Beginner guide to blockchain
Blockchain can be described as an incorruptible digital ledger or record of transactions programmed to record financial transactions as well as everything of value. The brainchild behind this technology is bitcoin founder Satoshi Nakamoto. Blockchain, however, goes beyond bitcoin or any cryptocurrency for that matter. Blockchain technology has become transformational because of the mere fact that it allows digital information to be distributed as opposed to being copied. Cryptocurrencies are not the only invention using blockchain today which makes it important to understand the basics of the technology. Like the internet, you just need to understand the basics of blockchain to use it/see its value.
Let’s get started.
Blockchain as a distributed database
Blockchain technology works like a distributed database which regularly updates itself, i.e., like a spreadsheet which duplicates itself multiple times across a network and updates itself frequently. Google docs is a great example of blockchain technology where you can update a document you have shared with many people simultaneously. The blockchain database isn’t stored in one location which simply means that records are truly public and easy to verify. Information held on the database is shared and continuously reconciled which offers obvious benefits. For instance, there is no specific center of information that can be corrupt or hacked. The data is also accessible to everyone online.
Before Google docs, people used to send word documents or spreadsheets to one another via mail to make revisions. The problem with this scenario is the back and forth transferring of documents as well as the difficulty in tracking changes. Blockchain has solved this problem introducing two major benefits. First and foremost, blockchain can’t be controlled by one single person or entity. Blockchain also eliminates risks associated with having a single point of failure since blocks of information are identical across the network. Blockchain robustness has been tested and proven. Since the invention of Bitcoin back in 2009, the Bitcoin blockchain has remained operational without any significant disruption.
Blockchain technology properties:
Transparent and incorruptible
The blockchain network has been built to check itself every ten minutes automatically. The network conducts a self-audit reconciling all transactions happening in 10-minute intervals. Every group of transactions occurring in this interval is known as a block. This makes blockchain unmatched in regards to transparency since data is embedded as a whole in the network and it is public. Also, data can’t be corrupted. In theory, the blockchain network can be corrupt by overriding the entire network using a high amount of computing power. In practice, this is impossible. Attempting to take control of a blockchain system such as the Bitcoin blockchain would destroy the value of Bitcoins removing any incentive for such an undertaking. Blockchain technology has solved fundamental problems like manipulation. Fiat currencies are subject to manipulation from central banks and governments. Bitcoin and other cryptocurrencies which utilise blockchain can’t be manipulated by individuals or entities. This is what makes cryptocurrencies so attractive. Many people today have little trust in large corporations and entities because they have betrayed people’s trust in the past.
Blockchain is decentralised by design. Whatever happens in a blockchain network is a function of the entire network. Blockchain creates a new way of verifying transactions which could render transactional aspects of conventional commerce unnecessary. Stock market trades could soon be in blockchain making them available to all. Blockchain could also be implemented in public record keeping such as land registries. Decentralisation has become a reality and blockchain leading the way.
By storing data in multiple locations, blockchain has eliminated risks associated with holding data centrally. Blockchain networks don’t have centralised vulnerable points which computer hackers can target. Since internet security is a huge problem today, the world is expected to turn to blockchain technology for solutions. We already have usernames and passwords for protecting our identity as well as assets online. Blockchain uses encryption technology. In cryptocurrencies like Bitcoin, for instance, users have public keys which are randomly generated numbers acting as user addresses on the blockchain. You also need a private key which works like a password to get access and send Bitcoins. Blockchain technology utilises private keys to offer access/use of digital assets. However, the private key must be kept safe preferably offline for safekeeping.
Other advantages of blockchain technology
Besides enhancing security and enhancing transparency, blockchain is also cheaper compared to traditional accounting systems. The technology has eliminated the need for middlemen such as banks resulting in lower fees in the case of cryptocurrencies. Blockchain has also reduced transaction time as well as transactional errors. In a nutshell, blockchain technology may be relatively new and complex; however, the technology is here to stay and be applied on all areas that require decentralisation and related benefits.