The very primitive form of the blockchain was the hash tree, also known as a Merkle tree. This data structure was patented by Ralph Merkle in 1979, and functioned by verifying and handling data between computer systems. In a peer-to-peer network of computers, validating data was important to make sure nothing was altered or changed during transfer. It also helped to ensure that false data was not sent. In essence, it is used to maintain and prove the integrity of data being shared.
In 1991, the Merkle tree was used to create a “secured chain of blocks” — a series of data records, each connected to the one before it. The newest record in this chain would contain the history of the entire chain. And thus, the blockchain was created.
Blockchain was invented by Satoshi Nakamoto in 2008 to serve as the public transaction ledger of the cryptocurrency bitcoin.
The invention of the blockchain for bitcoin made it the first digital currency to solve the double-spending problem without the need of a trusted authority or central server.
What is Blockchain used for?
Blockchain is best known for being the technology behind cryptocurrencies like Bitcoin and Ether (the currency of Ethereum), but blockchain is much more than an instrument of finance.
Blockchain serves as a bookkeeping platform or ledger that is incorruptible, enforces transparency, and bypasses censorship.
Key Terminologies in Blockchain Technology:
- Decentralize – All the transactions are distributed globally.
- Immutable -Transaction in the Blockchain cannot be tempered.
- Audit Trail – Each and Every transaction in the Blockchain can be traced back to the starting point.
- Data transparency – All the changes that are made to the public blockchain can be viewed by its participants.
How Does Blockchain Work?
So, then, how does the blockchain work? Let’s recall a few key features before we get into the details:
- Blockchain keeps a record of all data exchanges — this record is referred to as a “ledger” in the cryptocurrency world, and each data exchange is a “transaction “. Every verified transaction is added to the ledger as a “block”.
- It utilizes a distributed system to verify each transaction — a peer-to-peer network of nodes.
- Once signed and verified, the new transaction is added to the blockchain and cannot be altered.
What is Decentralization?
Most systems that govern human society are centralized. Governments, banks, and corporations are typically structured such that the majority of the decision-making power is concentrated at the top. Large databases are typically stored and maintained in data centers at only one or two locations.
Blockchains enable us to run systems without concentrating power over those systems in the hands of a small fraction of the populations that use them. They enable us to store databases simultaneously in hundreds or even thousands of different locations. This is called decentralization.
Why is Decentralization So Important?
For enthusiasts of blockchain, you will hear a lot about the decentralized aspect of it. What makes this so appealing is that it makes the blockchain impervious to censorship, tampering, or corruption.
Because it uses a peer-to-peer network, copies of the ledger are stored in many different locations, and unless you manage to track down every single one of them (Bitcoin is estimated to have over 35,000 nodes in its P2P network), you can’t destroy it. As well, because so many different, independent nodes are keeping track of the ledger, modifying it in an untrustworthy way won’t go very far because all the other nodes will disagree with that transaction and won’t add it to the ledger.
This is a huge part of why so many people believe blockchain technology is the future of currency, and why it is being adopted in industries other than cryptocurrency.
Decentralized systems are designed so that every participant can act in their own best self-interest within the system without harming other participants. The corruption, greed and incompetence that pervade our ancient centralized systems simply don’t have as strong a place in decentralized ones.
It is not necessary to trust anybody else to ‘do the right thing’ – this is called Trustlessness. No individual has power or control over the system. This is what makes blockchain technology truly revolutionary.
Is Blockchain secure?
Distribution and decentralization are fundamental to blockchain; they ensure that no party in the system has the ability to modify or tamper with the data, thus guarding against fraud, theft, hacking and other misdemeanors. Plus, as mentioned above, the blocks in the chain are protected by advanced cryptography that has so far proved immune to hacking.
By making the results fully transparent and publicly accessible, distributed database technology could bring full transparency to elections or any other kind of poll taking. Ethereum-based smart contracts help to automate the process.
The app, Boardroom, enables organizational decision-making to happen on the blockchain. In practice, this means company governance becomes fully transparent and verifiable when managing digital assets, equity or information.
Advantages of the Blockchain Technology
Despite the fact that the blockchain technology is a new idea, it has proven its worth and significance in a very short period time. Here’s a list of some key advantages of the blockchain technology.
Zero Percentage of Fraud
Since blockchain is an open-source ledger, each and every transaction will be made public and hence there will be no chance of fraud taking place. The virtue of the blockchain system will be constantly monitored by miners who keep an eye on all kinds of transactions around the clock.
As a matter of fact, there are thousands of miners who validate every single transaction all day all night. Therefore, the virtual currencies based on blockchain will get a hell of a lot of supervision and this makes them almost impenetrable to fraud.
No Government Interference
The government or any financial institution has absolutely zero control on virtual currencies that are based on the blockchain technology whatsoever. Hence there will be no meddling with by the governments. The government interference has often led to the devaluation of various currencies.
Regardless of the nation and currency, one of the top problems, when governments meddle too much with the currencies, is that they end up either with inflation or hyperinflation by degrading and/or printing too much currency in a short period of time. As the blockchain is a decentralized online ledger, it’s next to impossible for governments to interfere and take any action on cryptocurrencies.
The virtual currencies/digital currencies that are based on blockchain offer transaction times that are 10 X faster than the usual bank ones. For instance, if a transaction has made to some person who has a different bank account then it will take minimum two days for the transaction to complete. However, blockchain transactions will be usually completed in just a few minutes.
Improved Financial Efficiency
The blockchain technology lets individuals and companies make transactions directly to the end user without involving any 3rd-parties. This greatly enhances the financial efficiency in every nation and lets people be less dependent on financial institutions and/or banks. Not only will this save a lot of money for people in terms of fees but also other related expenses with utilizing banks.
What other benefits does blockchain offer?
Paradoxically, for such a complex technology, blockchain actually increases transparency, because any party in the system can verify the information it contains. It also eliminates the need for an intermediary to authenticate and process transactions, saving both time and money.
The Grey Side of Blockchain:
However, like any system created by humans, there are always downsides.
Blockchain technology has a pretty steep learning curve. Especially for the typical individual without a technical background, all the jargon and computer science concepts involved may intimidate and scare away otherwise would-be users. However, the rising popularity of cryptocurrency is resulting in the blockchain moving into the mainstream, with a lot more resources available to make the topic more approachable.
Transferring, trading, and buying cryptocurrencies usually involves a transaction fee, and is not usually instantaneous. The former can be costly, the latter inconvenient.
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