What is blockchain?

November 2, 2022

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Introduction

Blockchain is a very popular topic these days: you will find articles about it in almost every newspaper and magazine, even in places where you would not expect it. The blockchain is a data structure that originally was used by Bitcoin to track all the transactions made by its users since its inception. Transactions are grouped into chained blocks, and blocks are added to the chain over time. This ledger is shared among the members of a network, which is why it is sometimes called a distributed ledger. Blockchains allow for the storing and exchanging of value over the internet without the need for a centralized intermediary. They are the technology that powers cryptocurrencies, the Decentralized Web, and its corollary, decentralized finance. Since 2015, blockchain has also been used to refer to the decentralized consensus technology originally used by Bitcoin. This technology therefore refers to all the methods that allow the participants of a distributed network to agree without resorting to a trusted third party. In this article, we explain blockchain for dummies so that you can understand everything about this "revolution."

What is blockchain and how does it work?

Blockchain technology can be likened to a digital ledger that is constantly updated and maintained by a network of computers. This ledger records data in real time and is visible to all participants. A blockchain is a secure and distributed database that contains the history of all exchanges made between its users since its creation. By being shared by its various users without intermediaries, everyone is able to verify the validity of the chain. A public blockchain network will always use a programmable currency or token. Bitcoin is an example of a programmable currency. Network users can group transactions into blocks. Each block needs to be validated by network nodes, which are called "miners". The validation process used depends on the type of blockchain. For example, the Bitcoin blockchain uses a technique called "Proof-of-Work". This involves solving algorithmic problems. Once the block is validated, it gets a time-stamp and is added to the blockchain. The transaction is then visible to the receiver and to everyone else on the network. The time it takes for this process to complete varies depending on the blockchain being used (around 10 minutes for Bitcoin).

How does Blockchain technology differ from a database and what are their benefits?

The main difference between a blockchain and a database is the way the data is structured. With a blockchain, information is collected in groups, called "blocks." These blocks have a limited storage capacity. When they are full, they are chained to the previous block. This forms a chain of all the data, called the "blockchain". A database is a system for storing and retrieving data, while a blockchain is a database that uses a distributed system for secure online transaction processing. This means that all blockchains are databases, but not all databases are blockchain.

Security: The security of blockchain is due to its use of cryptography and encoding of transactions. This makes it difficult to see exactly what has happened, but you can be sure that it has occurred. It is similar to a large accounting system that can be used for various items that are not owned by a single company, but rather by everyone.

Clarity/Transparency: The decentralized nature of Bitcoin's blockchain means that all transactions can be viewed in a transparent manner. This can be done by either having a personal node or using a blockchain explorer. This allows you to view the transactions live. Each node has a copy of the chain that gets updated when new blocks are confirmed and added. This means that you can track Bitcoin wherever it goes.

Less Corruption: Just as it is impossible to falsify the blockchain for tracking purposes, it is also impossible to lie about the amount transferred, etc.

Smart contracts: Blockchain-based smart contracts are self-executing contracts that do not require intermediaries like banks or other third parties. These contracts execute themselves after all the actions of the parties involved in the deal are completed and all the agreements are met, making fraud nearly impossible. Some crypto-currencies allow for the use of smart contracts. The programmable nature of Bitcoin made this use possible, and Ethereum generalized it in 2015.

What are the blockchain use-cases?

Cryptocurrency: Blockchain is most commonly used today as the foundation for cryptocurrencies like Bitcoin and Ethereum. The more people use cryptocurrency, the more widespread blockchain technology could become. Blockchain is the technology that records all cryptocurrency transactions.

Money Transfers: Blockchain technology is most useful for money transfer and payment processing because it enables lightning-fast transactions in real-time. Blockchain is being used to process transactions in fiat currency, like dollars and euros, which could be faster than sending money through a bank or other financial institution. The transactions can be verified more quickly and processed more efficiently.

The transfer of assets from one person or organization to another: Blockchain can also be used to process and transfer the ownership of different assets. This is currently very popular with digital assets like NFTs, which are a representation of ownership of digital art and videos. However, blockchain can also be used to process ownership of real-life assets, such as the deed to real estate and vehicles. The two parties in a transaction would first use the blockchain to verify that the individual owns the property and the other has the money to purchase the property. Then, they could use the blockchain to complete the transaction. The process would allow them to transfer the property deed without having to submit any paperwork to update the county government records. It would be updated instantly in the blockchain.

Logistics: The most pressing issues in the logistics industry are data siloing and lack of communication and transparency. These obstacles become even more pronounced when thousands of companies are operating in this domain, costing businesses time and money. Blockchain's data transparency is useful for acknowledging data sources and automating processes, which builds trust and transparency within the logistics industry.

Voting: The experts are investigating the potential of blockchain technology to reduce or eliminate fraudulent voting activities. The use of blockchain in voting would theoretically enable voters to cast their ballots securely and without fear of tampering, as well as eliminating the need for manual collection and verification of paper ballots.

There are still plenty of potential uses for blockchain technology that we haven't mentioned or are not yet aware of.

Conclusion:

Blockchains are paving the way for a new web, the decentralized web, and a new digital economy, the token economy. To understand their implications, it is crucial to avoid caricaturing cryptoassets, which are at the heart of this revolution.