Nowadays, the media, and others, regularly talk about blockchains and Bitcoin.It can be confusing. We thought it might be helpful to take a step back and cover some basic facts.
First Things First
Blockchain is an append-only digital ledger that records transactions in a secure, decentralized, immutable, and transparent manner. It is a distributed database maintained by a network of computers rather than a single central authority. The database is used to store information about transactions between different parties. This information is stored in blocks linked together to form a chain. This chain of blocks is what makes up the blockchain.
The idea of how to update and maintain a blockchain through proof of work was first introduced in October 2008 as the underlying technology behind the digital currency, Bitcoin. However, since then, the technology has evolved and it can now be used for applications beyond just digital currencies. Some of these applications include smart contracts, digital identity management, supply chain management, and more.
It’s Decentralized - but what does that mean?
One of the key features of blockchain technology is its decentralization. This means that there is no central authority that controls the database. Instead, the database is maintained by a network of computers known as nodes. Each node in the network has a copy of the entire database. This makes the technology incredibly secure, as there is no central point of failure.
It’s Transparent
Another key feature of blockchain technology is its transparency. All transactions on the blockchain are typically public, meaning anyone can view the information stored in the database. This makes it possible to track the movement of assets and information, which can be useful in a variety of applications. For example, in supply chain management, a blockchain database can be used to track the movement of goods from the manufacturer to the consumer.
A Note on Cryptography
The security of blockchain technology is maintained through a combination of cryptography and economic incentives. Cryptography is a method of encoding information so that it can only be read by someone with the correct key. In the case of blockchain, this key is used to sign transactions, which are then added to the distributed ledger. Once a transaction has been added to the blockchain, it is extremely (and often impossibly) expensive to alter or delete it. This makes the technology immutable, meaning that the information stored in the database is permanent and cannot be changed.
Introducing Smart Contracts
One of the most important applications of blockchain technology is in the area of smart contracts. A smart contract is a self-executing contract with the terms of the agreement between buyer and seller being directly written into lines of code. These contracts are stored on the blockchain and can be executed when certain conditions are met. For example, a smart contract could be used to automatically transfer ownership of a piece of property from one person to another when a specific condition is met. This can reduce the need for intermediaries, such as lawyers and real estate agents, to make transactions faster, cheaper, and more efficient.
Managing Identity Digitally
Another important application of blockchain technology is in the area of digital identity management. A blockchain database can be used to store information about individual credentials. This information can be used to verify the identity of individuals when they are making transactions or accessing services. This can help to improve online transactions’ security and reduce the risk of identity theft.
Future Forward
Blockchain technology has the potential to revolutionize a wide range of industries. However, some challenges must be overcome for the technology to reach its full potential. For example, there are concerns about the energy consumption of the technology, as well as the scalability of the network.
Blockchain technology is a powerful tool that has the potential to change the way we do business, make payments and interact with each other. By offering a secure, decentralized, and transparent way of storing information, it has the potential to make transactions faster, cheaper, and more efficient.
