What is Blockchain and why does blockchain technology feature so much in recent vocabulary? Is Blockchain restricted to Bitcoin? Should you know about Blockchain technology? Is Blockchain the same thing as distributed ledger? Why was Blockchain invented? Is this new technology only for millennials?
These questions have crossed many minds in recent months. Many countries are looking at adopting blockchain technology for a number of reasons. However, unless we understand what is blockchain, then it might as well be double dutch.
In this post today, I will try to explain “what is blockchain” in a manner that can be understood by anyone who is interested in this developing technology.
What is Blockchain? Blockchain explained
The blockchain is a very hot subject at the moment. And the interest in blockchain technology and distributed ledger is hyping up. So what is all the hype? And how does blockchain really work?
Let me try to explain the “concept of blockchain” in just a few words by setting an example:
Let us say that you (you being the node) have an important document filed in your computer (known as the ledger). Let us say for simplicity that this important file is a record of a purchase deed of a portion of land (but could be any file). Now let us assume that two government departments (eg., land registry and deed registry) have the same file on their ledgers. The government departments in this case are known as the miners. The file that they share with you is known as a distributed ledger. Every time that you update any information on your file which is available on the distributed ledger, your computer automatically sends an email to both departments, informing them of the update.
What happens now?
For starters the recipient of the email will first check on you and see you can afford the update. This is paid in fractions of bitcoin. If the miner confirms that you are in the green, and you paid him his salary, then he validates your transaction. This is how miners stay alive and feed their families. By validating your transaction the miner will hit the keys “reply to all” and informs all parties who are on the distributed ledger that you have now added a transaction to your original deed. The verification process by the first miner is also known as Proof of Work. As soon as the second department agrees, all the ledgers are Updated accordingly.
Blockchain Technology was first invented to Support Bitcoin transactions
If you never heard of Satoshi Nakamoto – it is probably time for me to do the first introductions. To be fair, we have no real idea whether Satoshi Nakamoto really exists. The name Satoshi Nakamoto was the undercover name that was used by an unknown person (or more likely a number of persons) who first designed Bitcoin. Bitcoin (as all other cryptocurrencies) is a decentralized currency (meaning that no government can force inflation it) that works on a blockchain database.
You may be thinking, now why on earth would anyone want to create such a fictitious currency? As the legend goes, the people behind Satoshi Nakamoto, were a bunch of disgruntled silicon valley geeks who lost plenty of money during the 2008 financial collapse. Blaming greedy banks and irresponsible governments, they decided to create a currency that is totally impervious to the mavericks of both.
The formula concept is quite simple. They designed a digital currency that would not be limitless. Bitcoin is limited to 21 million coins. Therefore one day in the future, the miners can no longer “dig out and harvest supply”. But miners, as explained above will always be paid their salary from updating bitcoin transactions, as bitcoin changes hands. Up to now, 17 million bitcoin have been mined.
What is Bitcoin Mining? And What is Blockchain technology to do with it?
Bitcoin Mining is the process of solving a mathematical formula that becomes more and more complicated over time. The reward is a bitcoin or a fraction of a bitcoin. Bitcoin was born in 2009 and in these 8 years 17 million coins were mined. It is expected that it will take up to 2040 to mine the next four million bitcoin.
Bitcoin mining is the process by which transactions are verified and added to the public ledger, known as the block chain, and also the means through which new bitcoin are released.
Is Blockchain Technology and Distributed Ledger Restricted to Bitcoin?
The answer is a very categorical no. The irony of the birth of Blockchain technology is that while many experts may be of the opinion that Bitcoin is a bubble that may burst, the technology that supports it is the future of keeping any type of record.
Therefore the answer to the question of “what is Blockchain Technology” could very simply be
“Blockchain technology is the Future. It is a technology that ensures the safe keeping of all records. It will eliminate the use of third and fourth parties and will facilitate speed and result in cost cutting in all types of record keeping”
Therefore just to make things clear. Bitcoin is not Blockchain. Blockchain technology was invented to support the application of bitcoin, but has since been used in plenty of other industries.
Is Blockchain Technology Anonymous?
Again this is where most people make the confusion between Bitcoin (with its notorious connotations of thriving due to anonymity) and blockchain technology.
Actually the distributed ledger that supports Bitcoin, records every single transaction, that happens to Bitcoin or fractions of bitcoin. The original anonymity of Bitcoin was only because the “owners” of original bitcoin were not known. However, their movements with bitcoin will always be public.
Today regulated bitcoin exchanges that facilitate the buying and selling of bitcoin as subjecting new clients to identify compliance. Therefore, over time, there will be more transparency, regulation, and of course government control over bitcoin transactions. This is the road to eliminate money laundering. KYC (know your customer) and AML (anti-money laundering) are the rigorous compliance requirements of serious exchanges.
If you are still not sure what is blockchain, this is the moment you need to understand that blockchain for business, does not have “mining” as a purpose.
Blockchain technology for business is about being able to control. The control includes the “miners” who verify the transactions. It is pretty much as standard business practice as it happens today. But far easier and swifter. Blockchain technology can be used both for Public Distributed Ledgers and well as for Private Ledgers. This is the reason why so many large business are now adopting the blockchain technology. Private ledgers are limited to the information used for one particular company. Public ledgers are ledgers that are available to governments and the public in general.
What is Blockchain Technology? Is Blockchain Technology going to change the world economy?
Did internet change the world of communication? The answer is a categoric yes. Internet has made the access of information available to anyone in an easy manner. In the same way, Blockchain is on the verge of changing the way people do business in a far more secure way.
The great thing about blockchain technology is that once a transaction has been made, it is forever. It cannot be manipulated or altered. This is what provides the trust factor. The history and record of any transaction pertaining to either asset or service is there forever.
Therefore in a situation where parties do not know each other, and therefore the trust factor is low, the blockchain technology offers safety from fraud, tampering, and collusion.
Blockchain technology is in its toddler stages. Although it is diffusely used by large companies and countries already, its use has so far been untapped. There is much to be discovered.
In conclusion to what is blockchain technology and its value, we can sum it up in just a sentence.
Blockchain technology offers the benefits of speed (no more looking for information in a number of places) security (because the transactions are verified) and is cost effective.
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