What Is Blockchain Technology? A Beginner's Guide to Distributed Ledger
What is blockchain, exactly?
“Blockchain refers to a specific type of ledger technology designed for storing and managing data”.
In earlier times, transactions were documented in written ledgers and stored within financial institutions. These traditional ledgers were accessible only to authorized individuals for auditing purposes. However, blockchain revolutionized this concept by promoting transparency in the handling of information, particularly transactional data.
At its core, a blockchain is an updated and constantly reviewed distributed list of transactions. It is also referred to as distributed ledger technology (DLT), capable of being programmed to record and monitor various valuable assets across a network spanning multiple locations and entities. This interconnected network of computers creates a global web-like structure.
While commonly associated with cryptocurrencies, blockchain technology extends beyond the digital asset market. Its distinctive feature of data addition and storage enables its application in various industries, serving different purposes.
What are the applications of blockchain beyond cryptocurrency?
When considering blockchain, cryptocurrency and decentralized finance often come to mind. As blockchains typically rely on decentralized nodes and mining, they commonly incentivize operators with native cryptocurrency tokens. However, the potential of this innovative technology extends far beyond digital currency rewards, presenting remarkable implications that can disrupt numerous industries.
Supply chains - Blockchain technology offers significant benefits in logistics and supply chain management. It introduces enhanced transparency and validation mechanisms to shipping and supply networks.
Ownership and NFTs - Blockchain provides a novel approach to digitally transfer ownership. Non-Fungible Tokens (NFTs) represent tokenized assets that can be physical or digital. NFTs are revolutionizing industries such as music, video, sports, collectibles, and media.
Government - Governments are exploring blockchain for various applications, including central bank digital currencies (CBDC) and secure storage of public documents.
Social media - Projects like Steem aim to become a new medium of communication by rewarding users with cryptocurrencies for delivering engaging content.
The Internet of Things (IoT) - Blockchains like Helium, Pollen, Filament, and IOTA capitalize on providing connectivity and security to internet-dependent smart devices.
What does a blockchain look like?
The structure of a blockchain can be described as composed of two fundamental elements: blocks and the chain itself.
A block is a collection of data that is linked to other blocks in a sequential manner, forming a virtual chain. To illustrate this concept, envision a train composed of multiple interconnected carriages, with each carriage representing a block containing a specific set of data. Similar to how a train carriage can only accommodate a limited number of passengers, a block has a finite capacity for data before it becomes full.
Furthermore, each block in the blockchain includes a timestamp, indicating the precise moment when the data was recorded and stored. This timestamp feature is particularly crucial for applications involving transactional or supply chain data, where knowing the exact timing of a payment or package processing holds significant importance.
How many copies are there?
In a blockchain, there is no single centralized master copy. Instead, every participant who operates a computer contributing to the network, known as a "node," maintains their own copy of the blockchain. These nodes continuously communicate with each other to ensure consensus and synchronization of data. This decentralized approach eliminates the existence of a single point of failure. Consequently, the security of the blockchain is significantly enhanced, making it exceedingly difficult for malicious actors to manipulate the stored data.
For instance, if a group of hackers intended to manipulate a transaction on the blockchain, they would need to breach the devices of every network participant worldwide (Or at least 51%) and modify all records consistently.
Unlike traditional financial institutions that maintain a centralized database of financial records, the blockchain prioritizes transparency and aims to be distributed, shared across networks, and often accessible to the public. This emphasis on transparency regarding transactions and information storage enables the blockchain to serve as a reliable and authoritative source of truth.
Why else is it so special?
Trustless system: Unlike traditional online transactions where trust is required in various intermediaries, a blockchain operates as a trustless system. Participants can engage in the exchange of goods or services without relying on a centralized third party. This is made possible by the consensus mechanisms (PoW or PoS) and cryptographic protocols employed in the blockchain.
Elimination of middlemen: Many existing networks are controlled by intermediaries or agencies that impose fees for information flow. In contrast, a blockchain removes the need for middlemen, leading to potential cost reductions and faster transaction processing (Yet you still need to pay for gas fees).
Transparency: In public blockchains like Bitcoin, transactions are visible to anyone, enhancing transparency. This feature enables easier tracking of the flow of goods or services, contributing to increased accountability and integrity.
Decentralization and that no one is in control: The decentralized nature of blockchain means that no single person or group has control over the entire system. Changes and updates to the blockchain can only occur through consensus among the network participants. This decentralized architecture fosters a more democratic and resilient framework.
These unique characteristics of blockchain technology offer increased security, efficiency, transparency, and empowerment to individuals engaging in various transactions and activities.
What makes blockchain technology revolutionary?
Blockchain technology eliminates the need for intermediaries in transactions, resulting in an immutable ledger that securely records the information. Have you ever encountered a situation where you attempted to make a purchase using your debit card, only to realize that the check you deposited a week ago hasn't yet been credited to your account? With blockchain, there is no middleman, such as a bank, exerting control over your transactions. Instead, blockchain transactions occur directly between two parties, fostering a peer-to-peer system.
Transactions conducted on the blockchain occur without the need for approval from traditional financial institutions. Unlike banks, which typically require certain documentation from their clients, the blockchain can be accessed by anyone with an internet connection. This accessibility contributes to the revolutionary and disruptive nature of blockchain technology.
Additionally, blockchain can serve as a platform for recording information that would typically face censorship by governments. The underlying philosophy behind blockchain is its "censorship-resistance" vision, which allows political movements in countries like Belarus to utilize blockchain technology, ensuring unrestricted movement of their funds. There have been instances in China where individuals have utilized blockchain to share sensitive documents, creating a permanent record of events that were otherwise unreported by the media.
Who invented the blockchain?
Cryptographers have been engaging in discussions about the concept of blockchain since the early 1990s. However, it was the appearance of an enigmatic individual known as Satoshi Nakamoto in 2009 that led to the development of blockchain technology as we know it today. The creation of Bitcoin, a decentralized digital currency, stands as a prominent example of utilizing the blockchain system.
Blockchain pros
-Disintermediation
-High-quality data
-Durability and security
-High level of integrity
-Immutability and transparency
-Longevity and reliability
-Simplistic ecosystem
-Empowered users
-Faster transactions
-Lower transactional costs
-New business model and value chain
-Improved traceability
Blockchain cons
-Redundant performance
-Complex signature verification
-Private keys
-Integration concerns
-Uncertain regulations
-Large energy consumption
-No control for enterprises
-Privacy concerns
- Cultural adoption/disruption
-Lack of in-house capabilities
- High cost
Conclusion
Blockchain technology has revolutionized the way data is stored and managed. It offers enhanced transparency, security, and efficiency in various industries beyond cryptocurrency. Undoubtedly, it is the next big thing to come and to help you dive deeper into the cryptocurrency world easily, we have built a crypto savings wallet that leverages all the pros of blockchain technology while still being easy to use. Feel free to check it out at Nativ! or other notable competitors in the market.