Blockchain 101 – The Basics
I walk on the streets, I open up my newspaper, I browse the internet and all I hear and see are the words: bitcoin and blockchain. But what is all this about?
Let’s lay out the ground work by starting off with the very basics.
Bitcoin was the first of what we call: cryptocurrencies – a digital version of an asset that uses encryption to secure transactions and regulate the generation of new units of that asset.
Blockchain, known as the “distributed ledger” technology is a decentralized system that records all transactions that take place.
Don’t worry too much about the terminology just yet, things will start make sense as we move along.
So, what is all this about?
We live in a society where the creation and movement of data is abundant and constant. Everything we do involves either the creation or the movement of data; purchasing something with our credit card, browsing the internet, making a phone call, taking public transportation, etc.
Blockchain is a technological revolution that provides a new solution for the storing and movement of data. Rather than have data stored in one central location (centralized), blockchain, being a decentralized system, allows for information to be spread across thousands of computers that are connected to a network (nodes) through cryptography.
What’s the whole point of all this?
All kind of data is currently gathered in bundles and kept in one place, such as in the cloud or within a private server. Nevertheless, the centralized component of today’s system can severely increase the likelihood of attacks that can lead to identity theft and data fraud.
The notion that blockchain technology completely eliminates the possibilities of hackers accessing your data, is a misconception. However, blockchain’s complexity does make it extremely hard to attack a system’s data.
In simple terms, blockchain technology segments the database into millions of pieces which are then spread across the network of numerous computer devices. The decentralized aspect of the system makes it extremely hard to breach data. As Jamie Smith, CEO of the Blockchain Business Council, mentioned “Instead of breaking into a house, you have to break into an entire town.”
Hence, the more computers that form part of the network, the safer the system becomes as a whole.
What is the role of all these computers?
First of all, it is important to understand the structure. Recent transactions form “blocks” which are added in chronological order. Once completed, the block is added to the blockchain permanently. A new block is then immediately generated. This continuous cycle has established a countless number of blocks within the blockchain, each of them linked to another linearly in chronological order.
The nodes – computers connected to the network, are the core of the whole system. As the blockchain keeps expanding, increasing the number of blocks, each node automatically gets a copy of the blockchain. This allows each entity within the network to verify transactions, ranging from coins to documents.
As a result, a permanent record is established that cannot be altered. Additionally, the records authenticity can be verified by all entities that form part of the blockchain network, rather than by a single central authority as is the case of banks. Blockchain allows us people to put trust into the system rather than a company or individual (intermediary).
A gem set to disrupt
Though a lot of focus is currently being placed on the appreciation of the price of cryptocurrencies, it is important to understand the basics of the tech that underpins them. Blockchain technology is where the true value lies. In today’s data driven world, blockchain can be implemented across all industries, increasing efficiency and reducing data breach.