Heard people talking about Blockchain but have no idea what it is? In this blog we will simply define and explain what Blockchain is.
A Simple Explanation Of Blockchain
Blockchain is essentially a new kind of database. It records and stores information and transactions. The main difference is that no single authority owns or controls this database, and it offers full transparency for the participants involved. The real power of blockchain is that its data cannot be changed or deleted, making it the ultimate source of trust and truth. Don’t confuse blockchain with Bitcoin. Blockchain is the platform. Bitcoin is a cryptocurrency that uses blockchain technology.
How Blockchain Works
Blockchain is so called because it functions like an ever-evolving building block of information. That information includes the recording of transactions. Whenever someone wants to make a new transaction, it has to be verified as legitimate. When consensus is reached by everyone else on the blockchain, it is recorded with an immutable cryptographic signature known as a “hash”. A new, permanent record or block is then added to the chain, duplicated and distributed across the entire network of computers in the blockchain. This is known as “Distributed Ledger Technology” (DLT) because blockchain is a decentralized database managed by multiple participants.
Blockchain – A Basic Glossary
It’s not always easy to get your head around blockchain until you understand the meaning of some basic terms in the blockchain world. Here are some of the more common ones:
Node – a computer in a blockchain network
Ledger – a file of records or transactions
Distributed ledger – a description of blockchain and its feature of distributing files to all the nodes in the network
Miner – someone who verifies the authenticity of a blockchain transaction and is rewarded with the payment of Bitcoin.
Proof of work (PoW) – the consensus mechanism used by blockchain requiring miners to solve a mathematical puzzle to validate transactions, thus protecting it from scammers.
Bitcoin – a decentralized cryptocurrency which can be traded on the blockchain.
Ethereum – a decentralized platform that uses “smart contracts”. The cryptocurrency of Ethereum is known as Ether.
Tokens – virtual units of value on the blockchain that can be bought or sold for goods and services.
Hash – a unique password of fixed length used for security purposes that represents a data record that could be as short as a single word or as large as an entire file. A transaction’s hash makes it easy to identify the transaction.
Why We Needed Blockchain
The motivation for the invention of blockchain was the desire for decentralization, greater transparency and a way to remove the need for third-parties to facilitate transactions. It has applications not just in the financial realm but in almost everything we do. That includes secure storage of our digital ID as well as the ability to trace the origins and movements of everything we purchase such as food, wine, vehicles etc. The key characteristics and advantages of blockchain are:
Near real-time – transactions are almost instantaneous, saving businesses time and money.
Consensus – all participants in the network must agree to the validity of any new record or transaction.
Immutable – transactions are time-stamped and cannot be altered or deleted once they have been created, increasing trust and reducing risk and fraud.
Secure – all records in the blockchain are individually encrypted.
Distributed – proof of any transaction appears permanently across the entire network.
Peer-to-peer – it removes the need to employ the services of a third party who invariably take a share of any transaction.
Programmable – the employment of smart contracts makes blockchain programmable.
Anonymous – the identity of participants may be either anonymous or pseudo-anonymous.
Blockchain In The Real World
Blockchain’s applications are many and varied and go far beyond the buying and selling of cryptocurrency. Here are some examples of how it can be utilized:
Money transfer – by eliminating red tape and third-party fees, blockchain saves time and money.
Smart contracts – contracts on the blockchain executed in real time which cut out the middleman, saving time and money.
Internet of Things (IoT) – smart devices like Apple’s HomePod are already infiltrating homes raising privacy concerns and exposing people to data theft. Blockchain’s security features eliminate these headaches.
Personal identity – safely and securely stores sensitive personal details, disclosing only what information is necessary at any one time.
Healthcare – blockchain tightens security and improves access to information across healthcare organizations.
Logistics – blockchain’s data transparency can restore trust in supply chain management and solving issues by acting as the single source of truth.
Non-fungible tokens (NFTs) – allows people to buy digital assets such as music, art or videos, giving them full rights to it.
Government – blockchain increases transparency and accountability of governments and reduces bureaucratic red tape and its cost. It also has the potential to be used in elections to underpin voting systems.
The Evolution Of Blockchain
1991 – The embryo of blockchain emerges. American scientists Stuart Haber and W. Scott Stornetta work on cryptographically secure chains of blocks with timestamps with the concept that they are tamper proof.
2008 – The concept is crystallized by a mystery person or group of people who used the assumed name Satoshi Nakamoto.
2008 – The name bitcoin.org is registered.
2008 – Nakamoto publishes the first white paper on bitcoin titled Bitcoin: A Peer-to-Peer Electronic Cash System, describing the launch of the world’s first digital cryptocurrency.
2010 – The first bitcoin purchase takes place.
2015 – Ethereum was launched as a new public blockchain with more functionality including smart contracts.
2019 – Blockchain goes mainstream, passing 450 million transactions.
2021 – Blockchain underpins the new world of ‘Web3’.
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