What is a Blockchain? Why should you care about it?
Unlike traditional methods, blockchain enables peer-to-peer transfer of digital assets without any intermediaries. It was a technology originally created to support the famous cryptocurrency, BitCoin.
A blockchain is, in the simplest of terms, a time-stamped series of immutable records of data that is managed by a cluster of computers not owned by any single entity. Each of these blocks of data (i.e. block) is secured and bound to each other using cryptographic principles (i.e. chain).
The first cryptocurrency was Bitcoin launched in 2009 by Satoshi Nakamoto who is still unknown as of today. Bitcoin was a huge success and there are also a number of competing cryptocurrencies known as altcoins As of today, there are literally thousands of cryptocurrencies in existence with an aggregate market value of over $2.43 trillion.
Why Blockchain has gained so much admiration?
It is not owned by a single entity, hence it is decentralized.
The blockchain is immutable, so no one can tamper with the data that is inside the blockchain. Once the data is entered, it cannot be removed or changed as it only provides the feature of adding the data.
The data is cryptographically stored inside.
The blockchain is transparent so one can track the data if they want to.
Blockchain transactions are near-instant, irreversible, and, in public blockchains, anonymous by design.
The Three Pillars of Blockchain Technology
The three main properties of Blockchain Technology which have helped it gain widespread acclaim are as follows:
In a decentralized system, the information is not stored by one single entity. In fact, everyone in the network owns the information.
In a decentralized network, if you wanted to interact with your friend then you can do so directly without going through a third party. That was the main ideology behind Bitcoins. You and only you alone are in charge of your money. You can send your money to anyone you want without having to go through a bank.
An example of a centralized system is the banks. They store all your money, and the only way that you can pay someone is by going through the bank.
Immutable means that something is unchanging over time or unable to be changed. So in our context, it means once data has been written to a blockchain no one, not even a system administrator, can change it.
The reason why the blockchain gets this property is that of the cryptographic hash function
Because of the decentralized nature of Bitcoin’s blockchain, all transactions can be transparently viewed by either having a personal node or by using blockchain explorers that allow anyone to see transactions occurring live.
A person’s identity is hidden via complex cryptography and represented only by their public address. So, if you were to look up a person’s transaction history, you will not see “Ani sent 2 BTC” instead you will see “1QW1bhsFLkBzzz9vpFYEmvwT9TbyCt7JHW sent 2 BTC”.
So, while the person’s real identity is secure, you will still see all the transactions that were done by their public address. This level of transparency has never existed before within a financial system.
Advantages and Disadvantages of Blockchain
- Improved Security & Financial Efficiency
- No Government Interference
- Instant Payments at Reduced Costs
- Extremely Volatile Market
- Illegal Activity
- Scalability Is An Issue
- Blockchain Cannot Go Back — Data is Immutable
- Some Blockchain Solutions Consume Too Much Energy
Blockchains can be set up to operate in a variety of ways, using different mechanisms to secure a consensus on transactions, seen only by authorized users, and denied to everyone else. Bitcoin is the most well-known example that shows how huge Blockchain Technology has become. Blockchain founders are also trying out numerous other applications to expand Blockchain’s level of technology and influence. Judging by its success and increased use, it seems that Blockchain is poised to rule the digital world of the near future.