Even if you’re not very familiar with cryptocurrency, it’s very likely that you have at least heard of blockchain before. What started off as the underlying technology that powers Bitcoin has now expanded into other fields such as healthcare, supply chains, and even remittances. But what exactly is this new technology, and why is it so revolutionary?
WHAT IS A BLOCKCHAIN?
To put it simply, a blockchain is a network of computers that reach an agreement over a shared ledger. Cryptocurrencies such as Bitcoin or Ethereum utilize blockchain technology as a way of digitally recording all the transactions that take place within their respective networks.
WHAT IS A LEDGER?
A ledger, whether it be a physical record book, or a spreadsheet file on a computer, is a record that tracks the movement of money coming in and out.
In order to better understand blockchain technology, let’s compare two different types of ledger technologies.
Most banks use a centralized ledger to keep track of the transactions coming in and out of their system. In other words, every time money is deposited, withdrawn, or transferred between branches, a bank will record each of those transactions in their own ledger. Since this ledger is centralized, it acts as a “master copy,” the one source of all transactions that have occurred within the bank’s network. Since the bank has full control over the ledger, it can dictate how it operates, chooses what transactions it will or will not allow and is not made accessible to the public.
On the other hand, blockchains use decentralized ledgers. This means there isn’t just one single copy of the ledger, but thousands of copies distributed throughout computers all over the world. The reason why there are so many is because anyone with access to a computer and an internet connection is able download the software that runs the ledger and take part in a peer-to-peer network. Unlike banks, there is no central administrator, so no one organization has control over the transaction records of the network. Instead, each computer on the network is responsible for updating the ledger with new information. These online ledgers are open to the public, allowing anyone to view every transaction that has taken place since the start of the blockchain network.
WHY IS BLOCKCHAIN IMPORTANT?
Since blockchains rely on decentralized ledgers, this negates the need for trusted third parties as gatekeepers. Blockchains can instead rely on a global network of computers all working together to keep the ledger and the transactions within them accurately updated. As a result, transactions are no longer secured by one central administrator, but by thousands all running simultaneously to keep the network secure. This means if there is a hack or database error in one computer, there are still thousands of other computers that can act as a backup.
Other than being more secure, the data in the decentralized ledger is also immutable. This means that once data is stored on a decentralized ledger, it is extremely difficult for that piece of data to be removed or changed in any way. The only way someone can change it is to take control of more than half of all the computers on the network, which is also known as a 51% attack. Fortunately, these types of attacks become exponentially difficult as the network grows, so decentralized ledgers used by cryptocurrencies such as Bitcoin are virtually impossible to alter.
HOW DOES THE BLOCKCHAIN WORK?
Adding new information on the blockchain follows a linear process. For example, if you want to send your friend some bitcoin
You make a transaction to send your friend 0.003 BTC
Your request goes to the Bitcoin blockchain network
Minersconfirm whether your transaction request is consistent with the previous records on the blockchain
Through a series of computations, computers around the world are able to validate your transaction.
In return, the people operating these computers receive rewards for their work.
Your new transaction creates a “block” on the blockchain that connects to the last created block.
Each block on the blockchain is linked chronologically to the previous block showing every transaction ever made on the network.
This way, anybody who has access to the blockchain can identify what transactions have been made and when they were made.
USE CASES FOR BLOCKCHAIN TECHNOLOGY
Bitcoin is the oldest and largest cryptocurrency by market capitalization. It was first described in the Bitcoin Whitepaper, a document released in 2008 by a person known as Satoshi Nakamoto. While Nakamoto’s true identity has never been revealed, the document he/she left us not only outlined the principles of a truly peer to peer payment system, but also the first ever implementation of blockchain technology.
Supply Chain
Supply chains that use blockchain technology tend to be more reliable since the data stored within them are immutable. As a result you will be able to track items more accurately, and see its movement throughout the entire supply chain process without worrying that the data has been tampered with.
Remittances
Utilizing blockchain technology for remittances makes it much more cost effective for the average person. Instead of going through a third party remittance provider which can charge anywhere between 5-10% for using their service, with blockchain, you can utilize cryptocurrencies such as Bitcoin to send someone money directly without a middleman. Not only are the fees for transferring money cheaper, but is often much faster as well with money being sent and received on the same day, if not earlier.
