Bitcoin, upon its creation in 2009, brought onto us the revolutionary blockchain technology. To some, the concept behind the technology can be a little intimidating. The sheer amount of jargon and slang is enough to terrify any person new to the game. However, once it’s all broken down, it’s much simpler than it sounds.
Breaking it down
Understanding blockchain technology is actually easy. First, let’s tackle why it’s called “blockchain.” In the most basic terms, it’s called a “blockchain” because that’s what it is—a chain of blocks. This explanation poses the questions: what are blocks, and what do they do?
In essence, blocks are clumps of data that tell you everything you need to know about a specific transaction. Blocks mainly store three kinds of data:
- Details of a transaction – Information such as date, time, and amount are stored on blocks.
- Participants of a transaction – Information of the participants of a specific transaction is stored in the form of a unique “digital signature” (kind of like a username) to protect your personal information.
- Distinguishing data – Just as how people have names to differentiate themselves from one another, blocks have “hashes.” Let’s say you make multiple transactions on a particular website. Although the details of your transactions look similar, hashes are the reason the chain will be able to tell the blocks apart.
Blocks on the Bitcoin blockchain can store 1 MB of data. Although it may not seem like a lot, it means that each block can store a few thousand transactions (depending on the size of each transaction).
We’ve now established what blocks are, now let’s get onto the “chain” side of things. The chain refers to the linking of all blocks. When a block obtains new data, it is added to the blockchain. Before a block is added, it has to meet specific criteria.
The first criterion is that a transaction has to happen. Without the transaction, there is no data for the block to store.
Next, that transaction needs to be verified. On the blockchain, there is a network of computers that work to verify details of the transactions—the time of the transaction, dollar amount, and its participants. Once verified accurately, all the data is stored in a block (where it will join transactions from other people).
Lastly, a hash must be given to the block. In addition to the hash that is assigned to the new block, it also receives the hash of the previous block added to the blockchain. The block will need this identifying code, so it doesn’t get mixed up with the others.
As soon as a block is added to the blockchain, it becomes public information. This is why it is often referred to as a “public ledger”—anyone can see the details of the transaction.
Why people love blockchain technology
If you’re wondering why many businesses and industries are rushing to integrate blockchain technology, it’s because it has several selling points:
With thousands (or even millions) of computers working to verify transactions using the “proof-of-work,” human error is taken out of the equation. Also, if a computer were to malfunction and commit a mistake, it would only be on one copy of the blockchain. For the error to spread throughout the entire blockchain, the same mistake needs to be made by 51% of all computers.
Transactions made through traditional means like banks have their setbacks. They have operating hours and are closed on weekends and holidays. If you deposited a check on Friday night, there’s a good chance you won’t see funds in your account until Monday. Blockchain technology, on the other hand, works 24/7, 7 days a week, and transactions take only up to ten minutes. Not only that, but the transaction is also secured after a few hours.
Although transactions aren’t anonymous on the blockchain, they’re confidential. All personal information is kept private. Yet, the technology itself is open source—meaning that developers can modify the code of the blockchain as they see fit. Still, they have to be backed by the majority of the total computing power. The transparency of the entire chain also makes it an immutable ledger of data. Tampering is extremely difficult as it’s nearly impossible to make a change without the millions of computers noticing.
Other than the three selling points mentioned above, blockchain technology is also decentralized, allowing for private and secure transactions.
Blockchain technology and its practical uses
Blockchain technology, in all its glory, has laid the foundation for a new breed of Internet. We know that blockchain is applicable to monetary transactions. However, people are starting to realize that this technology applies to other types of transactions as well. For example, how does blockchain technology work in the healthcare industry? With the integration of blockchain, providers can safely store medical records. These records can be generated and written into the blockchain—giving the patients confidence that their records are safe and cannot be changed.
There are a lot of companies looking to integrate blockchain technology into their systems. Understandably so, blockchain technology essentially represents a new and more effective way to share information. This new and more effective way, for businesses, holds the idea of being able to create secure and real-time communication networks with partners. It won’t be too long before it becomes a normality.