Blockchain has been on the front burner of technology discussions for some time now. The trend is taking over the tech space, and everyone wants to understand how it will impact the world in the future. However, the majority of the world’s population is still unaware of what blockchain technology is, let alone what it can do.
According to Marc Andreessen “The practical consequence is for the first time, a way for one Internet user to transfer a unique piece of digital property to another Internet user, such that the transfer is guaranteed to be safe and secure, everyone knows that the transfer has taken place, and nobody can challenge the legitimacy of the transfer. The consequences of this breakthrough are hard to overstate.”
If you are reading this article, chances are that you have heard about blockchain. For those of you who are curious about this new technology – it is simply a collection of pieces of data stored and arranged in such a way that it cannot be broken or tampered with.
It was created to be used for various data applications across various industries, the most popular adopters being the financial services market.
Blockchain is being adopted daily, and if you are still confused about what blockchain is and how it works, this guide is for you.
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What is blockchain
A blockchain is a shared, distributed database where the data storage devices aren’t connected to a standard computer processor. It consists of a list of expanding records, referred to as “blocks”, which are linked and secured using cryptography. Each block is linked to the previous block and stores transaction data and timestamp.
Cryptography is used to ensure the security and safety of a blockchain. Blockchain users are only able to edit their parts, and they can only do so if they possess a private key which is needed to write to the file. Cryptography allows copies of user’s blockchain to remain in sync with others.
How was blockchain technology developed?
Blockchain came into existence in 2008. It was developed by a group of people or person who goes by the pseudonym Satoshi Nakamoto, and it was later introduced to the public as an integral part of the digital currency, Bitcoin, in 2009. Blockchain serves as a public ledger for all Bitcoin transactions.
Bitcoin became the first digital currency with the help of blockchain technology – aimed at solving the problem of double‐spending, in addition to other payment and financial bottlenecks, functioning without an authoritative body or a central server.
Are there different types of blockchain?
Public blockchains – these are like Bitcoin in the sense that they are distributed networks that need a native token to work. The forum is open to public participation and at any level. They have an open‐source code maintained by members of the community.
Private blockchains – they are smaller network systems that not require a token. In private blockchains, membership is closely controlled. Groups prefer to use private blockchains where confidential information can be traded between members with any breaches.
Permissioned blockchains – Like Ripple, permissioned blockchains control the roles that individuals can have in the database network. They use a native token and are big and distributed systems. The core code in permissioned blockchains may or may not be open source.
How does blockchain work?
As mentioned earlier in the article, blockchain is comprised of linked blocks, with each recording transaction data. Once a transaction occurs, the information is stored on the blockchain permanently, and once the old is completed, new ones are created. The information stored on the blockchain is highly secured, with new blocks being added to the chain with cryptography.
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The sharing of information between two parties on the blockchain database is managed autonomously, and an administrator is not needed since it is a P2P network with a distributed time‐stamping server.
Participating computers are referred to as nodes, and they share the database blockchain. What this means is that Information records of all transactions that occur on the network are available to the public through a blockchain copy on every node.
Blockchain technology is projected to change the financial services sector, including banks, in the near future. As this new technology continues to grow in relevance, it is left to policymakers in the financial sector to come up with a plan to strategically adapt it.
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