Whether you are aware of it or not, you conduct business every day, even if you don't work. At some point, everyone gets online and initiates some kind of transaction. Whether it is purchasing something from Amazon or buying something from iTunes, you are engaging in the business of blockchain technology.
Even though the term “blockchain” is relatively new, the technology has been around for about a decade. The digitized ledger that Satoshi Nakamoto created in 2008 was the basis for the spreadsheets that manage cryptocurrencies and other online trading transactions. The technology is used in cryptography, which is how text is coded on the Internet.
Cryptography is used in blockchain technology to create distributed trust networks. This, in turn, allows any contributor to the system to operate the transactions securely without having to obtain authorization from someone else in the digital ledger.
These transactions are then verified, approved, and then recorded in an encrypted block. This block is saved intermittently and then connected to the previous block, which in turn creates a chain.
Two main parts make up a blockchain. The first component is the decentralized network. The decentralized network is what facilitates and verifies the transactions that are made. Having blockchains on a decentralized network means that the software isn't limited to one computer system. Instead, it can be controlled on multiple computer systems, and more importantly, it isn't controlled by the government.
The second component is the indisputable ledger where the transactions are processed and recorded in a location that is secure. This security makes it almost impossible for someone who is not connected to the chain to make changes or steal information.
Since there can be numerous contributors involved in any blockchain, any of the contributors can control the information that is entered into the ledger. Since every transaction is processed securely, and given a permanent time-stamp, it can become challenging for another contributor to alter the ledger in any way.
Blockchain technology can be used for various computerized and internet-based application. One of these applications is smart- contracts. Smart contracts allow businesses to automatically verify and execute agreements that function independently in a secure environment. Blockchain technology acts as a middleman for implementing all business deals, protocols, and programmed exchanges of information in smart contracts. As more and more transactions are completed online, to not only run our personal lives but professional lives as well, more and more deals are being signed and created online.
Blockchain applications have begun to become increasingly popular in the medical field in recent years. Researchers are now investigating these applications dealing with digital identity, insurance records, and medical records. There are many medical offices today that use some kind of digital machine to verify that the information they have on file is, in fact, your information.
One of the most significant issues people are faced with today is the thought that all their information could be compromised by hackers because most of our personal information is digitized. It also seems that it has become too easy for complete strangers to access, copy and tamper with our data. However, it is still a risk that we all take despite the increasing probability of being hacked. Blockchain technology was created to help ensure that doesn't happen or in the very least make it more challenging to try.
For someone to hack the blockchain system, they would need to go back and change every single block. That would require a ton of effort and patience because blockchains could have upwards of billions of chains linked that a person would have to go through and change. Changing just one or two blocks would automatically send an alert that the system is being hacked. This is only one of the many reasons why blockchain technology has become so popular.
Blockchain technology can be used for a variety of other things as well. It can also be used for global payments, sharing music, or tracking diamond sales.
There are three major types of blockchain. There are private blockchains, public blockchains, and consortium blockchains.
Public blockchains are created by the public. Anyone can participate in the creation, confirmation, and recordation of the content that is put into the blockchain. There isn't just one person in charge of overseeing the transactions that happen in this kind of blockchain.
Because there isn’t a single person in charge of these blockchains, decisions are made by many decentralized agreement tools such as proof of work, which a computer algorithm that is used by cryptocurrencies like bitcoin. Public blockchains are open and crystal clear in content, making it easy for anyone who looks at them to understand what they are and what they can do.
Public blockchains, on the other hand, are privately owned by an individual or organization. With public blockchains, there is a single, designated person in charge. While there can be several contributors to this type of blockchain, the final transactions are either approved or disapproved by the person in charge and then recorded.
The purpose of consortium blockchains, also known as federated blockchains, is to remove the only autonomy given to just one contributor by the use of private blockchains. This type of blockchain allows for more than one contributor to be in charge.
Instead, there is a group of companies or individuals that gather and make decisions that benefit the entire network.
Blockchain Technology Breakdown
Blockchain technology is an irreversible, encrypted, decentralized ledger that has the potential to make all centralized activities, processes, and organizations entirely autonomous. This means that a person will have the ability to eliminate the middleman and specialists, effectively reforming every single business in the world.
Blockchain technology is merely a way to keep track of any money or trading exchanges you engage in online. You can think of it like an accountant who keeps track of all the money that you spend. Currently, blockchain technology is mostly used to handle any type of situation that deals with cryptocurrency, like bitcoin. Let’s consider the following example.
When you complete a transaction using bitcoin, that specific transaction is processed through the blockchain. Before the transaction can be achieved, you or someone connected to your bitcoin account has to verify that the transaction is legitimate.
Once the transaction can be confirmed as being valid, it is recorded and saved to a ledger that is controlled by the blockchain. At this point, nobody can change or alter the transaction in any way. Only you or those with access to your account can verify transactions.
Blockchain technology is controlled by a decentralized network, which means that it isn't controlled by any government. By running on a decentralized system, it is much easier to conduct business transactions. It is also more private because you don't have a federal bank holding your money or other assets.
Everything is strictly handled by you and your company. To understand the importance of decentralization, you need to consider the following examples of centralization and decentralization.
Centralization Example
When you use your debit card at the bookstore, you swipe your card to pay for your purchases. At this point, the company then sends a bill to your bank for the amount agreed to when you paid for your goods. The bank then must verify that it was you who made the purchase. The bank, once the transaction is confirmed, releases the money to the company and records the transaction in their ledger.
The ledger the bank recorded the transaction in, includes all the operations the bank made on behalf of the card you used. The bank has complete control over what happens with the ledger. Other than having the ability to look at your banking statements, you have no authority to change anything or do anything with the ledger. Centralized ledgers are much easier to hack because they are controlled by multiple entities.
Decentralized Example
Imagine that you want to transfer 1.00 bitcoin to someone. All you have to do is tell whoever is in charge of the network, whether it’s one person or a group of people, that you are transferring 1.00 bitcoin. Once this is done, the transaction is approved and then it is recorded.
Decentralized blockchains are much better than centralized transactions because it takes less time to complete a single transaction. Other reasons decentralized blockchains are better is that a person or company can send secure information to another person or company, such as encrypted messages and medical records.