What is blockchain technology, and why does it matter?

Have you ever considered the potential for facilitating transactions to and from any location in the world at any time with minimal or no fees? I’m talking about transactions that are as quick as sending an email.

Most of us have probably tried, at some point or another, to look for ways to get around problems with the traditional banking system we all use, like slow transitions and complete control over one’s funds. This time around, blockchain technology is the way to go as it is offering solutions to most of these issues in more ways than we can imagine.

What is blockchain technology?

Blockchain technology, also known as distributed ledger technology (DLT), is a public ledger of digital records that are shared among a disparate network of computers without a central point of authority. This ensures that information is difficult to change or hack once it has been recorded.

Although they are now used for many other purposes, blockchains are best known for their crucial role in the cryptocurrency world, as they serve as the underlying technology upon which cryptocurrencies such as Bitcoin, Ethereum, Cardano, and others are built.

This technology is primarily used to ensure trust by doing away with the need for a trusted middleman and by securely maintaining and recording all cryptocurrency-related transactions.

How does blockchain technology work?

Blockchain technology allows anyone with a smartphone or computer to view transactions in real-time from anywhere in the world, unlike banks and other traditional organizations that typically keep their records or financial details private to be accessible to a specific group of people.

Blockchain technology uses a distributed network of users known as “nodes” to maintain the ledgers. These nodes are a network of participants and their connected computers that adhere to rules and share information. Each transaction is recorded as a “block” of data at the time it occurs.

As a result, a blockchain node’s main responsibility is to unanimously confirm with other nodes that each subsequent batch of network transactions, or “block,” is legitimate. Each block is then connected to the blocks before and after it, from the first block (the “genesis block”) to the last one. However, transactions are blocked together in an irrevocable chain, making it a “chain of blocks” (blockchain).

The digital ledger is distributed across a network of computers so that each transaction is recorded on the blockchain and visible on the ledger of every participant. A hash, a type of unchangeable cryptographic signature, serves as the permanent record of every transaction.

Consequently, blockchains’ peer-to-peer (P2P) architecture has several advantages over conventional client-server networks, including higher security. Blockchains have a comparatively high level of immunity to malicious activities thanks to a distributed peer-to-peer network and a majority consensus requirement.

Types of blockchain

Public blockchain

A public blockchain is a type that requires an enormous amount of energy-consumption mechanisms, but it allows anyone that has the requirements to join and participate. The perfect example is the Bitcoin blockchain.

Private blockchain

A private blockchain is a decentralized P2P network that operates differently from a public blockchain in that it is governed by an organization. However, this organization decides who to be allowed to participate and maintain the security of the digital ledger.

Hybrid blockchain

This type of blockchain blends the best essential components of both public blockchain and private blockchain, and it allows for transactions and data privacy.

Consortium blockchain

Multiple organizations, which equally share the responsibilities of maintaining a blockchain, use consortium blockchains to govern a particular industry. Each organization within this type of blockchain has equal power. Hence, it is not open to everyone; it is semi-private.

Why does blockchain technology matter?

It provides a high level of security

Blockchain technology is secured with‌ an advanced level of security without bias. Before any transaction will be validated and recorded, it needs to have been agreed upon by the majority of network participants, in accordance with the underlying consensus protocol.

Additionally, each transaction serves as a “block” of transactions, which is encrypted with a link to all former transactions, till the very “genesis block,” using a hashing method.

Privacy

Using blockchain technology does not require any form of identity verification like the popular know your customer (KYC) policy. However, it should be noted that users might be required to pass through the KYC processes before purchasing cryptocurrencies on centralized exchanges like Binance or Coinbase. Decentralized exchanges, on the other hand, allow users to buy and sell cryptocurrencies seamlessly without having to verify their identity.

Efficiency

Blockchain technology processes transactions by solving the time-consuming processes used in conventional transactional settings. It eliminates all the need for paper-works and middlemen who can be biased and decide to delay your transaction without a reason.

Blockchain, therefore, allows people to carry out operations by streamlining the processes and documenting the whole related details in a single place for easy access.

Transparency

In a traditional setting, each organization keeps away its records separately and usually from public‌ view. Whereas, blockchain technology brings information or records of transactions between parties to the public and is the same in several locations. However, these records are updated in real-time across all the networks of participants, without a single chance of being changed by any party, thereby providing full transparency and eliminating exploitation.

Immutability

Blockchain technology is an immutable, in other words, unchangeable public digital ledger, that records transactions in a way that makes it impossible to change, altered, or modified. If a blockchain network is to be taken down at any time, then all the participating networks of computers will need to be taken down at once–which is virtually impossible.

Major uses of blockchain technology

Although there are hundreds of applications of blockchain technology across multiple industries, the following are the most common ones we can all relate to.

• Monetary transaction
• Smart contracts deployment
• Non-fungible tokens (NFTs)
• Internet of Things (IoT)
• Logistics and supply chain management
• Insurance
• Media and Advertising
• Government and Voting
• Healthcare
• Telecommunications

Closing thoughts

An increasing population of the world is already living beyond all the above-discussed reality with blockchain technology, and it keeps expanding to many other sectors, including business, politics, health, and law. This is the best time for everyone, in their individual or corporate setting, to adopt this robust technology–as we won’t be left with any choice in the nearest future, but to embrace it.

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