What's a Quick Explanation of Blockchain?
Cryptocurrencies today are familiar to everyone, and they attract a lot of investments. But it is important to know that all digital coins work on the base of blockchain technology. So, what is blockchain, how does it work and where can it be used? We are suggesting having a look at quick explanation.
What is blockchain?
First, blockchain is the distributed ledger. In simple terms, it is the list of blocks, or records, connected together with the help of cryptography. They store different information and data recorded in the ledger.
Blockchain is distributed, or decentralized, meaning that the information is not stored on one computer – it is recorded at many nodes at once. The node here is the computer connected to the network.
The ledger is consistently growing because new transactions become completed blocks and get connected to previous ones in chronological order.
How does it work?
It is important to understand that blockchain has three main components – three technologies united for distributed ledger to work. These are:
• private key cryptography;
• distributed network;
• means of servicing transactions.
Let us first discover what private cryptographic keys mean. Each person involved in the process of making transactions, has two keys – private and public. When putting them together, the person generates the digital identity, therefore, it is possible to create the digital signature. It is needed for confirming and controlling the ownership of transaction.
Second, this element gets combined with distributed network – digital interactions become possible. This way, it is easy to validate and confirm transactions.
Then, when transaction is made, the block with it is distributed between all the nodes involved in the network – they are the validators.
The validation is needed for ensuring that crypto coins are not spent in more than one transaction at the same time – that is why the history of transactions is kept.
Advantages of blockchain
Why was blockchain created and what pluses does it bring while being utilized? Decentralization brings a number of important advantages:
1. There is no central authority
As the information is stored in the distributed ledger, it is not controlled by one single person, therefore, it is almost impossible to attack and hack the database, or change the recorded information.
2. The failure can unlikely happen
Centralized networks or websites may go down for maintenance for some time, or it is possible that they can be shut down. With the decentralized networks, however, it is almost impossible – apps will remain working.
3. Smart contracts
Blockchain has special software stored on it – smart contracts. These digital protocols work instead of the original standard ones, however, with improved features – they get executed only in case all conditions are respected, and eliminate third parties.
With the help of these self-executing contracts, blockchain gets implemented into a lot of industries. The benefits smart contracts provide to blockchain are:
• direct dealings and transactions without middlemen;
• keeping records;
• cost efficiency;
Types of blockchain
There are two main existing types of blockchain – public and private.
1. Public blockchain
Public, or permissionless, blockchain is the ledger open to everybody without restrictions. Therefore, all participants can easily get access to it and check the whole history of transactions.
• All data is easily checked and verified.
• Corruption or frauds are impossible.
• Chain gets more secured with more users verifying transfers.
• Users are encouraged to take part in the network.
• Almost no privacy for transactions.
• Transactions take long time.
2. Private blockchain
Private, or permissioned, blockchain creates certain rules and restrictions on who can access the network and participate in it.
Usually, if the user wants to join the network, he needs invitation which then can be approved or disapproved by the network’s moderator.
• Fast transactions.
• Improved scalability.
• Easy regulatory compliance.
• Internal security for companies.
• Not enough trust.
• Centralized organization.
• Corruption and fraud may stay unnoticed.
• Possibility to change data.
• Participants can easily attack the network.
Where is it used?
• Cryptocurrencies and finance
Originally, blockchain technology served as a base for creating cryptocurrencies – digital coins. It alters the standard ways of making transactions and the structure of the centralized banking system. However, with time, blockchain has started to be used for alternative sectors as well.
In healthcare industry and medical sphere, DLT helps to check the medicines’ origin and regulate the pharmaceuticals supply. Moreover, it assists with medical data storage and management – with blockchain all information can be stored and transferred in the most secure way.
• Transportation and logistics
Blockchain changes the supply chain management and alters the way goods get received by consumers – the efficiency increases, and transparency is improved.
DLT helps with mistakes elimination, easy order tracking and digitization of documents – these elements play a key role in improving the overall quality of transportation process.
DLT gets implemented into agriculture as well. It is used for making sure that the products consumers buy are in a good condition – buyers can check the origin of their food and its certification.
Moreover, the huge benefit for the industry with DLT – the prevention of unreasonable raise in price, as blockchain keeps all the information and allows users to check it.
Elections on blockchain are the other possibility and alternative to traditional process. With the help of DLT, they get transparent and fair as no falsifications can be involved.
More than that, as elections become trustworthy and secure, the turnout increases – voting becomes easier, cheaper and more convenient for both candidates and voters.
Blockchain is the revolutionary technology aimed at disrupting the traditional working processes of many industries. It starts being utilized more and keeps finding innovative applications, transforming the standard operations into more efficient and secure ones.
The technology and its uses will be discussed in more detail at the Blockchain & Bitcoin Conference Stockholm. Don’t miss a chance to meet the leading industry leaders and learn more about the latest DLT trends!