5 min read
If you have been following banking, investing, or cryptocurrency over the last ten years, you probably have heard the term "blockchain," the record-keeping technology behind the Bitcoin network.
If you have not heard about it, worry no more as this article will help you understand what Blockchain is, how it is used and how transactions are done in Blockchain.
Without further ado, here we go!
What is Blockchain in Simple Words?
Blockchain is a system of recording information that makes it difficult or impossible to change, hack or cheat the system. Blockchain is a specific type of database, and it defers from a typical database in the way it stores information.
Blockchains store data in blocks that are then chained together. Different types of information can be stored on a blockchain, but the most common use has been as a ledger for transactions. A blockchain collects information together in groups, also known as blocks that hold a set of information.
A blockchain is essentially a digital ledger of duplicated transactions and distributed across the entire network of computer systems on the Blockchain. Each block in the chain contains several transactions, and every time a new transaction occurs on the Blockchain, a record of that transaction is added to every participant's ledger. This system also inherently makes an irreversible timeline of data when implemented in a decentralized nature.
ALSO READ | What is Bitcoin?
The decentralized database managed by multiple participants is known as Distributed Ledger Technology (DLT). Blockchain is used in a decentralized way in Bitcoin's case so that no single person or group has control; all users collectively retain control.
Decentralized blockchains are immutable, which means that the data entered is irreversible. For Bitcoin, this means that transactions are permanently recorded and viewable to anyone.
Bitcoin Vs. Blockchain
Blockchain technology was first outlined as a system where document timestamps could not be tampered with, and with the launch of Bitcoin, Blockchain had its first real-world application. The bitcoin protocol is built on a blockchain. Blockchain aims at allowing digital information to be recorded and distributed but not edited. On the other hand, Bitcoin is the world's most popular cryptocurrency.
One of the key things to understand here is that Bitcoin merely uses Blockchain to record a ledger of payments transparently, but Blockchain can. In theory, it can be used to record any number of data points immutably. Blockchain is the underlying technology for every cryptocurrency alternative. However, Blockchain is not limited only to Bitcoin or any other cryptocurrency. Blockchain can find a wide range of applications.
Blockchain showcases a promising scope with its productive growth over the last decade. In the present times, blockchain technology is all slated to see an upward trend. Bitcoin has not yet presented any promising indications in terms of its scope.
Blockchain Vs. Banks
Banks and decentralized blockchains are vastly different. Central banks characterize banks with some control over these commercial banks, so they operate on a centralized system. Blockchain does not have a central authority, and there the system is decentralized. The decentralized nature of blockchains means that there is very little regulation, plus they are virtually unhackable.
Is Blockchain Secure?
Many people, including companies, may wonder if Blockchain is secure. No need to worry as it accounts for the issues of security and trust in several ways. First, new blocks are always stored chronologically, and after a block has been added to the end of the Blockchain, it's difficult to go back and alter the contents of the block unless the majority reach a consensus to do so.
Each block contains its hash along with the hash of the block before it. Hash codes are created by a math function turning information into a string of numbers and letters, and if this information is edited in any way, the hash codes change as well, making Blockchain more secure.
How is Blockchain Used?
As we now know, each block in Bitcoin's blockchain stores data about monetary transactions. But it turns out that Blockchain is a reliable way of storing data about other types of transactions. Various companies have already incorporated Blockchain, and they include; Unilever, Walmart, Pfizer, and some are still trying to incorporate it.
1. Banking and Finance
Blockchain is great at facilitating transactions, but it can also formalize commercial relationships through smart contracts. Banking and finance stand out to benefit more from Blockchain. Financial institutions operate five days a week, so any transactions made over the weekend will be verified in the next few days.
By integrating Blockchain into banks, clients can see their transactions processed in as little as 10 minutes regardless of the day or time. Banks are also able to exchange funds between institutions quickly and securely through Blockchain.
Blockchain forms the bedrock of cryptocurrencies like Bitcoin. By spreading its operations across a network of computers, Blockchain allows Bitcoin and other cryptocurrencies to operate without the need for any central authority currency.
Under this central authority system, a user's data and currency are at the whim of the bank or government, and if a user's bank is hacked, the client's information is at risk. Blockchain not only reduces risks but also eliminates many of the processing and transaction fees.
3. Supply Chains
Using Blockchain gives brands the ability to track their products from their origin, through each stop it makes, and finally, its delivery. If a product gets damaged or spoilt, then it can be traced back through each visit to its origin. These companies can also now see everything else they may have come in contact with, allowing identifying a problem to occur sooner. This is one example of blockchains in practice, as there are other forms of blockchain implementation.
Health care providers can choose to store their patients' medical records with Blockchain securely. When a medical record is generated and signed, it can be written into the Blockchain, which provides patients with proof and confidence that the records cannot be changed.
These personal health records could be encoded and stored on the Blockchain with a private key so that they are only accessible by certain individuals, thus ensuring privacy.
Blockchain is finally making a name for itself, with many practical applications for the technology already being implemented and explored. Blockchain promises to revolutionize many aspects of how we do things across the world. Numerous enterprise companies are already utilizing it in their business models, and so should you.