The blockchain is the foundation of the Cryptocurrency world; without it, the whole system would collapse.
However, this technology isn’t just relevant to the cryptocurrency field. It has other applications that haven’t been fully explored yet.
To use Blockchain you don’t need deep knowledge about how it works or how the technology was formed, but it’s a good idea to become familiar with the basics of this technology.
Here’s a small introduction to blockchain to help understand how it works.
What is Blockchain Technology?
A blockchain is a digital ledger that keeps a record of all economic and financial transactions in the cryptocurrency world. It can be used to keep a record of anything of value and not just financial entities like digital currency.
The ledger is incorruptible and every verified transaction is recorded in it. Once the transaction is recorded, it’s permanent and can’t be altered, which makes the blockchain a very secure piece of technology and ideal for high-value transactions.
Blockchain was created as an answer to the question, “How does one trust the information one receives online when there’s a considerable amount of self-interest and deception involved in the online world?”
Blockchain gives information and digital transactions the authenticity they need to be successful.
The History of Blockchain
Blockchain started out as an underlying platform for Bitcoin, the highly successful digital currency in 2009. It was created and introduced by a group of individuals operating under the name Satoshi Nakamoto.
The developers and users later realized that blockchain can be separated from Bitcoin and used in other transactions as well. Institutions and organizations around the world realized that blockchain technology can be used to authenticate all kinds of inter-organizational transactions and communications.
The potential of blockchain was further expanded when developers incorporated digital smart contracts into the platform. This allowed users to carry out other transactions like contracts, bonds, loans, etc.
The blockchain was no longer limited to digital currency transactions.
How Does Blockchain Work?
- A user sends a request for a transaction.
- The request is sent to a network of nodes for verification.
- The nodes validate the transaction and the user based on information available in the databases.
- The transaction can involve cryptocurrencies, records, contracts, and other information.
- Once the transaction is verified, a new data block is created and added to a collection of other such data blocks called the ledger.
- The new data is permanent and unalterable, so the entire blockchain is secure.
- Once the data is recorded in the blockchain, the transaction is complete.
The Many Uses of Blockchain
Blockchain is currently used in the cryptocurrency world for all kinds of digital transactions. Here are some of the current applications of it:
- It’s used to establish and verify the identity of a distinct user to ensure all transactions with the user are legitimate.
- It adds value to digital coins that have no inherent value of their own.
- The platform legitimizes all digital transactions like contracts, bonds, stocks, stakes, etc.
- The platform helps generate tokens and makes them legitimate, which allows new cryptocurrencies to enter the market without creating their own blockchain.
- Blockchain supports wallets, which are the basis of all digital transactions in the world of cryptocurrency.
These are some of the many uses of blockchain and every day, a new application is added to the list. Blockchain has a lot of potential and will expand to applications outside the cryptocurrency world soon.
- Smart contracts
- Sharing economy
- Supply chain auditing
- Prediction markets
- File storage
- Protecting intellectual property
- Managing identity of different users
- Data management
- Stock trading
- Registering land titles
- Internet of things
Blockchain is a new and evolving technology and developers are constantly working to expand its potential. It’s not easy to predict where this technology will go in the future but there are some innovations on the horizon such as:
- The blockchain will soon operate on a proof-of-stake system instead of a proof-of-work system that it currently uses. The chain is maintained by data centers operated by miners who receive payments in the form of digital currency. This system will be replaced with complex financial transactions which are much more secure.
- In the current blockchain system, every computer in the network processes every transaction. Future transactions will be scaled and divided without compromising security.
Blockchain has a bright future ahead of it and institutions outside the cryptocurrency world are already exploring its potential. It’s predicted that around 15% of the banks will start using blockchain in their transactions by the end of 2017.