The recent advancement in the field of digital technology has set the world on fire. The processes that used to take a significant amount of time now can be accomplished in mere seconds. People can send money across the globe without paying hefty bank fees. Your business is no longer constrained by geometrical boundaries and could scale anywhere in the world. People no longer depend on the central authoritative element or ‘big hand’ that governs everything and keeping a keen eye on everything we do. There are many other unbelievably amazing things can be achieved, and most of the credit goes to the popularisation of blockchain technology.
The blockchain is distributed ledger network which records and validate the transaction time to time enabling the peer-to-peer transaction within transparent yet secured and decentralised network.
Essentially, a blockchain is a digital database that stores transaction data and records of value. Though defining a blockchain as a simple database does not justify the ‘cool things’ that blockchain can do and the way it can store transactional data. Let’s probe deeper into the concept of blockchain and how this so-called database differs from a standard central database.
Generally, when any transaction takes place on a database, people have to rely on some third party or ‘big hand’ such as government, banks, or other institutions to record the information for them. Thus, these third parties represent the bridge of trust between them and ordinary people to ensure them that their money is safely stored with them. In some cases, with a bank, a government will also provide a certain level of affirmation that the money stored inside will be safe if the bank experiences an irrevocable level of financial damage.
When we transfer money to pay for services and products, we are trusting these third parties to take the right amount of money from your bank account and transfer it to seller’s account. If a dispute occurs, the third party will be mediating the transaction. Hence, people trust the banks and credit card companies (actually the database where company store relevant information and manage the transactions) to keep their personal information safe and maintain the financial transactions. However, though, the existence of backdoors or loopholes, usually undiscovered until its exploited, might cause the occasional issue related to privacy and security.
That’s where blockchain comes into play. It provides a similar level of trust but with increased privacy, transparency and security. The blockchain database is not controlled by any central institutions or authority, government or banks. The blockchain users, acting as a whole unit, clear transactions when people pay for services and other goods. These users are also known as the “ledgers”, and they are all distributed across the globe, and hence why blockchain is also known as a “distributed ledger” or “shared ledger” technology. All information related to users including their transactional data are recorded in this decentralised database where the verification of transactions can be checked without the involvement of a third party like banks or government. Unlike banks though, all transactions which take place on the blockchain network are irreversible. This means you will not be able to revert the transaction, and if the money is gone, it’s gone.
Each transaction which is completed or validated is counted as a single block and goes into blockchain and become part of the permanent database. A new block is being created each time a block gets validated or completed. It is worth noting that each block contains the users’ digital addresses and other transaction-related data which cannot be deleted. The forever element is what makes blockchain immutable. There are myriad numbers of such blocks chronologically infused to each other and connected to each other through the hashing system. Numerous blocks are added on a daily basis, resulting in the uncontrollable size of the blockchain, which will lead to potential issues of storage and synchronisation. The bitcoin blockchain was designed so that a new block is built every ten minutes through the process called mining (you can say that mining is the process of validating the transaction where the user will get rewarded with a small fraction of bitcoin).
Going a little more technical, the blockchain is a peer-to-peer system with no central authority managing data flow. The blockchain, digitised, decentralised, public ledger technology, will allow users to complete transactions with each other. Right now, the most popular use of the blockchain is with bitcoin and other cryptocurrencies, but there are many other applications of the blockchain and how it can be used in our future.