Blockchain technology is in use today and millions of people are taking advantage of it by sending and receiving digital currencies. Some people want to become a part of this technology because they have a firm belief that it’s the technology of the future. On the other hand, you have people who still think it’s a fad.
However, you can be sure that blockchain technology is so sophisticated and has so many applications that you can’t call it a fad. It’s like someone calling the “internet” a fad in 1990. You know where the internet is today and how the world relies on it for just about everything. If you are still trying to wrap your head around this technology, here is a brief understanding.
Understanding the Blockchain
When transacting with each other, humans always find a way of recording information. For example, if you buy a car today, you will have papers that will show your ownership of that car. You then sell this car to someone and the ownership will change. This information will keep getting updated on papers as the car goes from one person to another and so on. You can call that paper on which all of this record is being kept a ledger.
Blockchain is also a ledger, the only reason for its creation is that it makes the record of transactions much safer than before. It also solves many problems that existed in the traditional ledgers.
How blockchain works are that the information about a set of transactions is recorded and then locked into a block. For a new set of transactions, a new block is formed, which also contains all the information from the previous block. As transactions continue to occur, more blocks continue to add on top of each other. That’s the reason you call it a blockchain—a chain made out of blocks.
A Detailed Exploration of the Blockchain Concept
Now, if you have been hearing about various cryptocurrencies, they are all vehicles that carry certain information from one use to another. You have many digital currencies today, namely, Bitcoin (BTC), Litecoin (LTC), Ethereum (ETH), etc. The main programming of these currencies has been done on the blockchain i.e. the blockchain acts as the base or foundation on which they are all based. The analogy of the internet and emails should work here. The internet is like the blockchain whereas emails are like cryptocurrencies.
The thing about the blockchain is that it is immutable, which means that information stored in a block cannot be changed, modified, or edited. Furthermore, this ledger is decentralized in nature i.e. everyone in the network has access to it. In other words, the Bitcoin you have in your wallet belongs to you and you only—there is no third party, such as a bank, keeping your money and charging you a fee for it.
When you execute a transaction, let’s say you send someone Bitcoin, the information goes to a network that consists of many computers. These computers are called nodes and their job is to validate your transaction. How they reach a consensus about the transaction is based on the proof of work or proof of stake model. In a proof of work environment, they have to solve cryptographic riddles in order to be considered for validating a transaction.
Only one node on the network can validate a block at any given moment, and they are rewarded with a unit of cryptocurrency for the work. Remember that each block that’s created contains information from the previous block as well.
At this point, you should have a good understanding of how the blockchain works and the purpose of its existence. It takes out the middleman and makes your transactions faster and more affordable than ever. You own your money in the literal sense and the economic policies of the government can’t hurt your ownership of your digital currencies and their value.