You might be coming across the term “blockchain” quite a lot in the recent times. It is something that has become quite popular in a very short period of time. In fact, it might possibly transform the future of financial services altogether. However, before proceeding any further, let’s get down to the basics.
What Is A Blockchain?
A blockchain is basically a distributed database. That means the storage devices of the blockchain are connected to different processors. It maintains a list of records called blocks. Each of these blocks has a timestamp. This links it to a previous block.
So, users of this technology can only edit the part of the blockchain that they own. They need to have a private key for a particular block in order to edit the files. Moreover, it also makes sure that everyone’s copy of the blockchain is in sync.
It’s like a digital ledger of sorts. Every entry is a block. It has a date and time to refer to its time of creation. You cannot edit this under any circumstance. To view the information that is part of a block, only people with keys to it will be able to view it. If you want to share the information of a block with another person you will have to share your private key with them. Otherwise, they will not be able to see it.
So, by design, blockchains are pretty secure. In 2008 the concept of blockchain was introduced. It was implemented in 2009 as part of the digital cryptocurrency, bitcoin. The blockchain served as a public ledger for all transactions. It was able to solve the double spending problem without using a central server.
As far as security is concerned, distributed timestamps and a peer-to-peer network ensures that it is managed decentrally. Hence, it becomes a good tool for recording events, transactions, identities, etc.
How Does Blockchain Work?
Blockchain allows sending the value to anyone in the world who can access the blockchain file. In order to access this file, they would need a private key. The key is a cryptographical product. That means that it ensures the key is unique to your block. Once you give this key to someone else, you basically hand over ownership of your block. When that happens you are basically transferring that value of this block to the other person.
Keys basically fulfill the role of recording the transfer. You can say, that the keys act as a preventive measure. The keys also help establish your identity and authenticity. It makes sure that there is no fraudulent behavior. No one can edit a blockchain without the right key. Of course, one can steal a key. But, usually, a few lines of code can help secure it. So, a blockchain technically acts as a bank because it records your transaction and verifies your identity while doing so. In this case, it is more accurate and quicker than a bank.
Why Is Blockchain Important?
We use the internet to share information all the time. In fact, the internet is similar to a blockchain. However, we prefer traditional methods when it comes to sharing or sending money. There are online wallets that you can use, but even those use the banks as a middleman.
In such a situation, blockchain offers a new possibility. It assumes the role of the middleman and also the facilitator of your transactions. Such a piece of technology has a large implication. Financial services run a large part of the worldwide market. So, let us consider replacing part of that with blockchain. It would lead to a huge disruption in the market. On top of that, financial processes will become even more secure and efficient.
But, what is more, important is that blockchain allows you to establish contracts. So, the power of this technology goes beyond the financial sector. You can use it to store digital information. A block can store a piece of computer code. This code can be then used to establish automatic contracts when certain conditions are met.
The possibilities are endless. For example, your smart refrigerator can send your energy usage to a smart grid. When it reaches a certain amount of wattage hours it will automatically transfer another blockchain from your account to your energy company. Basically, it will automate your billing process due to this unique method of reading your meter.
The potential that this technology has seems to be unlimited. As days go by, more and more industries are finding a use for it. Its very nature is something that is useful to everyone. Who knows, we might all start using it in the near future.