The technical description of Blockchain is that it is a decentralized, distributed public ledger. Think of Blockchain as a literal chain and the links as blocks. Blockchain is essentially a string of digital pieces of information stored in blocks which in turn form the core of Blockchain and store a wide range of information including transaction details and participants’ information. The increased adoption of Blockchain technology is also expanding its capabilities.
Short history of Blockchain technology
Blockchain was first utilized on a large scale in 2009 when the anonymous person or people going by alias Satoshi Nakamoto launched Bitcoin. However, Nakamoto was not the first person to think of this concept. The technology is a brainchild of W. Scott Stornetta and Stuart Haber. It was first outlined in 1991 and presented as a solution to the interference of timestamps on documents. Blockchain has been growing in popularity fast after Bitcoin successfully put it to use.
How does Blockchain work?
There are three key principles of Blockchain technology going from its technical definition:
Decentralized: Blockchain does not have any single entity or authority lording over it as is the case with most traditional systems such as the current financial system whereby all operations are overseen by a country’s Central Bank. Instead, the platform is maintained by a distributed network of “miners” dispersed across the world. For instance, the Blockchain platform on which Bitcoin runs is maintained by a network of millions of computers and miners across the globe.
Distributed: Again, no single person has restricted access to a Blockchain platform. Each Blockchain created is stored on every computer on its network in exact replicas of the original chain. Each copy on each computer is also updated automatically once more blocks are added to the original chain. For instance, there are millions of copies of Bitcoin’s Blockchain platform stored on every miner’s computer.
Public: Blockchain platforms are public as anyone with a computer and access to the internet can view one. However, only verified miners can actually add blocks to the Blockchain.
Blocks – The Core of Blockchain Technology
Understanding the three key principles of Blockchain technology is important but you have to understand what blocks are and how they work to really understand Blockchain technology. Blocks are essentially digital pieces of information. They are capable of storing a diverse array of information but each block must contain three crucial details:
Transaction Details: Imagine that you are buying something on Amazon through a Blockchain platform. The block recording the transaction must contain important details such as the date, time, item purchased, and amount spent, among others. This is designed to ensure a chronological and verifiable record of information.
Participants’ Details: Blocks are also required to store information about the individual participants in any given transaction. However, this seems contradictory considering that anonymity is guaranteed. The truth is that Blockchain is not anonymous – it is just confidential. Participants’ identities are masked using a unique digital signature that functions much like a username. As such, no one can identify individuals in any transaction.
Tag: There can be hundreds of thousands of blocks on a single Blockchain with information that is almost identical. However, there are tags attached to each block to distinguish it from other blocks. This tag is essentially a unique code called a “hash”.
All of this information is verified and stored in blocks by miners. Miners themselves are developers who work to maintain a Blockchain. A block is created once an application on a miner’s computer solves a complex computational math problem. Once it is added to the chain, the block can’t be altered – otherwise, its hash would change and the whole chain would be broken.
Benefits and Capabilities of Blockchain Technology
Blockchain technology has been popularized for the benefits and conveniences that it has to offer compared to other systems. Its benefits include:
Speed and Accuracy: There is no room for error on a Blockchain platform as all tasks are handled by a network of computers. What’s more, information stored in blocks cannot be altered. Blockchain technology is also capable of reducing transaction times drastically. This is because transactions are handled by a computer network that is always operational. To this end, transactions on Blockchain can be finalized in seconds or minutes, unlike traditional financial systems that take as much as 3 business days to finalize a transaction.
Security: Each block has a unique code that would change if a hacker were to successful tamper with the information therein. This makes it difficult and costly to hack a Blockchain platform – most hackers find that it is not worth it.
Cost Efficiency: Each transaction conducted on traditional systems such as banks is billed. The amount billed is meant to pay for processing services. Transaction fees are eliminated when using Blockchain technology as processing is done by computer programs.
Shortcomings of Blockchain Technology
Blockchain technology is very promising, but it too has several shortcomings that include:
Cost: Blockchain platforms can prove expensive to run depending on their size and activity. This is because a lot of computing power and computational resources are required. For instance, Bitcoin miners may spend thousands of dollars mining a single coin owing to expenses associated with processors and energy, not to mention the time spent mining.
Fraud: Blockchain is confidential as users’ identities are masked using digital signatures. This makes it easy for criminals to engage in fraud without worrying about getting caught. This is best exemplified by the rampant use of Blockchain to engage in illegal trade.