What is Blockchain? Everything Beginners Need to Know
Confused about blockchain? You’re not alone. Check out our article to get the low-down on everything beginners need to know to wrap their head around blockchain.
You’ve no doubt heard of blockchain. It’s likely that you’ve heard of it in conjunction with crypto currencies. Blockchain is the backbone of every crypto currency, but its use doesn’t end there. Companies all around the world are beginning to invest in blockchain technology.
But what the hell is blockchain, exactly? Most people don’t fully get what this revolutionary new technology is or how it is currently being used. It’s actually pretty simple and the best way to get your head around it is by reading more about what it is and real-world examples of how it’s being used.
In this article, we’ll cover what blockchain is, how it’s being used, how it relates to crypto currencies, and how it’s being used by governments and businesses around the world today.
What is blockchain?
You’re going to hate me for this: Blockchain is a chain of blocks (sorry). Consider this: each block is a transaction – each block holds the name, time, and amount that was transferred. So this block of encrypted data is like a file.
Now, imagine that each of these blocks of data is like a carriage on a train. Each carriage contains various pieces of data and each one is linked together with a hitch. You can always add more carriages to the train.
Imagine that hackers are like bandits robbing trains. If they want to get hold of a block in the blockchain (a carriage in the train) without anyone knowing. They’d have to unhitch that particular carriage – thing is, all the carriages behind it would also be unhitched. There’s no way that they could take the carriage without everyone knowing that the rest of the chain had been corrupted.
Blockchain works in much the same way. Each block of data is connected to the next. Each block has a unique number (sort of like a name) that makes it unique. Each block also carries the name of the previous block, meaning that if you were to change one, then the next would also have to be changed to cover up your tracks. But then you’d need to change the one after that, too, and the one after that, and the 300,000 after that. You get the idea.
This is the root of what makes blockchain so secure. The data kept within it simply cannot be altered without leaving a footprint. This has made blockchain the technology of choice for secure financial transactions, real estate transactions, and now also smart contracts.
Blockchain and Crypto Currency
Most people first heard of blockchain because of crypto currencies like bitcoin. The technology was actually thought up in 1991 by two researchers who wanted a way to ensure that timestamps on documents couldn’t be messed with. It took until 2009, however, for the technology to really be unleashed.
This was when someone under the pseudonym Satoshi Nakamoto invented bitcoin.
Bitcoin quickly rose in popularity as more people began to see value in it. Eventually, the digital currency rose to from $0.8 per bitcoin in 2010 to $19,783 per bitcoin at the end of 2017. The currency allows people to make totally secure financial transactions with no third parties involved. This means that transactions can also be totally anonymous. This has led bitcoin to become the currency of choice for those paying for drugs and criminal actions over the dark web.
More than that, however, bitcoin demonstrates the potential of blockchain technology. Millions of users are entrusting their money in a currency that is backed by no government, bank, or regulator, simply because it is run over blockchain.
You can visit the bitcoin blockchain and see it for yourself. Every blockchain is kept visible to the public and the bitcoin one has more than half a million blocks. You can see who uploaded each block, when they did it, and what the unique tag number of that block is. This is an interesting way to see blockchain in action. You can view it here.
In short, all crypto currencies, like bitcoin, litecoin, Ethereum, and others, use blockchain to ensure that their user’s coins and transactions are secure.
How is blockchain used?
Blockchain isn’t just limited to cryptocurrency. From banks to estate agents to landlords and tenants, blockchain is being used everywhere these days. The easiest way to understand blockchain is to look at examples of how it’s currently being used.
BANKS: One of the most high-profile implementations of blockchain likely to take place is in the banking sector. Santander puts the potential customer savings at $20 billion. While at present, if you deposit a check in the bank it can take up to three days to process it, with blockchain, transactions could be made in as little as ten minutes and they’d be completely traceable and secure.
CRYPTOCURRENCY: Bitcoin was born against a backdrop of financial crisis. In countries where the currency is unstable or governments lack transparency, entire fortunes can be lost overnight. There have been cases where governments have nationalized banks and taken all the money inside them for themselves, or where currencies collapse and businesses are wiped out overnight. Cryptocurrency allows you to keep your money outside of this system. While it’s prone to fluctuation itself, it could be viewed as a means to more securely keep track of your cash.
SMART CONTRACTS: These have become increasingly popular in recent years. Imagine that you wanted to make a deal with some you’re buying a house off of, you can make a smart contract where the money for the house will automatically come out of your account when they hand over the keys. If they don’t, then they don’t get the money. This is a great way to get around fraud.
VOTING: Finally, blockchain can also be used to set up secure online voting, which takes out the potential for miscounting ballots, as well as giving the results instantly. This ensures more transparency in the voting process and it speeds the whole thing up.
I hope that this post has given you a more rounded idea of what blockchain is and how it can be used. This is an inherently complex subject and it can take some time to fully get your head around it. It often seems like those trying to tell you what it is don’t fully get it themselves, so don’t worry if you’re still not 100%. I recommend that you keep following developments of blockchain and its implementation. Enjoy!