What is Blockchain and What are its Benefits?
Blockchain and its benefits are something that we should all be aware of, at this point. Its advantages are numerous, especially with its use concerning information security.
You may have heard of blockchain often mentioned alongside the use of cryptocurrency, specifically Bitcoin. Yes, it is closely related to the concept of digital money and online currency marketplaces. But it is not only cryptocurrencies that can take advantage of blockchain technology. There are many other ways blockchain can help people, especially when it comes to businesses.
In the past, there have been many attempts to create digital money, but all those attempts have been a failure. Then came Bitcoin. In this article, you can learn more about cryptocurrencies.
Table of Contents
Who is the founder of Bitcoin?
Bitcoin was created in 2008 by an unknown person using the name Satoshi Nakamoto. The idea behind Bitcoin is to solve several big issues associated with the double-spending problem using a peer-to-peer network. It solved those problems with the use of a decentralized database called a blockchain and its implementation was released as open-source software.
The Bitcoin whitepaper was written by Satoshi in 2008, which is a document that explains the purpose of the Bitcoin project and how it works. It also describes the plan and protocol for Bitcoin.
Most databases have someone who is in charge of every entry in that database. With these types of databases, there is a huge risk of foul play by the person who is in charge.
Blockchain is different.
In a blockchain, nobody is in charge. People who run it are simply those who use it. There is no central authority that controls it. This makes it almost impossible for digital money to be faked or hacked. Therefore, people can safely carry out their transactions.
Now that we know why blockchain exists, let’s talk about what it is and how it works.
What is Blockchain Technology?
Blockchain technology was invented by scientists Stuart Haber and physicist Scott Stornetta in 1991. It is a system of storing information in a way that makes it difficult to hack and modify. It is a digital ledger that duplicates and distributes transactions across a network of computer systems on the blockchain.
Each block in the chain contains several transactions. Each time a new transaction takes place on the blockchain network, the system adds a record of it to every participant’s ledger.
This decentralized database has multiple participants. The participants handle this database. We call this kind of a system distributed ledger technology (DLT).
The blockchain DLT assigns these transactions with a cryptographic signature that is specific to them. This signature is called a hash.
This means that if one block in the chain were to be changed, it would immediately be clear that something suspicious was going on. Thus, if hackers wanted to commit fraud, they would have to change every block within the chain. They would have to do that along with all the distributed versions of the chain.
How Does Blockchain Technology Work?
As we have discussed above, the main goal of blockchain is to allow the safe storage and distribution of digital information. It aims to do this without any chance of interference in or editing of data.
In a blockchain network, a transaction process follows these steps:
- A user enters a new transaction.
- A network receives this transaction. This network is a collection of peer-to-peer computers. These computers are distributed across the globe. They can be anywhere.
- This network of computers then solves equations. This action confirms the validity of the transaction.
- The entered transaction then becomes complete.
- After its completion, the transaction gets stored in blocks along the chain.
- These blocks are then chained together to create a history of all the transactions that are permanent.
- As soon as the transactions are confirmed to be real and legitimate, they are then grouped into blocks.
While blockchain and its benefits are mostly present in cryptocurrency transactions, there are many other things that it can be used for.
For example, legal contracts or product inventories can be safely stored in blockchain databases, as well.
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The Types of Blockchain and Their Uses
There are four main types of blockchains:
- Public blockchain. Everyone has permission to access these blockchains. They are completely decentralized, and anyone can join them. They are primarily involved in mining and exchanging cryptocurrency.
- Private blockchain. Also known as managed blockchains, you need permission to be able to access them. A single organization controls them. These types of blockchains find their uses in business-to-business (B2B) currency exchange networks.
- Consortium blockchains. You need permission to access these types of blockchains, as well. The difference is that a group of organizations owns them rather than just a single entity. They enjoy more decentralization than private ones. This results in more security.
- Hybrid blockchains. A single organization also controls these types of blockchains. However, there is a level of oversight needed by the public blockchain to perform some transactions. A good example of this kind of blockchain is the IBM Food Trust.
What is a Blockchain Platform?
A blockchain platform is a digital place that allows users to create new uses of an existing blockchain structure. For instance, Ethereum has its own cryptocurrency known as ETH.
But the cool thing about the Ethereum blockchain is that it also allows for the creation of smart contracts. Plus, you can also create programmable tokens issued in the form of non-fungible tokens and initial coin offerings.
Blockchain and Its Benefits
The concept of blockchain has many benefits. Let’s review them.
This is one of the biggest advantages of blockchain. Information is stored in no central location; instead, the blockchain is copied and spread across a network of different computers.
By spreading the information in this way, the blockchain becomes more difficult to manipulate or corrupt by intruders.
Many of the blockchains employ open-source software. This means that anyone can view and contribute to their code. This also means that there is no central authority that controls the entire cryptocurrency system.
Anyone with a knowledge of coding can suggest upgrades to the system.
3) Secure Transactions
Blockchain and its benefits include secure transactions. After a transaction is entered, its authenticity needs to be verified by the entire blockchain network. There are thousands of computers in a single network. All of them rush to make sure that the details of the purchase are correct. After the validation of the transaction, a blockchain block stores it. This block has its own unique signature (hash). It also has a unique hash of the block that comes before it.
This is why, when the information on any block is edited, the block’s hash code changes. But the hash of the block after it does not.
This particular aspect of the blockchain makes it extremely difficult to hack into and tamper with it.
Probably one of the biggest advantages of blockchain technology is its accessibility. Anyone, anywhere, regardless of gender, cultural background, and ethnicity, can use it. According to the World Bank, nearly two billion adults don’t have access to banks or bank accounts.
Almost all of these individuals live in developing countries. They mostly earn money in the form of cash. They then store that money in hidden locations inside their homes or somewhere else.
This method of storage leaves their money open to robbery, and can often lead to unnecessary violence.
Contrary to this, you can store cryptocurrency in a bitcoin wallet on an inexpensive phone, or written on a piece of paper. This makes it a great option for people who do not have access to a bank to keep their money safe.
The concept of blockchain is one that we should pay attention to. Although it is a new technology, it offers many benefits. It is innovative and is rapidly changing the world we live in.
Even with its newness, it has a rich history. It has an endless number of uses in almost every industry.
Safe to say, blockchain technology is only just beginning. It will surely take us far and change our lives for the better.
Further reading: Best Cryptocurrency Wallets for Your Digital Money
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