The revolutionary technology that established the biggest cryptocurrency in the world is branching out. But what is it? And why everyone around is talking about it?
The first major application of blockchain technology was bitcoin which was released in 2009. Bitcoin is a cryptocurrency and the blockchain is the technology that underpins it. A cryptocurrency refers to a digital coin that runs on a blockchain.
Understanding how the blockchain works with bitcoin will allow us to see how the technology can be transferred to many other real-world use cases.
Blockchain is a public ledger: which is a decentralized platform of information technology where data is transmitted and recorded instantly, between two users and automatically validated and checked through the inbuilt system itself, Manual verification is not required. Records occupies ‘blocks’ and every blockchain has a restricted quantity of these blocks, one of the major drawbacks in its wider adoption within the finance and banking world.
It is this difference that makes blockchain technology so useful – It represents an innovation in information registration and distribution that eliminates the need for a trusted party to facilitate digital relationships.
Any exchange on the blockchain ledger can be viewed by any person at any time and is confirmed automatically. Being decentralized, it doesn’t live on a server or database where it can be hacked but is totally transparent at the same time.
Now in the wake of the cryptocurrency hype, big businesses are seeing the benefits of implementing blockchain into their business. Hospitals can use it to securely store and receive patient files and realtors are using it to facilitate secure property purchases.
No-one really knows who invented Blockchain, the paper was published under the name ‘Satoshi Nakamoto’ but it’s likely that the name on the paper was a pseudonym for a group of people who all had a hand in the technology’s development.
How does it work?
The bitcoin blockchain is “decentralized,” meaning it is not controlled by one central authority.
While traditional currencies are issued by central banks, bitcoin has no central authority. Instead, the bitcoin blockchain is maintained by a network of people known as miners.
These “miners,” sometimes called “nodes” on the network, are people running purpose-built computers that are actually competing to solve complex mathematical problems in order to make a transaction go through.
For example, say lots of people are making bitcoin transactions. Each transaction originates from a wallet which has a “private key.” This is a digital signature and provides mathematical proof that the transaction has come from the owner of the wallet.
Now imagine lots of transactions are taking place across the world. These individual transactions are grouped together into a block, organized by strict cryptographic rules. The block is sent out to the bitcoin network, which are made up of people running high-powered computers. These computers compete to validate the transactions by trying to solve complex mathematical puzzles.
The winner receives an award in bitcoin.
This validated block is then added onto previous blocks creating a chain of blocks called a blockchain.
Blockchain solved a problem that many people in the cryptocurrency community were having trouble with. ‘Double spending’ was solved using blockchain which prevented users from using the same digital token more than once. It also presented the opportunity for the currency to be decentralized, so governments and other authorities were not required to regulate or oversee it, making it a completely free, global currency.
However, Blockchain has moved on now and the idea of having a public ledger that is not owned by anyone clearly has benefits. For one, it’s super-secure because no one owns the original file and it can be updated without the threat of hack.
It means data – even the most sensitive information such as that related to personal identities, medical information and insurance records can be stored in a neutral place.
However, there are a lot of developers, users, and investors who truly believe blockchain technology is the future. Many people want to see the technology growing successfully, so stay tuned for new developments!