What is Blockchain Technology?
Updated: Jul 28, 2020
Blockchain is a distributed ledger technology (DLT) that enables data to be stored on servers globally. It is based on peer-to-peer (P2P) technology and plays an essential role in the creation and distribution of online cryptocurrencies.
The concept of blockchain can be difficult to understand, but it’s essentially a technology that allows users to keep secure records of trades and transactions. It functions as a shared ledger that can be accessed by a whole community (i.e: the people helping run the blockchain itself).
What exactly is blockchain?
The concept of blockchain can be difficult to understand, but it’s essentially technology that allows users to keep secure records of trades and transactions. It functions as a shared ledger that can be accessed by a whole community (i.e: the people helping run the blockchain itself).
Any purchases or trades are recorded and agreed upon by this community. These records are also encrypted and are protected from tampering. The relatively fraud-proof nature of blockchain makes it ideal for managing cryptocurrencies such as Bitcoin.
How is Bitcoin related to blockchain?
Bitcoin and other cryptocurrencies are considered useful as they allow for payment transactions to take place over an encrypted network without revealing the identities of individual cryptocurrency owners.
Cryptocurrencies generally lack a centralized-controller such as a bank, so they have to rely on blockchains to record every transaction that takes place and prevent fraud from occurring.
Blockchain users are represented as “nodes” on the shared network and function as transaction executors and miners at the same time. Transactions are grouped into blocks prior to being added to the blockchain.
Miners receive Bitcoins (or part of a single Bitcoin) if they are the first to verify whether a transaction is valid while also identifying the correct mathematical key for linking the block of transactions to the correct slots in the open ledger.
Other uses for blockchain technology?
Private or permissioned blockchains are being used by companies more and more frequently. These companies can create and centrally monitor their own transactional networks for use within their company, or along with partnering companies.
Blockchain networks can be used for “smart contracts” in which transactions are automatically executed when the terms and conditions or a contract are met. Many companies are using smart contracts as a way to track the sale and distribution of products.
Blockchain systems aren’t “unhackable” but they are considered relatively secure. Moving anything of value across a blockchain requires approval from a network of nodes. So it’s impossible for any one user on the network to take control of transactions and manipulate them.
Hacking the blockchain system would require having to hack every single computer on the network, which is close to impossible to do. Blockchain’s superior security means it is likely to continue growing in popularity with companies and cryptocurrencies in the future.