Updated: Dec 12, 2020
If you are one to keep up with future tech trends, you may have heard of the term "blockchain" multiple times. You may have initially dismissed this phrase as a buzzword, catchphrase, or maybe a technical term. If this is the case, you might be missing out on something.
This might sound bizarre to you, but the blockchain is not just a technical word. It is an advanced immutable ledger that will have extensive implications in the future. The shared ledger transforms not only the finance sectors but also several other industries and businesses.
This is why businesses and companies across the globe are adopting this technology. The distributed database can maintain a list of records or block with a timestamp. That is to say, the real technology is not something garnering hype, but it has a real purpose.
If you're new to the blockchain world, we have you covered here with all the details you need to know.
Let's get started!
What is Blockchain?
Simply stated, blockchain refers to DLT (distributed ledger technology). It is typically a database that records and stores incoming transactions for an individual to see. However, it doesn't mean anyone can identify you. Blockchain incorporated a technology that can encrypt all data, including outgoing and incoming. That makes it hard, in fact, impossible to trace.
Technically, the shared ledger of blockchain collects data, which are blocks. Every when you make a transaction, a specific network broadcasts it. The data miner solves all the cryptographic puzzles. Once it is secured, it makes the block secure on the platform. Then, anyone who views the blockchain can easily see the blocks of data.
Remember that the ledger doesn't use your identification while anyone can see your transaction. This state is called "pseudo-anonymity" in cryptocurrency state.
Key Components of Blockchain
Immutability of Records
This is what makes blockchain the safest place to maintain transactions. That means if you're a participant, there is no way you can alter, change, or tamper with a transaction once the system records it on the ledger. If a recorded transaction includes any errors, it is essential to add or reverse the errors and make sure that both transactions are evident.
Shared Ledger Technology
Note that all participants on the network have access to the shared ledger. They can see and use immutable records of different transactions. The system records transactions only once with this distributed ledger. This eliminates the effort to duplicate or renter the data again, which is common in traditional networks.
The system stores smart contracts (a set of rules) to speed up the transactions and execute them automatically. These smart contracts define and elaborate conditions for bond transfers, including travel insurance terms and much more.
How Does Blockchain Work?
Now that you're aware of the most critical blockchain components let's look at this advanced technology's mechanism. Precisely, blockchain works by storing data in different batches or blocks. The system links all these blocks together in a chronological manner and form a chain. It is different from the old ledger and sharing methods in which a database saves data or information.
Blockchain technology works with a decentralized design that can be distributed across an extensive network of systems. As mentioned above, this smart data decentralization limits people's ability to alter or tamper with confidential information, making it more trusted and reliable. The robust mechanism of block linkage makes it temper-proof. All the blocks make a chain via these links.
That means it is nearly impossible to tamper with information without affecting the whole chain. If you want to add a batch to the blockchain, a computer or system provides a hash or code that creates another data batch before forming the next block. The system then shares this solution with other computers sharing the same network. This is also a way to provide a work-proof. After this, the structure of computers verifies the work-proof and adds a block to the chain.
Why Blockchain is Important
We have been using decentralized platforms to share information, but we consider banks and government agencies reliable when transferring money, value, ownership rights, or intellectual property.
Blockchain technology, on the other hand, offers an intriguing possibility to eliminate the middleman and performs three significant roles. It records transactions, establishes identity, and contracts that financial service sectors carry out. This technology's potential use is vast, but powering cryptocurrencies like Bitcoin is the most prominent one.
Connection between Blockchain and Cryptocurrencies
Keep in mind that blockchain technology enables cryptocurrency to exist, among several other things. Cryptocurrency is a medium that allows people to exchange digital currencies through encryption techniques. Note that not all blockchains use tokens or cryptocurrencies and may vary on the type of distributed ledger and blockchain.
Lower fees, high transaction speed, and transparency are some qualities that make Cryptocurrencies and blockchains the future of the financial sector. When you see it from an investor's perspective, Cryptocurrencies as a fractional investment can reduce the minimum investment barrier, allowing everyone to purchase them.
Plus, many digital currencies can help investors diversify their portfolios when it comes to investing through blockchain. For instance, Bitcoin is a Cryptocurrency that has sustainable growth and makes the right choice to invest.
It is one of the most popular Cryptocurrencies in the world. Its popularity gives it the most significant advantage against other digital currencies in the market. As Bitcoin will continue to dominate the digital currency market, experts recommend investors benefit from its high-liquidity levels during periods of economic downturn. Bitcoin has demonstrated a volatile yet steady and consistent growth over the years.
All in all, blockchain is a decentralized technology that is replicated on different computers for users in the same network. It allows anyone to generate and publish information on the network. Thus, digital ledger has a program that records financial transactions without any chances of errors.