Blockchain technology is easy to understand once you wrap your mind around the concept.
Despite the giant waves blockchain technology has made recently, many people still don’t understand it. Even people who do understand it find it absurdly difficult to explain to others. Here is a breakdown designed to increase your blockchain understanding.
Blockchain Explained: It’s a Chain of Blocks
At its core, blockchain is nothing more than a database. You’re familiar with databases, right? A database is blocks of information contained on a server. When a database sits on a server, it’s under a single authority. A blockchain is a decentralized, shared database. It exists in multiple instances across multiple servers or computers.
As new information enters the blockchain, it’s checked and shared across all computers that hold the database. Those computers, or peers, keep a fully detailed history of all transactions and information entered into the database. In this way, there’s never any doubt about everything that led up to the most recent entry. Now, what makes this all practical?
How Institutions Currently Do It
Most major databases have a central point of control. Consider a company like Google. They have servers containing tremendous amounts of your data. Google owns and controls those protected servers. If something happens to corrupt or compromise Google’s data, the company can have a monumental fail on their hands.
If a blockchain database becomes corrupted or compromised, all the other copies of the blockchain will still have the right information. This decentralization and redundancy comes with a load of benefits. This is especially relevant to cryptocurrencies.
Cryptocurrency Depends on Blockchain
Cryptocurrency lives online in the blockchain. This type of currency isn’t backed by a government or other entity. Instead, it generates and maintains its value based on the network it’s part of. Using currency in this fashion is more secure, private, and faster than traditional forms of currency.
When you send someone cryptocurrency, multiple computers, or miners,
- verify the data
- match it up with previous entries in the chain
- encrypt it
- and set the transaction in stone within the chain.
This transaction occurs peer-to-peer, meaning it’s just you and the other party. Contrast that to other methods of sending funds.
If you use a bank transfer or anything else, your funds are sent to one or more third parties. Those parties gain access to all your information. If there’s an issue along the way, or human error, you can lose funds or have them tied up in red tape for long periods of time.
Security Makes Blockchain More Attractive
A new block added to the blockchain goes through a verification process handled by all the nodes holding that particular blockchain. Once all nodes agree, it’s impossible to edit the data in a block. Once encrypted, the entry is illegible to anyone trying to read it.
If a ne’er-do-well wanted to try to cheat the blockchain, that person would have to edit every block on every computer going back to the start of the blockchain. Such a feat would take the computational power of a quantum computer or two, which doesn’t yet exist. In fact, there are different types of blockchains, and some have already addressed the future issue of quantum computers.
Putting it All Together
Looking at blockchain technology and understanding blockchain has opened up numerous possibilities. Blockchain technology is finding use as a tool for a number of things such as:
- investments
- fundraising
- improving government efficiency
- supply chain systems
Because blockchain offers a secure, unalterable way of tracking information and transactions, it lends itself to a tremendous amount of applications.
