The world of blockchain technology is daunting for many of us, full of terminology and ideas that boggle our minds, creating an immediate flight response that ultimately makes us believe it’s a scam. Like most people, when you first read or heard about blockchain, you immediately felt fire alarms going off in your head, accompanied by this voice blaring, “Do not risk a single dime on this sham!”
If only you had pushed past the fear and dove in, boy, you would be ecstatic now. But let’s not settle on what could have been and instead shed some light on how lucrative and real this “sham” has become.
As blockchain technology grows and becomes more user-friendly, it’s essential to learn about it and stay prepared for its future. If you are new to blockchain, this is the platform for understanding the basic concepts.
What is Blockchain Technology?
Blockchain technology is a decentralized system that allows for secure, transparent and tamper-proof transactions. Transactions get verified by a network of computers rather than a centralized authority and recorded in an immutable public ledger.
It keeps track of a growing list of ordered records known as blocks. Each block contains a timestamp and a link to the previous block, forming a chain of data called a blockchain.
The distributed timestamping server and peer-to-peer network build security in the blockchain system, resulting in a database that is managed autonomously and decentralized.
This makes blockchain ideal for applications such as digital recording assets, contracts and other essential documents.
Users can only modify the parts of the blockchain that they “own,” which requires them to have the private keys necessary to read or write to the file. Cryptography keeps everyone’s copy of the distributed blockchain in sync.
Blockchain technology was initially proposed in 2008 by an anonymous person or group under the pseudonym Satoshi Nakamoto. The developers implemented the technology was in 2009 as the core component of Bitcoin, the first digital currency.
Bitcoin was the first digital currency to use a blockchain system to solve the double-spending issue(unlike tangible coins or tokens, electronic files can be duplicated and spent twice) without using an authoritative body or central server.
Blockchain essentially offers the possibility of widespread disintermediation of trade and transaction processing.
How Does Blockchain Work?
A blockchain enables any user to send value anywhere in the world where the receiver can access the blockchain file. However, to edit only the blocks you “own,” you must have a private, cryptographically generated key.
However, three technologies must collaborate on the blockchain for a secure transaction.
- A distributed network using a shared ledger
- Private cryptographic keys
- A system of records
Cryptographic Keys
Blockchain technology thrives on cryptography, encrypting addresses and other data using sophisticated computer operational processes.
Cryptography is a critical component in making crypto transactions secure so that these digital assets can get the name cryptocurrency—users login into the blockchain with the help of a system known as key cryptography.
This system begins with your public key, a long string of numbers and letters that serve as your account number when interacting with the blockchain that underpins a cryptocurrency. Before your data gets posted to the blockchain, it gets encrypted with your public key.
The private key is like a password giving you access to your account. The key decodes information intended for you and posted on the blockchain, granting you access to data and cryptocurrency funds.
So, when two people want to transact, they must both have the public and private keys for identity. These keys’ integration can be considered as a skillful form of consent, resulting in an instrumental digital signature. The digital signature provides solid ownership control.
While the platform solves the authentication, it must integrate it with a method of authorizing transactions and permissions (authorization)- a distributed network.
Distributed Network
A distributed network is one where the blockchain file gets stored on multiple computers instead of just one. This way, the blockchain cannot be controlled by a single user or entity.
To ensure that everyone has an accurate copy of the blockchain, users in a distributed network must agree to download and share the file. When a new block gets created, it is added to all blockchain copies across the network.
This way, everyone has access to the same information, and no one can tamper with the blockchain without detection. A shared ledger is a database maintained by a group of users rather than a single entity.
This way, all users have access to the same information, and no one can control the data or make changes without the group’s consensus. One of the most appealing aspects of the bitcoin blockchain is that it is so large and has amassed much computing power.
System of Records
A system of records is a database that stores information about transactions or other activities.
The records system allows users to verify that a transaction has taken place and that the data is accurate. A block is then broadcast to all nodes in the network, containing a digital signature, timestamp, and relevant information.
Mining is essential for open-public blockchains. Mining is based on a novel approach to an age-old economic problem: the tragedy of the commons. For instance, Bitcoin mining eliminates the possibility of the same bitcoin being used in multiple transactions simultaneously in a way that is hard to detect.
Each blockchain may have a different type, amount, and verification process. It is a matter of the blockchain protocol – or the rules that govern what is and is not a valid trade or a valid block creation. The verification process gets tailored to each blockchain. When enough nodes agree on verifying transactions, they can now create any necessary rules and incentives.
Blockchain Applications
Now that we understand blockchain technology, it’s essential to look at some practical applications for this emerging technology. The leading blockchain applications include;
Financial Services
Traditional systems are inefficient, error-prone, and excruciatingly slow. Intermediaries are frequently required to mediate the process and resolve disputes. Naturally, this comes at a cost in stress, time, and money. On the other hand, users find blockchain to be less expensive, more transparent, and more effective. Examples of financial services include;
- Cross-border payments– blockchain provides solutions with transparency and low cost.
- Banking– blockchain can provide customers with a faster, more transparent, and more secure banking experience.
- International remittances– blockchain can help reduce the cost and time of international money transfers.
- Insurance– blockchain has the potential to make the insurance industry more efficient, reduce costs, and increase transparency.
- Clearing and settlement– the current clearing and settlement process is slow, expensive, and error-prone. Blockchain has the potential to streamline this process and make it more efficient.
- Asset management– blockchain can help asset managers to reduce costs, increase transparency, and improve performance.
Smart Contracts
Smart contracts are digital contracts embedded with an if-this-then-that (IFTTT) code that allows them to self-execute. In real life, an intermediary ensures that all parties adhere to the terms of the agreement.
The blockchain eliminates the need for third parties. Still, it also ensures that all ledger participants are aware of the contract details and that contractual terms are automatically implemented once conditions are met.
You can use smart contracts in various situations, including financial derivatives, insurance premiums, property law, and crowdfunding agreements.
Smart Property
Smart technology can get embedded in tangible or intangible property such as houses or cars. On the one hand, property titles, patents or company shares. This registration gets saved on the ledger, and the contractual details of others permitted to own this property. You can use smart keys to grant access to the authorized party– once the contract is verified, the ledger stores and allows the exchange of these smart keys.
The decentralized ledger also serves as a system for recording and managing property rights and allowing smart contracts to be duplicated if records or the smart key are lost.
Making property smart reduces your chances of encountering fraud, mediation fees, and other issues.
Internet of Things (IoT)
In the coming years, most people will use blockchain technology to manage and secure the internet of things (IoT). IoT is a network of tangible items or devices embedded with electronics, sensors, software, and network connectivity that permits these items to collect and exchange data. IoT can revolutionize many industries, including transportation, health care, manufacturing, and energy.
Blockchain technology can help secure IoT devices by verifying their identities and providing a tamper-proof record of transactions. In addition, it can help to ensure that data is not manipulated or stolen. This could significantly impact the security of IoT devices and the data they collect.
Conclusion
Blockchain technology is increasingly befitting in life, work, and interacting with digital information. There is no single set of standards, as there is with any new, revolutionary technology, and the overall impact is still in discovery. But there’s no denying that it’s here to stay.