Blockchain technology 101: What it is and how does it work?
Blockchain is a digital record of information about any data or transaction, that makes it impossible to change or hack the system. There is a lot of buzz around this technology but very few people know about it. Let’s have a look at “what it is and why it’s so important for every business.”
Have you ever questioned whether your vote is actually counted when you cast it?
How can you be certain that someone you meet online is who they claim to be?
What makes you so certain of the origin of the coffee you purchase bearing the fair trade label?
You need a method to be truly certain about any of those questions — where records could be kept, information could be independently reviewed by anyone, and security was ensured.
A robust system needs to be in a place where everyone utilising the system is looked upon, no individual can manipulate the records without the knowledge of all stakeholders. Such systems now exist, thanks to blockchain technology.
So what is blockchain technology?
Blockchain is a non-mutable and digital ledger that can be used for tracking transactions and recording data within a business network. Its process of recording data makes it impossible to manipulate the information. As the name suggests, it is a chain of blocks. Each block on the chain comprises the information of every transaction that ever took place in the blockchain. When a new transaction occurs in the chain by any of the users (nodes), every node in the network receives a copy of the new transaction. Hence, we can say that blockchain is based on Distributed Ledger Technology. Distributed Ledger Technology or DLT refers to the decentralised database that is governed by numerous users.
How does it work?
Let’s put it this way —
On your computer, you (a “node”) have a file of transactions (a “ledger”). The identical file is “spread” to two accountants, who we’ll refer to as “miners.” Your computer notifies each accountant through email as soon as you complete a transaction.
Each accountant races to be the first to determine your financial capacity (and be paid their salary “Bitcoins”). The person who checks and validates the transaction initially clicks “REPLY ALL,” applying their reasoning for transaction verification (“proof of work”). Everyone updates their file if the other accountant agrees.
“Blockchain” technology makes this idea possible.
Blockchains are not only decentralised but also distributed because they store data across a network of computers. As a result, the system is not owned by a single entity or individual and is open to use by anyone. This is significant because it makes it more difficult for one person to damage or destroy the network.
The system administrators use their computers to store “blocks,” or collections of records submitted by others, in sequential order. To prevent record falsification or modification by third parties, the blockchain employs a branch of mathematics known as cryptography.
The use cases of blockchain technology
You’ve definitely heard of Bitcoin, a type of virtual currency that you can send to anyone, anywhere in the world, without having to worry about fraud and stealing. That is one of the many applications of blockchain. Let’s have a look at all the use cases.
Cryptocurrency: Bitcoin is the first killer application of blockchain. Due to the absence of a bank or other financial intermediaries, Bitcoin differs from credit cards, PayPal, and other methods of sending money. Instead, individuals from all over the world contribute to the movement of digital currency by authenticating others.
Capital markets: Blockchain-based systems are now used by capital markets for fast, fair and secure transactions around the world.
Money laundering prevention: Encripto technology (the backbone of blockchain) empowers record keeping which helps financial institutions build a transparent “Know your customers (KYC)” process.
Insurance: Through smart records, Insurance companies are now keeping all their records and claims in check.
Peer-to-peer transaction: With blockchain technology and all its benefits, banks and other organisations can remove all roadblocks to P2P transactions.
Chain management: Blockchain opens a lot of options for companies to transport their goods, tracking data and putting it to use without any complexity.
Healthcare: Blockchain allows companies to store medical data which can be accessed by so many individuals without any privacy concerns. Blockchain also can connect medical devices and link to a person’s medical records.
Real estate: Encryption can reduce fraud by quickly verifying financial records and provide transparency to the entire process of selling and purchasing.
Media: Media companies have already started using blockchain technology to secure IP records of content, prevent fraud, and reduce costs. So many companies are using blockchain to manage and distribute their content globally without third-party networks.
Elections: Blockchain technology can make the voting process easy, accessible, and transparent for voters as well as governments. The security of the data is another major aspect of the process.
Cybersecurity: Blockchain technology reduces the risk of a single point of failure and provides end-to-end encryption and privacy protection.
In the future also, Blockchain, which handles and verifies online data, has the potential to make self-driving cars safer, help us safeguard our online identities, and even track the billions of gadgets connected via the Internet of Things. These developments will definitely improve our way of life.
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