What is Blockchain?
The simplest definition of blockchain is that “the blockchain is distributed, digital ledger.” One of the key features of the blockchain is that it is a “Distributed Database” that is to say, the database exists in multiple copies across multiple computers.
A couple of references will further help elaborate it:
“The blockchain is an incorruptible digital ledger of economic transactions that can be programmed to record not just financial transactions but virtually everything of value.”
Don & Alex Tapscott, authors Blockchain Revolution (2016)
“Blockchain-based networks, decentralized apps (DApps), and distributed ledgers are becoming the foundation of much of your digital life. There’s a new immutable digital fabric remaking the internet beneath us, and you probably don’t even realize it.“
(Rob Marvin – August 29, 2017)
Think of blockchain as a historical fabric underneath recording everything that happens – every digital transaction; exchange of value, goods and services; or private data exactly as it occurs. Then the chain stitches that data into encrypted blocks that can never be tempered and it sequentially scatters the blocks across a worldwide network of distributed computers or “nodes.”
The blockchain contains a legitimate and verifiable record of every single transaction ever made.
To use a simple analogy, it is pretty easy to steal a candy from a candy jar, kept in an isolated place than stealing the candy from a jar kept in a market place, where it is being observed by hundreds of people.
The traditional digital economy is based on the reliance on a certain trusted authority or entity. Our all online transactions rely on trusting someone to tell us the truth; it can be an email service provider telling us that our email has been delivered; it can be a certification authority ensuring us that a certain digital certificate is trustworthy; or it can be a social network such as Facebook or Instagram telling us that our posts regarding our life events have been shared only with our friends or it can be a financial institution telling us that our money has been delivered reliably to other party. The fact is that we live our life predominantly in the digital world by relying on a third entity for the privacy and security of our digital belongings. The fact of the matter is that these third party sources can be hacked, manipulated or compromised. This is where the blockchain technology rises to occasion. It has the potential to revolutionize the digital world by enabling a distributed consensus where each and every online transaction, past and present, involving digital belongings can be verified at any time in the future. It is done without compromising the privacy of the digital belongings and the parties involved. The distributed consensus, immutability and anonymity are three major characteristics of blockchain technology.
A Brief on Blockchain technology
The ledger technology, Blockchain, came to the world with the potential to change everything. Blockchain technology saves a lot of time and money, doesn’t require a vast amount of record keeping, and changes the underlying IT process in an entirely different way.
Cryptocurrencies are based on this ledger system. One of the hyped ones is Bitcoin, which is pretty much taking over the whole world now.
As blockchain is a distributed P2P ledger system, anyone can see other users’ entries, but definitely no one can alter it, perhaps not even the hackers. It increases a higher level of security, transparency and reliability.
Blockchain ensures security in this network by using the concept of ‘Key.’ If you use a set of encrypted keys, you’ll get a unique identification that no one can break. You’ll get a private and public key, using this combination you’ll get a unique identity. Others will use your public key to find you on the network. With the help of your private key, you’ll be able to sign any action or authorize transactions associated with your public key.
If you think about cryptocurrencies, then the public key will get used as your wallet address, and you’ll use the private key to withdraw, send or buy digital money. That’s why it’s essential for you to keep your private key safe and secure.
So far if you’re quite comfortable reading above and still want to comprehend it a little further, lets move on.
Each block in the block chain contains some data, the hash of the block in question and the hash of the previous block. The data that is stored in the block depends on the type of blockchain. For example, the Bitcoin blockchain stores the details about the transaction such as the sender, the receiver and the amount of coins.
A block also has a hash. A hash is like a fingerprint. It uniquely identifies the content of the block. Once the block is created, its hash is calculated. Now if any change, or most likely a tempering, occurs inside the block the hash is changed which does not essentially match the original hash stored in the block, consequently disturbing the big part of the blockchain system.
The third item a block contains is the hash of the previous block. So this technique makes the blocks in the blockchain system extremely secure and immutable.
Bitcoin, the decentralized digital currency, is the most popular example that uses blockchain technology. The digital currency bitcoin itself is highly controversial because it helps to enable a multi-billion dollar global market of anonymous transactions without any governmental control but the underlying blockchain technology by itself has worked impeccably and found wide range of applications in both financial and non-financial spheres.
Blockchain technology is finding applications in wide range of areas—both financial and non-financial.
Financial institutions and banks no longer see blockchain technology as threat to traditional business models. The world’s biggest banks are in fact looking for opportunities in this area by doing research on innovative blockchain applications. In a recent interview Rain Lohmus of Estonia’s LHV bank told that they found Blockchain to be the most tested and secure for some banking and finance related applications.
Non-Financial applications opportunities are also endless. We can envision putting blockchain technology in action for all legal documents, health records, in the music industry, notary, private securities, insurance, voting process, marriage licenses and even for securing ideas and reputation.
For instance as regards to voting process blockchain will help prevent any malpractices such as tampering with ballot papers. As a result, it is widely applicable in major institutions such as labor unions, corporations, co-operative societies and governments that hold regular elections. By storing the fingerprint of the digital asset instead of storing the digital asset itself, the anonymity or privacy objective can be achieved.
The rationale is that the blockchain establishes a system of creating a distributed consensus in the digital online world. This allows participating entities to know for certain that a digital activity occurred by creating an indisputable record, a block, in a public ledger, the blockchain. It opens the door for developing a democratic open and scalable digital economy, from a centralized one.