The emergence of Bitcoin in January, 2009, as the first ever cryptocurrency and its Blockchain technology heralded a new era in the global economy. Many people are accustomed to what Bitcoin means but very few understand the Blockchain technology which powers cryptocurrency. In this article, you will learn everything you need to know about Blockchain.
The problem that led to the invention of Blockchain
To understand Blockchain, you must first understand what led to its invention. Way back in time, whenever people wanted to carry out a transaction, they needed the presence of middlemen to guarantee trust and serve as witnesses. As civilization evolved, the process didn’t change but the middlemen did. Banks and government became the new middlemen that performed the functions of verifying the transactions and keeping the records.
The progression of financial activities to digital made it possible for people to transact assets like money, stocks, bonds and intellectual properties. The downside was that there were new problems such as fraud, forgery, delay in executing and authenticating transactions and high fees to carry out these transactions. All these led to loss of revenue for businesses due to the slow pace of transactions.
All of the above problems have been solved by Blockchain technology. Now, you can carry out transaction without middlemen because the technology verifies the transaction and records it for all to see. It eliminates the possibility of fraud or forgery as the details of all transactions can be seen by all.
So what is exactly is Blockchain?
Let’s define Blockchain in simpler words. Blockchain is digital ledger that can be accessed by members of the public. It records the details of every transaction through the use of cryptography.
The emergence of Blockchain is revolutionary because it brings about transparency to every transaction that involves value. The possibilities it brings are also limitless as it’s not restricted to only cryptocurrency but can also be used for other vital activities such as collection of taxes, purchasing goods and services and even transferring funds over a long distance.
The security and guarantee Blockchain technology offers is top notch. How possible is this? Whenever transactions are carried, they are recorded on the public ledger for all to see. Once the information has been recorded, it is impossible for anyone to alter it because it is a decentralized network.
How Blockchain works
Every digital transaction that takes place must first be verified by miners who are members of the network. So when a transaction occurs, it is put together with other transactions that occurred in the last 10 minutes into a secure block and sent out to the entire network for validation. The miners receive the block and work through complex calculations to confirm the transactions. The first miner to solve the calculations receives a reward and his result is adopted by the entire network.
After the verification, the block is consequently linked to a chain of existing blocks in a linear, chronological order. Every block of transactions contains 4 important details: a reference to the previous transaction, summary of the current transactions, the time the transactions took place and a proof of work that was used in creating the block. These details make the technology tamper-proof and impossible to hack due to the interconnectedness of every block and the fact that there’s no central server (since it’s a decentralized network.) It also gives no room to errors that are possible with human middlemen.
How Blockchain is impacting cryptocurrencies
While Blockchain can be used in various ways such as cloud storage, smart contracts, identity, record keeping and even electronic voting, one of its greatest impacts is on cryptocurrencies.
Three vital aspects of every economic, legal and political system are contracts, transactions and records. They help safeguard assets and fix organizational boundaries. In addition, they help verify and keep records of events. Their importance cannot be overemphasized as they play a crucial role among nations, organizations and individuals. However, as it is common with human systems, their effectiveness has been inhibited by the bureaucracies rampant in various systems. Blockchain solves this problem as transactions can now be performed faster at extremely low fees result.
Moreover, verifying transactions currently requires lawyers and bankers to guarantee trust and safety. Cryptocurrencies (like Bitcoin) through Blockchain are blazing a trail of simplicity and ease. Transactions can now be carried out with a complete sense of privacy. In place of trust, payment systems will be based on cryptographic proof which can be used by both parties. It makes it possible to securely send, receive and record transactions.
All in all...
Blockchain is an innovative technology with limitless possibilities. It eliminates the need for a third party to facilitate digital transactions. It takes away the power of manipulation of currency which is rampant with paper money to a system purely controlled by market forces. Blockchain technology will continue to revolutionize the global financial system as it allows for secure information recording and distribution.