It’s not surprising that Blockchain technology has become the talk of the town lately. Indeed, it is a buzzword that causes a lot of confusions on what it really means and the purpose of it. A question that floats through many people’s minds, “What is Blockchain?”.
A person known by the pseudonym, Satoshi Nakamoto conceptualized blockchain when Bitcoin made it first appearance in 2009. Bitcoin is a cryptocurrency, basically refers to a digital or virtual currency. It serves as a medium of exchange to execute a transaction between a buyer and seller.
In the prevailing modern economy, the central bank of a country issues and backs the currency that circulates in the financial market. In contrast with cryptocurrency, it uses encryption techniques to regulate the generation of each unit of currency and to verify the transfer of funds. Blockchain is basically the technology that underpins the use of a cryptocurrency, creates and stores it electronically.
The identity of Satoshi Nakamoto remains a mystery.
How does Blockchain Work?
Blockchain is a public ledger that keeps a record of all verifiable transactions permanently in a network. A distributed system using a peer-to-peer (“P2P”) network supports the use of such technology by connecting the computers from every part of the world. All these computers represent the nodes within the network. Each node receives a copy of the blockchain containing the records of each executed transaction. The network validates the transactions using a cryptographic protocol, a set of sophisticated mathematical equations or algorithms to encrypt and decrypt data. This is to ensure that the network keeps the information private when transmitting or storing the data electronically.
The distributed ledger stores each validated transaction as a block of transactional records. Each block is linked to the previous blocks by a cryptographic hash with a timestamp in a chronological order, thus forming a chain of blocks, or a blockchain. Timestamp refers to a digital record of time of occurrence of a particular event at a point in time.
Blockchain applies the principle of decentralization. The use of such technology neither relies on nor it is controlled by a central authority. The architecture of such design maintains the integrity and authenticity of the data recorded. This is because the data cannot be altered retrospectively once recorded. Each modification requires verification by the entire network operated by the computers globally. By design, blockchain creates a layer of built-in protection that makes it almost impossible to tamper with the public ledger.
Key Benefits of Blockchain
Public keeps and share the common ledger. The entire network verifies and confirms each transaction before recording. Besides, it also serves as a permanent ledger as no one is able to erase the transaction intentionally or erroneously once recorded. Blockchain does not rely on central recordkeeping thereby resolves the issues of governance and accountability.
Traditionally, an intermediary such as bank or government acts as a trusted central authority that facilitates the execution of transactions or contracts. Blockchain has the ability to execute the transactions or contracts without the use of a third party, thereby reduces the transaction cost.
Blockchain operates 24/7 and processes transactions seamlessly by eliminating gaps in protocols or time zone differences. Therefore, the use of it can settle the transactions in a quicker manner.
The application of blockchain appears inevitable as big brands such as Microsoft and IBM have started investing heavily in the technology. Multinational corporations have widely applied the technology for different purposes to leverage on first-mover advantages. Given that it is still at infancy stage, it seems too early to imagine how it could transform the ways of things operate traditionally in different fields across the globe.