Blockchain is the latest technology, the interest in which has grown along with the popularity of cryptocurrencies. Today it is widely discussed not only in the world of finance. They are already trying to use blockchain for storing and processing personal data and identification, in marketing and computer games. But what is blockchain? Let’s discuss the technology in detail.
What Is Blockchain Technology?
A blockchain is a system of devices are distributed over the database and are not connected to a common server. This database stores an ever-growing list of ordered records called blocks. Each block contains a timestamp and a link to the previous block.
The use of encryption ensures that users can change only those parts of the blockchain that they “own” in the sense that they have private keys, without which writing to the file is impossible. In addition, encryption provides synchronization of copies of a distributed blockchain for all users. You can also find out what is a node in blockchain by reading this article.
How Does Blockchain Work?
This video will help you fully comprehend how blockchain works:
How Did Blockchain Appear? The Short History Of Blockchain
The idea of blockchain technology was described back in 1991 when research scientists Stuart Haber and W. Scott Stornetta introduced a computational and practical solution for digital documents with a timestamp so that they could not be framed retroactively or faked.
The system also exploited a cryptographically protected chain of blocks to store documents with a time stamp, and in 1992 Merkle trees were included in the development, which made it more efficient, allowing you to collect several documents in one block. However, this technology was not used, and the patent was lost in 2004, four years before the creation of Bitcoin.
Reusable Proof Of Work
In 2004, computer scientist and cryptographic activist Hal Finney (Harold Thomas Finney II) introduced a system called RPoW, Reusable Proof Of Work. The system worked by receiving a non-replaceable or non-interchangeable Hashcash token based on proof of work and signed in RSA, which could then be transferred from person to person.
RPoW solved the double-spending problem by retaining ownership of the tokens registered on a trusted server that was designed to allow users around the world to verify its correctness and integrity in real time. RPoW can be considered as an early prototype and a significant early step in the history of cryptocurrency.
At the end of 2008, white paper, representing a decentralized peer-to-peer (P2P) electronic money system called Bitcoin, cryptography was sent out by someone calling himself (or themselves) Satoshi Nakamoto.
Based on the Hashcash proof of work algorithm, but instead of using a hardware trusted computing function such as RPoW, Bitcoin’s double-spending protection was provided by a decentralized peer-to-peer (P2P) protocol to track and verify transactions. In short, Bitcoins are “mined” for a fee using the proof-of-work mechanism for individual miners, and then checked by decentralized nodes in the network.
What is blockchain mining? This infographic explains the process in simple terms:
On January 3, 2009, Bitcoin appeared when the first Bitcoin block was mined by Satoshi Nakamoto, who had an award of 50 BTC. The first recipient of Bitcoin was Hal Finney, he received 10 BTC from Satoshi Nakamoto, in the first Bitcoin transaction in the world, January 12, 2009.
This is how blockchain started conquering the world.
Advantages of Blockchain
The blockchain registry provides transaction transparency. Processing of payments and verification of transactions is performed by miners. It is these people who create the chain of blocks, and not some centralized body, who plays the main role in managing and administering this alternative currency system.
A blockchain, or chain of blocks, consists of blocks of individual transactions. Blocks connected to each other make up a complete transaction history. After the block is included in the chain, it is impossible to change it. Unlike Bitcoin, blockchain technology is constantly evolving. Its capabilities are not limited to cryptocurrency.
Here are some features of this technology that you should be aware of:
- It allows you to reliably transmit any value or information.
- It allows you to create and track so-called ‘smart contracts’.
- It eliminates intermediaries and enables end-users to interact with the registry directly.
- It minimizes the cost of transferring value and money to anywhere in the world.
- It provides almost instant and secure transactions, not limited by state borders.
- It allows you to create automatic protocols – permanent, irreversible and resistant to external influences.
Why The World Is Raving About Blockchain Technology?
Now when you know what blockchain what is, you might still wonder what caused this enthusiasm for blockchain technology? This question can be answered differently – all in all, blockchain has a ton of merits. Today, no one doubts that this is one of the most interesting and innovative technologies due to the following facts.
1. Security & Prevention of Payment Frauds
Blockchain eliminates payment frauds. The use of smart contracts makes both the seller and the buyer protected. Parties will not be able to evade their duties.
Fraud prevention is also facilitated by the fact that since all transactions are recorded, it will not be possible to counterfeit money or spend the same coins twice.
In addition, individuals and legal entities will not be able to conduct black bookkeeping or manipulate prices. Since all transactions are committed, each coin is counted. Unreasonable inflation of prices by monopolists can become a thing of the past.
2. It Eliminates Middlemen
Blockchain is a peer-to-peer system, that is, transactions occur between two peers. And that radically changes the rules of the game. The process of transferring electronic money to anywhere in the world is greatly simplified. For example, you can send money to a friend or relative, wherever they are, without paying the commission that ordinary banks or other financial institutions charge.
This technology will lead to the emergence of decentralized trading floors. Thanks to this new market model, there will be no need for intermediaries such as Amazon and eBay. So, in April 2016, OpenBazaar launched its trading platform with zero commission, where you can sell and buy goods for bitcoins. In Japan and other Asian countries, the number of such decentralized sites, successfully integrating into the field of international electronic commerce, is growing.
This technology will also exclude lawyers, realtors, and banks from the process of buying and selling real estate and transferring property rights. This will not only bring significant savings from commissions but also reduce the duration of the transaction from a few days to a matter of hours.
3. It Ensures Fast Transaction Flow
Imagine that you have the opportunity in a few minutes to send and receive money around the globe. Do you want to sign a contract or renew your ownership rights in one day? A decentralized peer-to-peer blockchain system allows you to quickly pay to any digital wallet. No more waiting for several days.
4. It Improves Data Storage Capabilities
Cloud storage is an incredible development. But the user cannot control it. The cloud service providers, such as Google, Dropbox, Facebook, Apple, and other giants do not ensure 100% privacy. Blockchain represents a different approach to privacy: since an encryption key is required to access your data, you can be sure that no one else can read it.
5. It Rewards Users
Everyone likes reward programs. Blockchain can improve loyalty programs by providing users the opportunity to trade points among themselves, since such operations will be reflected in a publicly accessible registry. There will also be an opportunity to use points from different sellers. For example, the points received from the airline, you can use in a cafe or online store.
Where Blockchain Is Used?
What is blockchain used for? Thanks to the above-mentioned opportunities, blockchain technology can make a breakthrough in the following industries:
- Finance – the blockchain will make traditional banks and financial institutions unnecessary by replacing back-office systems with a P2P system.
- Contracts – smart contracts will be used as network escrow accounts, the money from which will be sent to recipients, depending on the implementation of the planned event. Contracts, transactions, titles, and other important documentation will be kept in an open registry.
- Patents and copyright – the blockchain can enforce copyright on new technologies, gaming applications, music, etc.
- Voting – blockchain allows you to protect the will of people in the election process.
- Collectibles – blockchain can be used to track and validate rare items, such as works of art.
- Consignment notes – the use of cryptographic signatures will help increase confidence in the delivered goods and track their origin.
Medical sphere, logistics, betting, education – the list of spheres can be a mile long because literally any business can reap benefits from this outstanding technology. Blockchain allows you to register and trade property rights to anything. This leads to a wide range of possible applications of this technology, which can radically change our world!