Imagine you can make transactions with anyone without carrying any cash or plastic money. In this transaction, no one can interfere, like third-party applications or banks. This is one of the critical facets of blockchain technology.
Blockchain has revolutionized technology in a way that has transformed how transactions work. Intending to provide a safe and secure mode of transactions, it uses digital cryptocurrencies that no one with ulterior motives can manipulate.
With that in mind, blockchain is a set of blocks that record information of transactions, like who made the transactions and to whom. The amount of trade is in the form of a digital ledger.
To make it more secure, this ledger is distributable to the entire network, making it impossible to hack, cheat, transform, or alter the system.
Then, every node verifies and validates the ledger in the blockchain network to proceed with transactions.
It is cryptocurrencies like Bitcoin, Ethereum, WAX, and many more that use this blockchain network for transactions; these help you keep track of them as the market capitalization of the cryptocurrency.
Almost every day, new cryptocurrencies are coming in front. More and more people are willing to participate in this economic revolution.
Because of that, many believe blockchain will revolutionize the economy and technology of the world in the coming future. Fred Ehrsam, co-founder of Coinbase, said, “Everything will be tokenized and connected by a blockchain one day.”
What does this mean?
Reading this article, you’ve encountered the term “blockchain” and may have heard it from other people online. Regardless of what they tell you, you simply don’t understand this yet. You’re wondering what’s it about. Don’t worry. We’re here to help.
On the one hand, you can think of the blockchain as a behind-the-scenes network of interconnected zones. You can also think of them as little chains of data blocks that manage, propagate, and compute bitcoin transactions.
On the other hand, you can think of it as a public ledger of all Bitcoin or cryptocurrency transactions that have ever gone down.
Essentially, if Bitcoin is the magical digital money, then the blockchain is the wizard behind the currency. He works his magic so that everything runs smoothly.
Blockchain Wizard
So what can this clever wizard do?
For starters, the blockchain’s magic conjures up something like a phantom bank account. From this account, bitcoin transactions are entered in chronological order into a blockchain. It is almost like a bank transaction.
With that, the blocks themselves act as traditional bank statements. In short, it is like having an anonymous and enchanted bank in your own pocket. The good part? That’s just one of the wizard’s many tricks.
Our Wizard’s knowledge is unrivaled in all the land. He knows everything from bitcoin addresses and their balances to all the first and most recent blocks in the network.
He even has little minions working for him, which you can call “nodes”. These nodes are network-connected computers. They validate and relay transactions using a series of complex executions. It’s a little different from Bitcoin mining but has the same premise.
The blockchain can deal with issues like cheating and double spending through these nodes, which is essential to bitcoin security. While bitcoin is the currency itself, the blockchain is the delivery and regulatory system behind all digital currency transactions.
The blockchain keeps the digital realm safe, so you can spend bitcoin and sleep well at night.
In short, the blockchain is an open-source collaborative and inventive technology. It is created by the smartest computer and security specialists on earth.
While mainly geared toward digital currency like Bitcoin, today’s blockchain usage still applies to various functions. One example is blockchain gaming.
Explained For Kids
If you want a simpler explanation than the ones previously, let me tell you a little story about Jake.
Since he could remember, Jake has always wanted to get a blue cat. However, his parents always found ways not to get it for him. So, one Christmas, while reflecting, he figured out a way to finally get his dream pet.
He would send his wish to Santa. He was so excited to get it from Santa!
However, Jake was too young to take the letter to the post office by himself. So, the next morning, he had to ask his dad to do it for him. You could say that his dad was the “middleman” between Jake and Santa.
He never imagined that, on his way to the post office, his dad would open the letter, read it, and replace the blue cat on the list with a brand new pair of socks. The letter was posted to the North Pole to Santa and the elves.
When they received it, they started working immediately, making Jake’s gift.
So, that year, Jake received an adorable pair of socks. However, next Christmas, Jake decided to use the Blockchain.
Jake wrote exactly the same letter, but instead of giving it to his mom or dad to deliver, he directly uploaded it to the “North Pole Blockchain”.
North Pole Blockchain
The North Pole Blockchain comprises many computers connected to one another through the Internet that all store a copy of everyone’s Christmas list.
Santa and all the elves monitor this network simultaneously, including people like Jake’s parents. Every time a new letter is received, it is saved onto every individual computer so everyone has the exact same copy.
As the blockchain is an open network, everyone can see all the letters. Regardless, it is impossible to know to whom each one belongs.
However, when Jake’s parents saw a letter asking for a blue cat, it wasn’t hard for them to know it was from Jake. So, once again, they changed it to a cookbook.
As every other node had a copy of Jake’s real letter, the change was spotted, and the computer trying to make the change was cut off from the network, meaning Jake’s real letter remained unchanged.
So, guess what Jake received that year for Christmas?
Overview of Blockchain
Cryptography and distributed computing has existed for several decades. However, blockchain aims to combine these two. You can say that blockchain is a new asset class of information technology.
Satoshi Nakamoto is the genius behind their combination. He created a collaborative model where computer networks work toward maintaining a secure and shared database.
For now, you can say that as a technology, blockchain is a distributed, secure database.
Strings of blocks consist in this database, with each one being recorded and encrypted as data, which is identified as a “hash”.
Consensus Algorithm
Since no centralized segment for verifying the alterations in the database exists, the blockchain depends upon a distributed consensus algorithm.
All computers must agree to make an entry onto the blockchain database. Thus, it makes it impossible to alter the database without the consensus of others.
When finished, a block becomes a permanent record on the blockchain. Each time a block is complete, a new one generates. There are countless such blocks in the blockchain, all connected to each other by links in a chain in proper linear, chronological order.
The transactions in the blockchain are immutable, meaning they are permanent. Each block contains a hash value that depends upon the previous block’s hash, so they are all linked together.
This means alteration can happen to all the other linked blocks if one changes This works to make the data entered tamper-proof.
Blockchain Technology Explained
The blockchain functions in creating a long-lasting, perpetual, and secure database suitable for storing a record or transaction that involves value.
They are aptly named “distributed ledgers”, an array of shared, synchronized and replicated digital data.
This is geographically dispersed across multiple sites, countries or institutions without centralized administration or centralized data storage maintained by a distributed computer network.
Such ledgers can be used for any asset registry, such as inventory or monetary transactions. This might include recording hard assets such as physical items, objects, vehicles, houses, etc., or intangible assets such as currencies or other valuable information.
This technology replaces multiple private databases within each organization with one shared trusted database accessible by all parties involved. As such, this creates trust among parties and increases collaboration and reliability.
It means that strength for our collaborative capacity may develop further between organizations or individuals peer to peer without dependency on third parties centralized institutions.
A Major Significance in Tech
This presents a major significance in technology. We have many centralized organizations that may be internally optimized. Still, the inter-organizational space between them is inefficient, with huge amounts of border friction, redundancy, arbitrage, and resources wasted on the competition.
Enabling these accessible and trusted inter-organizational networks will form robust organization systems and collaborative techniques where there were none previously.
Practical applications may include across whole supply chains, for different healthcare providers to provide the best health services for a patient, or for different transport providers to collaborate to deliver an integrated logistics network.
Likewise, 2nd generation blockchains offer the possibility to automate the workings of these networks through what we call “smart contracts”.
Contractual Agreements
Smart contracts are lines of code from a computer inside a blockchain, encoding contractual agreements.
These smart contracts execute by themselves or automatically where the terms of agreement are directly written in the codified form to be implemented and stored on the blockchain.
Smart contracts function like your usual computer program. They consist of algorithms which process your input of data. Depending on the value of the input, they trigger specific events.
A financial contract may be a good example of this. This contract inputs the amounts of money in a person’s account. There is an increase in the interest rate upon reaching a certain level.
Such smart contracts can automate many basic operations on the network, removing the need for intermediary third-party institutions. Smart contracts are tamper-proof and execute automatically.
Implications of Blockchain
Implications for blockchain technology far beyond ledgers. The blockchain is more than just a distributed ledger or an array of databases. It is a revolutionary self-organizing paradigm that uses discrete units to develop and distribute organizations through token market systems.
Token Economy
A token is a quantified unit of the value recorded on the blockchain. This value may be of any kind. It may be the likes on social media, a currency, the integrity of an ecosystem, or electrical units.
Token networks consist of independent nodes that act autonomously but through incentive structures, and the signaling system of the market is self-organized to create emergent coordination. Thus, a distributed management system arises.
For example, a clean air token is created where those who serve to maintain and provide clean air can earn tokens. An example of this is planting a tree. Those who pollute through combustion engines have to pay a fee for air tokens.
Thus, instead of a centralized governing body that regulates us, a decentralized token market creates values and systems that align with people’s motivation to keep the growth of the underlining resource.
Technology Management Infrastructure
Likewise, the same model applies to technology infrastructure management. Think of traffic control we have in cities. Central control operates these systems.
However, in the world of the blockchain and the rise of autonomous vehicles, cars can signal each other through peer-to-peer networks, using tokens to get priority. This way, the system has the dynamics to allocate resources and is organized by itself via distributed token networks.
In short, blockchain is not just information technology but also an institutional technology: it creates this space where we can design incentive structures similar to token economies. It converts centralized organizations into distributed markets via token economics.
Final Thoughts
This is a Frequently Asked Question (FAQ) article addressing the question: “What is the Blockchain?” We have attempted to answer this question through research using simple and complex language. We even delved into a story section in the article that reads like a kid’s fiction story to explain it as simple as possible.
The blockchain is still a new, developing and budding technology; much of it remains untapped. However, as the years go on, we will see its fullest potential unraveled.
It is not a matter of if but when.
