a new transaction is executed through a node (computer).
- The computers are connected in a peer-to-peer network. Therefore, the transaction executed above is then transmitted to computers scattered across the world.
- To confirm the validity of the transaction, the computers perform complex mathematical problems.
- Once the legitimacy of the transaction is confirmed, the transaction is added into the blocks.
- To make the blockchain technology hack-proof, the newly formed block or blocks is then chained with previous blocks, giving a long history of permanent blocks.
- After being chained, the transaction is complete.
How to use blockchains? Corporates have the answer
Even though blockchain got its share of fame due to Bitcoin, a cryptocurrency is not the only way to use Blockchain technology. Medicine giant Pfizer and Retail major Walmart are just some of the famous organizations implementing blockchain technology in their logistics, supply, and other areas. Blockchain technology can also be harnessed for banking & finance, currency, healthcare, supply chains, records of property, voting, smart contracts, etc.
Benefits blockchain has to offer
Accuracy: Every new block gets duplicated to other nodes connected to the network as well. That is how every transaction is approved on the network by thousands of nodes(computers) connected to it. The verification process happens without human involvement leading to less human error and excellent accuracy in terms of records. Just in case, an error is made to one copy of the blockchain, at least 51% percent of computers in the network need to copy it, which is impossible, which makes it hack-proof as well.
Decentralization: Blockchain doesn't store any information in a central location, like a typical database. Instead, it copies and spreads it across the entire network of nodes. Every computer on the peer-to-peer network updates its blockchain whenever a new block gets added. It spreads the information, rather than storing it in a particular area, making it difficult to temper the data. An entire network will never be compromised from a single effort.
Reduction of Cost: Generally, for marriage, you need a minister, for a document, a notary, a bank to verify a transaction, and so on. You will need an intermediary/ middle-men/arbiter to enforce a contract. It also involves paying them a fee, your privacy, and your time. Blockchain eliminates third-party intervention and the cost that comes with it. Bitcoin doesn't have a central authority or third party, and it takes a minimal transaction fee only to enforce the contract.
Efficiency: Transactions Time duration of transactions through central authorities ranges from hours to days. Public holidays, Sundays, and working hours also make time variable. If you deposit a check on Friday evening, you might see your funds till Monday only. Financial institutions have time constraints, whereas blockchain does not. It can work 24x7 round the year. It takes 10 minutes for a transaction, and in a couple of hours, it gets secured. It can be a game-changer for cross-border payments.
Transparency: All blockchains, in general, are open-source software. It allows everyone to view the backend code. For security purposes, auditors can review cryptocurrencies like Ether and Bitcoin. An individual/company/organization doesn't control bitcoin's code or the way it functions. Therefore, anyone can come up with an upgrade or change in the system. If the majority of the users like new upgrades, then Bitcoin will be updated with user consensus.
What future holds for Blockchain technology?
Blockchain started as a research project in 1991 but surfaced thanx to Bitcoin, and now it has crossed its 20s. Since it is still a new technology for many, it is going through public scrutiny for the last two decades. Many businesses are harnessing its potential and testing it in their organization.
Due to many successful implementations already performed, it is gaining praise from a few as well. It has the potential to remove middle-men and lower down the cost of transactions. It is a cheap alternative and provides the option to explore more resources. The question is not this: will it become a part of the future of technology? The big question is: when will it completely dominate the technology spectrum?
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