What is blockchain? Anyone with an interest in cryptocurrency knows that blockchain technology underpins everything, but do they really understand what it is?
I believe that information, education, and knowledge are essential when it comes crypto, so in this article I’ll give an accessible, introductory explanation to try and answer the question.
To Start With
Blockchain can be regarded as a decentralised ledger that records any form of transaction that occurs on it. It is comprised of a network of connected computers which seamlessly carries out any transaction on the network.
Since the blockchain is connected, it has many advantages. These include secure transaction, faster transaction speeds, global reach, improved transparency, permanency of record and so on.
These have led to the development applications and assets on blockchain technology, such as cryptocurrencies, decentralised applications, smart contracts, etc. As all these applications and assets reside on blockchain technology, they also have the same advantages.
Blockchain at Work
Suppose a transaction has been conducted from one user to another user. During this simple transaction, a series of steps take place:
- A new transaction starts
- The transaction is shared with computers active on the network
- This network of computers solves the equation to verify the transaction
- The data of this verification of transaction is stored in a ‘block’
- Transaction blocks are chained together as new transactions occur on the network
- The transaction ends
As new ‘blocks’ are formed, they are chained together, giving us the name blockchain. The chains can be used to store many types of data, including, but not limited to:
- Currency transactions and its history.
- Legal Contracts
- Documents
- Inventories
- Records of various data
More Than One
There are many blockchain technologies in existence.
Among the most popular are Ethereum, Cardano, and Bitcoin. These blockchains have different utility values, since each of them has a different code running in the background. These codes represent the flexibility the blockchain is going to have and the utility/applications these blockchain will possess.
Since some blockchains have higher utility, the value of the cryptocurrency tokens which are native to those blockchain are expected to remain stable and increase over time.
The Working Principles
The key principles of a blockchain are Proof of Work (POW) and Proof of Stake (POS).
Bitcoin and Ethereum work on the Proof of Work principle, while Cardano works on Proof of Stake. POW relies on lot of energy for its operation, is comparatively slower, less secure and, hence, is inefficient when compared to the POS principle.
This is the reason why Ethereum is shifting to POS with its new update Ethereum 2.0. This will lead the overall Ethereum blockchain to be 99% more efficient according to founder Vitalik Buterin.
The Decentralised Nature of Blockchain
Generally, there can be two systems in existence; a centralised system and a decentralised system.
To help explain, your computer is a centralised system. Anything which works on a set number of computers in a room/warehouse is a centralised system. So, if services like Gmail, Google Drive or YouTube stop functioning, that’s probably cause there is a centralised system failure.
Decentralised systems are the systems which don’t need a server room for their operation. The system relies on an unspecified number of computers to run, which contributes to improved efficiency. Blockchain works on a decentralised system and is, therefore, more efficient than traditional centralised transactions.
This also means that the whole system is transparent in nature and information of any transaction conducted on the blockchain is visible to all users.
Be Bullish on Blockchain
Blockchain technology removes the need for middlemen to verify and process transactions, since all transactions are transparent and are verified by users on the network. This verification of transactions rewards the users with cryptocurrency for lending computational power to the network and doesn’t lead to external hidden charges for conducting the transactions.
New applications designed on the blockchain technology are becoming more prominent, including NFTs, decentralised applications and decentralised finances working on smart contracts.
Do Your Own Research
Clearly, this is intended as an introduction for beginners and I would urge anyone who wants to understand more abotu the technology to #doyourownresearch and read widely on the subject.
