Blockchain is the technology behind digital currencies such as Bitcoin. It can secure transactions and track them in a decentralized way, which is what digital currencies are based on. Blockchain has been around since the early 2000s but only became mainstream in 2017 with the introduction of cryptocurrencies like Bitcoin, Ethereum, Ripple, and Litecoin. It’s expected that this technology will become more important in 2018 as more companies explore its uses and potential benefits.
In this article, you will learn everything you need to know about blockchain and how it can improve your life.
What Is Blockchain?
Let’s start with a quick definition of blockchain. Blockchain is a decentralized system that lets anyone record and share transactions across a large network of computers. This system maintains a continuously growing list of records called a “blockchain.” This blockchain is verified and secured using cryptography, which is math that you might be familiar with on a much smaller scale. Blockchain is a technology that can be used for various applications. It’s been successfully used in financial services, government, healthcare, music, and other industries. But perhaps its most important potential use is in supply chain management.
The blockchain concept was first proposed as a research project in 1991, before its first widespread application in use was Bitcoin in 2009. In the years since, the use of blockchains has exploded with the creation of various cryptocurrencies, decentralized finance applications, non-fungible tokens, and smart contracts.
How Blockchain Works?
Let’s start with a simple explanation of how blockchain works. You may have heard people say that blockchain is a distributed database. This is somewhat true, but a bit more complicated than that. The key thing to understand about blockchain is that it is not a centralized database. In fact, it is decentralized. This means it doesn’t rely on one central authority to store information. To understand this a little better, think about your favourite website. Maybe it’s a social media site, a news site, or a shopping site. These sites are centralized because they rely on one central authority to operate. But that central authority isn’t storing all of your information. It isn’t storing much information at all. The website is built on top of other technologies, including a database system.
Centralized vs. Decentralized Network
A centralized network is a single server or computer that controls the whole network, giving it complete control over the network. A decentralized network is an arrangement of computers, servers, and other devices connected to each other without a central point of control.
Centralized networks are seen as more vulnerable to attack and are vulnerable to single points of failure. By contrast, decentralized networks are seen as more secure than centralized networks because they have no single point of failure and can’t be shut down by any entity.
Decentralized networks are also seen as having more potential for scalability than centralized networks, as they do not require a single server or computer to manage the entire network.
Furthermore, since master nodes within a decentralized network act independently and may not communicate with one another, larger organizations may run into coordination issues and have a difficult time directing and achieving collective tasks.
What Is a Miner?
Now that you understand how the information on the blockchain is decentralized, let’s focus on the decentralized part of the blockchain. You may have heard people say that blockchain is decentralized. This is somewhat true but a bit more complicated than that. The key thing to understand about blockchain is that it is not centralized. In fact, it is decentralized. This means it doesn’t rely on one central authority to store information. To understand this a little better, think about your favourite website. Maybe it’s a social media site, a news site, or a shopping site. These sites are centralized because they rely on one central authority to operate. But that central authority isn’t storing all of your information. In fact, it isn’t storing much information at all. The website is built on top of other technologies, including a database system.
Blockchain Applications for Industries
Now that you understand the basics of blockchain, let’s look at some industries investing in this technology.
- Banking: Blockchain technology can facilitate banking transactions, reduce fraud, and improve security. Beyond payments, it can also store personal data, track assets, and facilitate trade by recording inventory.
- Healthcare: Blockchain technology can store and share patient records, increase transparency and trust between healthcare providers, and reduce administrative costs.
- Insurance: Blockchain technology can facilitate insurance claims and payments, increase transparency and trust between insurers, and reduce administrative costs.
- Supply chain management: Blockchain technology can be used to track products and goods, reduce fraud, and increase the speed of delivery.
- Government: Blockchain technology can increase transparency in government processes and reduce fraud, corruption, and human error.
Read more: The Beginner’s Guide to Fintech
Potential Benefits of Blockchain
Now that we’ve taken a look at some of the industries that are exploring blockchain, let’s take a look at some potential benefits of this technology.
- Increased Trust: Blockchain technology allows for increased trust between parties, providing an immutable and secure ledger of transactions.
- Improved Security and Privacy: Blockchain technology offers improved security and privacy by using cryptography to store data and ensure that it cannot be modified without permission.
- Reduced Costs: Blockchain technology eliminates the need for a third party, such as a bank or an accountant.
- Faster Speed: Blockchain technology is faster than traditional data storage methods, eliminating the need for manual processing and data verification.
- Improved Visibility and Traceability: Blockchain technology provides an immutable ledger of transactions, allowing users to track data and ensure that it is accurate easily.
- Immutability: Data stored on the blockchain is immutable, meaning it cannot be changed or removed without permission.
- Individual Control Over Data: Through blockchain technology, individuals can control their data and decide who can access it.
- Tokenization: Blockchain technology can be used to tokenize assets, allowing users to easily transfer ownership of assets and securely store data.
- Innovation: Through blockchain technology, businesses can create innovative solutions and products that are impossible with traditional methods.
- Improved Transparency: Blockchain technology allows for increased transparency,
Disadvantages of Blockchain
Now that we’ve looked at some of the potential benefits of blockchain, let’s take a look at some of its disadvantages.
- Not a Distributed Computing System: Blockchain is a distributed network, but it is not a distributed computing system and lacks the features that make it so beneficial for corporations.
- Scalability Issues: Blockchain networks are not as scalable as their centralized counterparts and can slow down with increased network congestion.
- High Energy Consumption: Some blockchain solutions consume too much energy as they rely on miners to solve complex mathematical problems.
- Data Immutability: Data stored on a blockchain is immutable, meaning it cannot be changed or removed without permission.
- Inefficiency: Blockchain networks are sometimes inefficient, as they cannot process transactions as quickly as a centralized counterpart.
Final Words
You now have a basic understanding of blockchain. This technology is valuable and will become more important in the future. This article discusses how it works, what it can be used for, and some of its disadvantages. With blockchain, you don’t need to rely on a central authority like a bank or a website. You can store information on the blockchain and verify it across a network. This can help to ensure the authenticity of goods. You can also use the blockchain to create a more secure payment system. Now that you know what blockchain is and how it works, you can decide if it is something you’d like to invest in.
