Defining what a blockchain is can be as hard as any other subject related to cryptocurrencies, but today, we are going to give you the most basic definition possible in order to reach the highest level of understanding without getting too technical in the process – what is blockchain and how does a blockchain works.
What is a Blockchain?
The blockchain is basically a technology which is based on the peer to peer communication network. Blockchain as its name literally means Chain of Blocks. A Blockchain is an immutable, de-centralized, secure and distributed database that maintains a continuously growing list of chronological records called blocks. Each block contains a timestamp and a link to the previous block. Blockchains can be thought of as an automatically notarised ledger. Ledgers in accounting terms called transactions.
History of Blockchain
The first concept of a Blockchain is attributed to Satoshi Nakamoto, which is the name used by the unknown person or persons who designed Bitcoin. In 2008, Nakamoto published a paper on The Cryptography Mailing list describing the bitcoin digital currency.
As a part of the Bitcoin implementation, they also devised the first blockchain database, where it serves as the public ledger for all transactions. In the process, they were the first to solve the double spending problem for the digital currency.
Although Bitcoin uses a Blockchain,
Blockchain ≠ Bitcoin.
Working Principle of Blockchain
Thinking of a ledger is the best way to explain what a blockchain is and what it does. There are transactions that will go on that ledger when any kind of movement is done with cryptocurrency. So, basically, the blockchain is the way to keep records of the transactions that are made with these virtual currencies. There are no bank accounts and no physical versions of it, but everything is recorded in these blockchains to keep track of all cryptocurrency movement.
The Blockchain System
The blockchain is not some large supercomputer that takes care of everything. Instead, it’s a large number of nodes that contribute to the process of maintaining and running the blockchain in order to ensure a secure environment that is not corruptible. Obviously, security breaches could be present in any kind of virtual environment, but the security measures that are applied in blockchains are quite sturdy. It’s hard for anyone to be able to hack their way into a system that uses this kind of practical and superior technology. The fact that cryptocurrencies are decentralized is making huge waves and turning skeptics into believers. The number of people who are getting involved grows daily and the number of business ventures accepting payments with these virtual currencies is also growing. Part of the trust comes from the extremely efficient blockchain system.
Where BlockChain can be used?
Since Blockchains consist of an openly distributed ledger, they can be verified permanently by a network, so they are secure by design and highly tolerant of inconsistencies. Therefore, it is possible to achieve a decentralized consensus with a Blockchain. This makes Blockchains very ideal for:
- Medical Records
- Identity Management
- Transaction Processing
- Digital Currencies
- Payment Systems
- Governance (Voting Systems)
- Proving data lineage
- Peer-to-Peer Insurance
- Internet of Things
- Stock Trading
- Land Title Registration
- Freight Tracking
Storing data across its decentralized, distributed network, the Blockchain eliminates the risks that come with data being held centrally, therefore the network lacks centralized points of vulnerability that hackers can exploit or be a single point of failures.
The openness in a Blockchain can be contrasted to traditional ownership records, such as those hosted by Banks, where only the Bank has control over the ledger. This reduces the costs involved in verifying transactions by removing the need for trusted third-parties (such as Banks) to complete transactions.
The Future of Blockchain
There is very little doubt in most people’s minds that we are going to enter a whole new stage in a few years where most business owners are going to have big signs on their doors that read “We take Cryptocurrency” and that future is much closer than most people think or consider.