Blockchain isn’t just some buzzword that is used to garner hype online. It’s real technology with a real purpose. Blockchain is much more than a word – it’s an entire movement. Our blockchain technology guide explains everything you need to know.
What is blockchain?
At its simplest, blockchain is a form of distributed ledger technology (DLT). It is a database that stores and records all incoming transactions for anybody to see. But this doesn’t mean that you can necessarily be identified. Part of the technology incorporated into blockchain encrypts all incoming and outgoing data so that it becomes hard to trace; not impossible, but incredibly difficult.
In more technical terms, a blockchain is a collection of data (blocks), and every time a transaction is made, it is broadcast to the network. It is then the job of a data miner to solve cryptographic puzzles, and once they have done so, that block becomes secured on the blockchain. Then, anybody viewing the blockchain can see that block of data. Again, no identification is used, so whilst your transaction is clearly there for anybody to see, you are not. This is what is dubbed as ‘pseudo-anonymity’ in the crypto space.
Decentralisation and transparency
Blockchain is decentralised, meaning no singular entity can have complete control over it. For example, banks or governments may dictate and control finances, personal information, and so on, but blockchain doesn’t. A single blockchain is spread across the world on many devices, often referred to as nodes, that come together to support an entire network that is free from central control. Because there is no centralised entity, there isn’t a single target to be hacked. Furthermore, nobody is leaking your private information to anyone.
Another key term used in the blockchain space is ‘transparency.’ This is because transparency is the very essence of blockchain technology. Blockchain wants to react against the current centralised regime and give customers back control. Take the banking industry for example. They charge astronomical fees for transactions and to store our funds, but why? Blockchain wants us to have ‘self-sovereignty’ and more control over transactions.
One advantage this brings is that we can freely see all transactions that occur across the world, making it ideal for the retail and financial sectors as money and orders can be tracked at every stage.
The applications for blockchain extend far. For instance, because it is a secure network and works in real time, it can be used to record medical treatments. Here are some Coin Rivet articles that detail some of the major applications of blockchain:
How does it really work?
So, now you’re aware of why people love blockchain, what applications it currently has and could have in the future, and the basics of it how functions. Now, we will take a slightly more in-depth look at how blockchain technology works.
For this example, we will take Bitcoin’s blockchain. Each block of data is assigned a ‘hash’ for security. Bitcoin is encrypted with the SHA-256 algorithm, meaning each block is generated a random 256-bit hash. This hash is incredibly hard to invert, because it would take an insanely high-power computer to attempt a ‘brute force’ search for all possible combinations to successfully guess the hash. While Bitcoin is not necessarily the most secure cryptocurrency, the SHA-256 algorithm is very secure.
Each block of data is also cryptographically linked. Every successive block will contain the previous block’s hash. This binds them together and ensures that people do not tamper with previous blocks retroactively, because if the hash was even minutely changed, the new hash would be changed so extensively that they would appear uncorrelated. Therefore, the data would become corrupted and people would notice; because, remember, transparency is vital.
Because blockchain technology is decentralised, there is no singular entity controlling it, and so a single person cannot change the contents of a block and then update the hash on successive blocks. This is because the blockchain is replicated on every computer for every user in the network. Once you join a blockchain, your computer will download the blocks, and if you were to tamper with your version, the network wouldn’t consider your version as the ‘true’ version. This is because thousands and thousands of other computers have got the correct blockchain.
Disclaimer: The views and opinions expressed by the author should not be considered as financial advice. We do not give advice on financial products.