Understanding The Blockchain Technology (PART 1)

It is now a universal truth that one of the most ingenious inventions of all time is the Blockchain technology. It is a huge breakthrough in the field of distributed computing, developed by an individual known by the pseudonym Satoshi Nakamoto”.

As a result of mismanagement by the central banks which led to the financial crises of the 21st century, Satoshi, among others, came up with the unique and efficient solution intersecting the finance and decentralized computing technologies envisioned to a “trustless” society, where all interactions can be done between people directly, without using any third‐party service to create the “Digital gold” known as the Bitcoin.

The Bitcoin is the first ever application of the Blockchain. Its technology offers unprecedented technological options and abilities only dreamt of a few years ago. Rather than relying on a government, bank, or middleman. The Bitcoin belongs to everyone in a decentralized system called “peer‐to‐peer”. That is, without individual users, there is no Bitcoin.

Unlike the fiat currencies, Bitcoin price is determined by its users under the free market principle of supply and demand. As a decentralized currency, Bitcoin needs an ever‐expanding community who actively use it as a payment method, either by buying goods and services with bitcoins or offering goods and services in exchange for bitcoins.

Regardless of the type of industry, the blockchain can tremendously help your organization considering the following characteristics:

Decentralized Structure

The blockchain is designed to be distributed and synchronized across networks, which makes it ideal for multi-organizational business networks such as supply chains or financial consortia. It also encourages organizations to come out from behind their firewalls and share data.

Smart Contracts

You can’t just do whatever you want to the secured data. The types of transactions one can carry out are agreed between participants in advance and stored in the blockchain as “smart contracts,” which helps give confidence that everyone is playing by the rules.

Consensus Mechanism

Before one of the parties can execute a transaction, there must be an agreement between all relevant parties that the transaction is valid. For example, if you’re registering the sale of a vehicle, that vehicle must belong to you or you won’t get an agreement. This process is known as “consensus” and it helps keep inaccurate or potentially fraudulent transactions out of the database.

Immutability Of The Data

Once you have agreed on a transaction and recorded it, it can never be changed. You can subsequently record another transaction about that asset to change its state, but you can never hide the original transaction. This gives the idea of the provenance of assets, which means that for any asset, you can tell where it is, where it’s been and what has happened throughout its life.

With these tremendous benefits of the blockchain technology, the main question every single person is asking is: “What is Blockchain?”

Simply put, the blockchain is a public distributed ledger offering unprecedented transparency regarding transactions. It is a chain of the ledger that constantly grows as blocks, where the most recent transactions are recorded and added to the chain in a chronological order.

Based on the Bitcoin protocol, the blockchain database is shared by all nodes participating in a system. Upon joining the network, each connected computer receives a copy of the blockchain, which has records and stands as proof of every transaction ever executed. It can thus provide insight into facts like how much value belonged a particular address at any point in the past.

By allowing digital information to be distributed but not copied, blockchain technology created the backbone of a new type of internet. Unlike the central banks’ currencies, digital currencies working based on the decentralized data structure are not regulated by a central authority. Instead, users dictate and validate transactions when one person pays another for goods or services, eliminating the need for a third party to process or store payments.

Other than currencies, the blockchain has proven its uses in a variety of applications including:

  • Voting
  • Efficiency and Coordination Applications
  • Cybersecurity
  • Education
  • Marketing & advertising
  • Ecommerce
  • Supply-chain management
  • Justice Applications
  • Economics and Markets
  • Government systems
  • Music & video sharing

Just like the internet, or a complex automobile system, it is not compulsory for every individual to understand the complexity of the blockchain. However, having the basis of the technology helps you scale through possible future challenges, and to understand the how you can judiciously utilize the benefits of the technology in your business.

In the subsequent editions, we’ll be educating you on how best you can take advantage of the blockchain technology in your day-to-day activities.

Stay tuned!

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