What is Blockchain Technology?
Getting started with blockchain technology
If you’re interested in learning more about how Bitcoin and other cryptocurrencies work, you’ll first need to understand a little bit about blockchain technology.
If you’ve already read up a little on Bitcoin, you have probably noticed sources talking about how it’s a decentralized way to send and receive money.
This is due to the network’s use of blockchain technology, which allows a number of different to write information into an online record known as a distributed ledger as opposed to these changes coming from one central location.
With blockchain technology, information doesn’t come from a centralized location that holds a master copy of a database. Each node in the network has its own identical copy of the ledger that it uses to record information in.
The main benefits of being having blockchain technology decentralized are that it makes it impossible for one single entity to control or manipulate the network, as well as prevents a single-point of failure from occurring.
Blockchain Isn’t a New Technology
Although blockchain didn’t gain mainstream appeal until recently, when the media started reporting on Bitcoin’s value, it’s been around for quite some time. The foundation that paved the way for blockchain technology was explored in the early 1990s by Stuart Haber and W. Scott Stornetta.
The first instance where Blockchain was brought to life happened in 2008 thanks to Satoshi Nakamoto, an unknown person or group of people credited for creating Bitcoin.
As the first network to use blockchain technology, Bitcoin pioneered the development of cryptocurrency by combining three separate technologies.
The three components that make blockchain are:
- Private Key Cryptography for accessing data privately.
- A P2P Network for updating records and transmitting information.
- The Blockchain’s Protocol on Incentivization to reward miners who keep the network running.
Blockchain creates security and transparency
One of the biggest strengths of blockchain technology is that it’s constantly checking itself for mistakes and discrepancies in each individual ledger.
The network does a self-audit every ten minutes to ensure that everyone’s ledger has the exact same information stored in them. The obvious benefit of this is that it creates a system of information that can’t be corrupted.
But another, equally important aspect of this ongoing state of consensus is that it creates transparency.
Because every ledger has to have the same information stored in it, and due to the fact that no ledger’s information can be hidden or altered, data like transaction history is accurate and accessible publically to everyone.
In other words, blockchain technology completely removes the likelihood of someone cooking the books.
This increased transparency has helped make blockchain technology a preferred method of digital transactions by reducing the need for financial institutions and third-party holding services to broker trades.
How does blockchain create trust?
Before we decide to engage in a transaction with someone, we first determine whether we can trust the other party or not. This is generally done by looking at their reputation and who all they’ve done business with in the past.
Moreover, digital transactions have historically come with even greater risk, as we placed our trust in whether we could verify the other party’s identity or not.
As you can imagine, having to divulge personal information in order to verify your identity comes with its own problems, like placing yourself at risk of being hacked. Blockchain technology remedies this situation through private key cryptography.
This allows people to engage in transactions without having to divulge sensitive personal information. And thanks to the development of the public key, which is the long string of words and numbers that serves as the address to your Bitcoin wallet, your transactions are still able to be authenticated without the need for personal information.
In this regard, your public key is like the address of your house and the private key is the key that opens your front door.
What can blockchain be used for?
Aside from sending and receiving money, blockchain is being integrated into a number of different aspects of contemporary society. The next biggest innovation to come since the development of Bitcoin is the concept of smart contracts.
These contracts operate on the Ethereum network and will allow both parties to draw up a contract of terms and conditions that must be met (and cannot be changed retroactively) before money changes hands.
Blockchain technology is also being looked at as a way to make a number of other tasks more transparent and efficient, including:
- Adding transparency and accessibility to voting and poll taking.
- Decentralizing file storage while protecting files from hackers and malware.
- Create and track records of land title registration.
- Buy and sell stocks instantaneously.
Ultimately, we’re only just beginning to explore blockchain technology and what all it is capable of.
As blockchain technology’s use becomes more widespread, we could expect to see changes and technological disruptions in virtually all aspects of contemporary society.