If you follow banking, finance, investing, or even cryptocurrency news, you must have heard of blockchain, or the digital storage technology that underpins the Bitcoin network.
In this article, we will define blockchain and its underlying technologies, as well as look at its applications and its growing importance in the digital world.
Blockchain technology is a structure in which records of transactions, called blocks, are stored in multiple databases, called chains, through a peer-to-peer network of nodes.
This storage is called a digital ledger.
Each transaction in this ledger is authorized by the digital signature of the owner, which authenticates the transaction and protects it from tampering.
Thus, the information contained in the digital registry is securely protected.
Simply put, a digital ledger can be compared to a Google spreadsheet shared by many computers on a network that stores transaction records based on current acquisitions.
Let’s say you want to transfer money to your family or friends from your bank account.
You need to log into the online banking system to transfer the amount to a person using their account number.
After the transaction is completed, your bank updates the transaction register.
Sounds simple, but there is a potential risk that most overlook.
Indeed, such transactions can be easily falsified. People familiar with this type of risk are very cautious about using this transaction model, hence the evolution of third party payment apps in recent years.
Moreover, this type of vulnerability is one of the main reasons why the blockchain was created.
Keeping records of data and transactions is an important part of running a business.
Often this information is managed internally or shared with a third party such as brokers, bankers, lawyers, increasing costs and processing time.
Luckily, blockchain avoids these time-consuming processes by making transactions simpler and faster, saving time and money.
Blockchain and bitcoin
Many people tend to believe that blockchain and bitcoin are interchangeable, but they are not.
Blockchain is a technology that powers various applications related to various industries such as finance, supply chain, manufacturing, etc.
Whereas Bitcoin is a cryptocurrency whose security depends on blockchain technology.
Blockchain and security
Blockchain uses a digital signature element to conduct secure transactions without the risk of fraud.
This feature makes it impossible for other users to damage or change personal data without a special digital signature.
Blockchain and decentralization
Typically, transactions require the approval of a bank or a government type regulator.
However, in the blockchain, transactions are carried out by mutual agreement of users, which leads to more flexible, faster and more secure transactions.
Blockchain and automation
The blockchain is programmable and can systematically generate actions, events, and automatic payments when the trigger criteria are met.
How does Blockchain work?
In recent years, many companies have adopted blockchain technology.
But questions about how this technology works and how it impacts business operations remain.
Blockchain is a combination of three advanced technologies:
- Cryptographic keys
- Peer-to-Peer Networks Containing a Shared Registry
- Mathematical and computer calculations for storing network transactions and records
Cryptographic keys come in the form of a private key and a public key.
These keys help in making successful secure transactions between two parties.
Each person has these two keys, which they use to create a secure digital identification link.
This secure identification represents the most important aspect of blockchain technology.
In the world of crypto-blockchain, this identification is called a digital signature used to authorize and control transactions.
Peer-to-peer network and calculations
The digital signature is combined with a peer-to-peer network.
The latter consists of a large number of individuals who act as an authority, using digital signatures to come to an agreement on transactions and other exchanges.
When a transaction is authorized, it is validated by mathematical verification, which results in a successful secure transaction between two parties connected to the network.
Thus, blockchain users use cryptographic keys to perform various types of digital interactions through a peer-to-peer network.
Consequences of Blockchain Technology
Blockchain technology has a wide impact on society, including:
- Bitcoin, which is the main reason why the blockchain was developed, to optimize digital wallet type financial services. Indeed, this technology made microcredit and micropayment possible when economic circumstances were difficult.
- For transaction security, especially internationally and when it comes to risky business environments, Bitcoin is an effective alternative to avoid the interference of unreliable intermediaries.
- Decentralized networks that allow services like Airbnb and Uber to work even better.
- Protect sensitive data such as medical records by enabling healthcare industry stakeholders to create centralized databases with controlled and authorized access.
Blockchain technologies can be configured and deployed in many ways and with various mechanisms to secure transaction agreements that only authorized users can view.
Bitcoin remains the best-known use case for the blockchain, as well as the most exemplary example of the degree of security offered by this technology.