Let's go back to basics — what exactly is blockchain technology?
Ever since its invention, blockchain technology has been the center of attention in the world of innovation. Many investors and other blockchain developers are now keen on understanding what this blockchain technology is. For people in the financial sector, they would like to know how it could be used in different use cases. This article will give you a better understanding of what blockchains are and how they could be applied to numerous industries.
To put it simply, a blockchain is a public, decentralized, record-keeping database used for all cryptocurrency transactions. Everytime you make a purchase with a cryptocurrency, the transaction is recorded and then made available to the public. The information about the transaction gets stored into a “block” and then added to the global network of blocks, known as the “blockchain.”
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Blockchain technology is the innovative software behind cryptocurrency, including Bitcoin. It is a digital ledger of transactions that uses computers to verify and secure transactions. Blockchain technology has been recognized as one of the most disruptive technologies since the internet itself.
Blockchain is a rapidly growing technology that deals with transactions of digital goods, online transfers or payments. Conceived as a decentralized ledger for the digital currency Bitcoin, blockchain technology is now used to record and verify all manner of transactions on every continent, including the transfer of assets like real estate or securities, as well as votes in elections from football tournaments to corporate shareholder meetings. If you've ever used an app on your phone to trade Bitcoin or another cryptocurrency, you've already seen one application.
Blockchain is causing a revolution in the financial services industry. Every day, more and more banks, payment providers, and other financial services companies embrace blockchain technology because it drastically reduces costs and improves security.
Blockchain has been described as the new internet, a foundation for potentially new technologies, businesses and a way of organizing people. While there are a lot of complicated discussions about what blockchain can and cannot do, the best way to understand it is to start using it.
How Is Information Stored in the Blockchain?
Each block is a digital record that contains the time of purchase, purchase amount and the two parties involved in the transaction. The transaction can be traced by a “hash,” a unique code made of numbers and letters that is generated every time a purchase is made with cryptocurrency. The “hash” can be thought of as the DNA strand of a transaction, and cannot be altered once the transaction has been completed and sent to the blockchain. Each new transaction is added to the end of the blockchain. As more and more people make crypto transactions, the “height” of the blockchain grows.
Generally, blockchain transactions are fast; however, the speed of the transaction depends on several factors, including the type of cryptocurrency used. For instance, some cryptocurrencies have faster transaction rates (TPS) than others.
What Makes Blockchain Technology Revolutionary?
Transactions made on the blockchain take place without the approval of traditional financial institutions. Unlike the standard documentation that banks may require from its clients, anyone with an internet connection can gain access to the blockchain, making blockchain a revolutionary and disruptive movement.
Is Blockchain Secure?
The security of blockchain rests largely on the concept behind distributed ledger technology. A blockchain is not stored in a single place; rather, its data is stored in nodes, computers and servers all around the world. Due to the peer-to-peer nature of the blockchain, no centralized agency can own or edit this information, providing for greater security, cooperation and trust. Hacking the entire blockchain network would be nearly impossible. Though a hacker could potentially alter some aspects of the data, there is no centralized system to attack.
What Is the Role of Nodes in a Blockchain?
Nodes are the safe keepers of any blockchain and have a huge responsibility. Each node stores a complete copy of the blockchain, providing a network of interconnected computers. Nodes themselves are computers, laptops and servers that work in harmony to give consensus to decentralized ledgers. They are responsible for blockchain infrastructure and constantly communicate to build the ledger with totally accurate and agreed-upon information.
Since nodes are difficult to set up and maintain, node operators and owners are rewarded in cryptocurrency for the part they play. When their node is used to authenticate and verify transactions, they are rewarded a small piece of the network fee.
What Is the Role for Miners in a Blockchain?
Once miners have verified a block, it will be sent back to the nodes as a new block to be confirmed and added officially to the distributed ledger that is the blockchain.
How Many Transactions Can Be Stored in Each Block?
The number of transactions on each block will vary greatly, but the average Bitcoin block comprises around 2,800 transactions. It takes about 10 minutes for a block to be mined and verified on the Bitcoin main chain. There can be more or fewer transactions included in each block on other blockchains, and networks like the Litecoin network are much faster at creating new blocks — Litecoin comes in at only 2.5 minutes to Bitcoin’s 10.
How Are NFTs Stored on a Blockchain?
What Are The Biggest and Most Valuable Blockchains?
The biggest and most valuable blockchains belong to the most valuable cryptocurrencies, Bitcoin and Ethereum. There are nearly 688,000 blocks currently mined on the Bitcoin blockchain and around 10 million blocks on the Ethereum blockchain (as of June 2021). The size of Bitcoin’s blockchain is currently 350 GB, and Ethereum’s is almost 830 GB in sync data size.
How Can Blockchains Speak to Each Other?
There are many operations in place now to increase the interoperability between blockchains to facilitate the free and easy flow of information. Pre-coded communication between blockchains can remove the need for any central power when doing things like exchanging cryptocurrencies. Decentralized exchanges have popped up for the express purpose of allowing users to exchange tokens without having to go through a company like Coinbase or Kraken.
Why Are Blockchains Usually Open-Source?
Blockchains are usually open-source because, by nature, they are a collaborative and decentralized organization. For example, since there is no central company behind Bitcoin, it needs developers to contribute to the network on a volunteer basis. However, developers are sometimes rewarded for their efforts by sponsors from crypto organizations.
Bitcoin and blockchain have become increasingly popular in part because they are decentralized and democratized financial systems. They take business from centralized institutions and governments and transfer it back to the public. Being open-source is in line with the overall purpose and values behind blockchain.
What Are Uses for Blockchain Outside of Cryptocurrency?
When most people think about blockchain, their mind goes to cryptocurrency and decentralized finance. Since blockchains usually require the decentralized support of nodes and mining, they most often reward operators with a native crypto token. However, beyond the digital currency rewards, there are incredible implications behind this new technology that could shake up a huge number of industries.
- Supply Chains - Blockchain is hugely helpful in logistics and supply chains. It provides a better way to add transparency and validation to shipping and supply networks.
- Ownership and NFTs - Blockchain provides a new way to transfer ownership digitally. NFTs are tokenized goods that can be either physical or digital. NFTs are transforming the music, video, sports, collectibles and media industries.
- Government - Governments are exploring new ways to use blockchain for things like central bank digital currencies and storing public documents.
- Social Media - Projects like Steem are looking to become the new medium of communication by rewarding users in crypto for providing engaging content.
- The Internet of Things (IoT) - Blockchains like Helium, Filament and IOTA are capitalizing on providing connectivity and security to items like smart devices that need the internet.
This is by no means an all-inclusive list. There will be other uses as blockchain technology expands, and many expect that blockchain will soon become an integral part of our lives. It is unknown which digital currency will be most prominent in 10 years, but we know that blockchain technology is here to stay.