What is blockchain: everything you need to know about blockchain technology
I’m sure you’ve heard of Blockchain, but you haven’t given it the importance it deserves. The fact remains that Blockchain is a technological marvel with far-reaching implications for the financial services market and other industries and businesses.
Let me simplify what blockchain is for you. A blockchain is a distributed and shared database storage that is not tied to a typical processor. This means that there is no monopoly in the cryptocurrency and bitcoin business, unlike the fiat currency industry where there is government control over the market.
The database store has a list of growing records called blocks that are linked and secured by cryptography.
Cryptography refers to a method used to protect information and communication through the use of codes. It allows only those for whom the information is intended to read and process it. The prefix crypt means hidden or vault, while the suffix graphy stands for writing.
Each block is linked to the previous block, which also contains transaction data and timestamps. This means that there is also a record of the transaction.
In cryptography lies the security of a blockchain. This means that users can only control parts of the blockchain. They can also only do so if they have the private keys that are mandatory to write to the file. Cryptography also ensures that your copy of the distributed blockchain stays in sync with others.
This means that the blockchain is resistant to data changes. Its primary function is to record transactions between parties in a certifiable, efficient, and durable manner. Blockchain is therefore used to record a public, open, distributed and shared ledger managed by a peer-to-peer (P2P) network that collectively adheres to a protocol for authenticating new blocks.
Therefore, once data is recorded in a block, there is no room for change. If a change is made to the data, all subsequent blocks must be changed, which can only be done with majority collusion.
Simply put, blockchains are secure by design and represent distributed or shared computing that allows for decentralised and autonomous data management.
The blockchain concept was created in 2008 by an individual or group using the pseudonym Satoshi Nakamoto. It was first introduced in 2009 as part of the digital currency Bitcoin.
The blockchain then acts as a public ledger for all Bitcoin transactions. Thanks to blockchain technology, Bitcoin became the first digital currency to resolve double spending without the use of a central server or authoritative body.
Public Blockchains: this is what works for Bitcoin. They are extensive distributed networks that work via a native token. It is open for anyone to participate in this forum at any level with open source code maintained by the community.
Permissioned Blockchains: this is the type that controls roles people can have on a network. Like Ripple, they are distributed systems that also use a native token. Here, the core code can be open source, but it doesn’t have to be.
Private Blockchains: these are smaller systems that do not use a token, and membership is tightly controlled. This type of blockchains is preferred by consortiums as the members are highly trusted and confidential information can be traded easily.
The key factor about the type of blockchain here is that they all use cryptography. In this way, the users in a particular network can manage the ledger in a secure and decentralized manner.
Features of Blockchain
- No middleman like banks
- Records all transactions
- Establishes identities
- Establishes contracts (typically a prerogative of the financial services sector)
How blockchain works
From “block” and “chain” comes blockchain. It consists of blocks, each of which records some current transactions. Once these blocks enter the blockchain permanently, new blocks are created as soon as the old ones are completed.
The blocks are then linked together sequentially and linearly (they look like things strung together, not scattered). Each block has a hash of the previous block. With the blockchain, you have all the information, from the last block to the very first block.
Another unique feature of the technology is that once a transaction is made, the information remains permanently on the blockchain. That means no one can copy or delete it, but it can be distributed. So, it shows that the technology is absolutely secure as blocks can be added only with complex cryptography.
As a P2P network, blockchain databases are managed autonomously to share information between two parties. The P2P network has a shared or distributed timestamp server that does not require an administrator. So the current user of the blockchain is the administrator.
Since there is no middleman or third party in the blockchain, users validate each time they pay something to another. The details of the transactions are recorded publicly in the blocks, which are later verified by other users.
All participating computers are called nodes. The computers then share the blockchain database, and each of them gets a blockchain copy. This means that you have access to public records of all transactions that have ever taken place on the network.
In this way, you can see that blockchain technology has the potential to improve our existing financial services sector, including banks.
It is a disruptive new technology that will soon change the rules of the game. Decision makers in financial services and other industries will be challenged to develop a strategic approach to adapt.
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