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What is Blockchain Technology?

What is Blockchain Technology?

Blockchain technology introduced a system of storing data in decentralized spreadsheets or ledgers, held together in an ever-growing chain of blocks using powerful cryptography.

Sometimes referred to as distributed ledger technology (DLT), blockchain is decentralized. This means that the network is not susceptible to attacks common to those with a single server or database.

In simpler terms, a blockchain appears like a series of digital ledgers that contain all transaction information. Everyone can see it. Apart from that, a collection of computers hold it together around the world.

For clarity, blockchain is a type of distributed ledger. This means that there are other types of distributed ledgers that exist, albeit blockchain is the oldest.

Blockchain technology was invented by a man — or a woman, or a group of people — under the pseudonym Satoshi Nakamoto. The said entity introduced Bitcoin to the world in 2008.

According to its whitepaper, Bitcoin would become a peer-to-peer (P2P) version of an electronic cash system that facilitates online payments to be transferred directly from one party to another without the aid of any central figures or institutions.

Over time, people realized that blockchain has so much more to offer than providing a P2P money system. It can now be used to create and execute smart contracts, as well as develop decentralized applications (DApps).

How does blockchain technology work?

Different computers maintain regular blockchains. These nodes have a copy of all transactions that happen within the blockchain.

Whenever someone in the network plans to add a transactional data that did not occur, the network can easily detect it because they themselves have a copy of the entire blockchain.

Each blockchain consists of multiple blocks, with each block containing three fundamental elements which are the data, a cryptographic nonce, and the hash.

Blocks store data including the timestamp. These can be about a P2P transaction, a digital record of any event or thing, or a smart contract and all of its details.

The nonce functions as a pseudo-random number created in a secure protocol to ensure that transactions and communications can occur safely. It generates a cryptographic hash while the system accepts and stores data in the block.

Every blockchain has a unique nonce and hash features based on its functionalities. Roughly, there are 4 billion nonce-hash combinations mined before the right one.

In this context, miners discover new blocks to be added to the chain. They receive newly-minted cryptocurrency as rewards for their efforts.

Read More: How Blockchain Technology Works

Advantages of Blockchain

More than enabling the quick-rich-through-Bitcoin hype, blockchain technology is enjoying ever-increasing attention because of its many advantages. Here are some of them.

Decentralized

As stated above, most blockchains are decentralized, which means that they are maintained by hundreds — possibly thousands — of computers from around the world. This means that blockchain does not have a central point of failure.

Entities that plan on hijacking a blockchain network will have to burn massive amounts of energy and computing power to do so. That is why blockchain is practically immune to common schemes like the 51% attack and the distributed denial-of-service (DDoS) attack.

Anonymous

Blockchain technology does not require any of its members to input any of their personal information. Each node has an assigned address, composed of random letters and numbers.

Transactions on the distributed ledger machine are also highly anonymous even though the network can see all transactions that occur within it.

Transparent

Anyone can view blockchains. Blockchain records all transactions, in which every node has a copy of. That is why it is practically impossible to fake a transaction.

Blockchain provides a solution to double-spending. This concerns spending a specific money more than once. This can happen in typical digital money transactions.

Accordingly, blockchain records all legitimate transactions, which everyone in the network has a copy of.

Any entity who plans to commit a double-spending scheme will have to own at least 51% of the network for him to hijack the system. That will cost him a significant amount of energy and computing power.

As a result of blockchain technology’s transparent and decentralized properties, transactional activities and asset history are immutable, untraceable, and transparent.

Uses of Blockchain Technology

Many notable persons, companies, and sectors have taken interest in blockchain technology as a core solution to address various industry problems.

Given blockchain’s decentralized, secure, and transparent properties, many have begun to incorporate the technology with other innovations, with some attaining tremendous success.

Most people believe that blockchain technology has yet to realize its full potential. As of now, most of its applications are categorized into the following uses:

Asset Management

Blockchain is an efficient upgrade to asset management due to its untamperable properties. It provides better liquidity for assets, especially real estate and securities.

Before, asset managers and companies would struggle to sell their assets due to the scarcity of investors who can afford them.

For example, a 2,000 square-foot house in downtown Manhattan can cost about $2 million; maybe more. Typically, the seller needs a significant amount of time before it gets sold.

Blockchain technology tokenizes the asset’s value. This means that even small investors can purchase a share in the property along with others. What is more, blockchain stores the deed, preventing any future ownership disputes from happening.

The same can be said about securities. Companies that plan to sell their securities can do so by creating digital tokens, which will be more affordable to investors.

Capital Markets

Blockchain technology has significantly changed the way capital markets exchange values. The traditional capital market infrastructure is facing a number of issues due to complicated and rigid rules which are not cordial to the modern culture and business.

Blockchain technology solves the issues with expensive operational costs and framework inefficiencies. It provides immutable, secure, and scalable payment options for capital market stakeholders.

Supply Chain Management

Countless trading companies around the world are now using blockchain technology for global supply chains. This is because blockchain ensures that the exchange of capital, goods, and services across international borders or territories is secure and transparent.

Blockchain allows the tokenization of existing documents, letters of credit, etc. Smart contracts also enable better coordination among traders, investors, exporters, and importers through legitimate automation of agreements.

Supply chain participants can also check the location and status of a particular product in real-time. Moreover, all participants can transparently access trade settlements.

Payments

The first application of blockchain technology was for Bitcoin, which describes itself as a “peer-to-peer electronic cash system.” In fact, many people flocked to Bitcoin and blockchain technology for the sole purpose of making fast and secure P2P payments.

Today, many cryptocurrencies and blockchain-based companies provide better payment solutions. Some provide crypto wallets and ATMs, while others have gone as far as to offer crypto debit cards.

Moreover, established payment platforms like PayPal, MasterCard, and Visa have joined the bandwagon and offered their own blockchain and crypto payment services.

Internet-of-Things (IoT)

Many companies are also using blockchain technology in conjunction with IoT. By definition, IoT is a system of devices that can connect to the Internet and with each other. A simple example would be a smartphone that can connect both to the Internet and to a modern laptop.

Blockchain’s immutable properties, together with the use of smart contracts, synergizes well with IoT to guarantee the security of interconnected devices from data breach and manipulation. IoT databases have also attained an upgrade in terms of overall cybersecurity.

Aside from IoT, blockchain technology has proven to have good synergy with modern innovations like Big Data, artificial intelligence (AI), virtual reality (VR), augmented reality (AR), and more.

Different sectors like healthcare, gaming, entertainment, fintech, travel, and more. Despite the threat of quantum computing to breach blockchain’s powerful encryptions, many are already upgrading their networks to become quantum-resistant.

Various think tanks and consortiums are discovering more possibilities with blockchain. Moreover, governments and multinational organizations are utilizing blockchain for many uses. This will enable blockchain to pave the way for a more interconnected society in the future.

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Collins Adane is a writer who follows the crypto industry closely. He loves fish stew and Real Madrid. He believes in cryptocurrency’s potential to transform the money landscape in his native country Ghana.