The blockchain is a buzzword around the world yet this technology and the entire concept remains elusive to many people. The only hint a majority may have about the blockchain is that it is related to Bitcoin, and that is as far as it goes. However, there is a lot that goes underneath these two and their relationship. This post will enlighten you about the blockchain, Bitcoin, and cryptocurrencies in a simplistic manner by breaking down the technical details in an easy to understand manner.
Firstly by definition, the blockchain is a publicly distributed ledger that records and keeps digital transactions in a decentralised database. Simply, this means that the blockchain is a public database where people make data entries without a point of central control similar to people talking in a park or on the street. The blockchain runs on peer to peer networks synchronized through the internet thus enabling all users to view all records and transactions at any moment in time. Therefore any changes made on the public ledger are visible to all users within the network. Most importantly, the blockchain is managed autonomously by each member in the peer to peer networking assuming the role of server and client at the same time making it difficult to alter records. This is unlike the internet where data is hosted at a central point and users can only access information through servers with the host having the ability to alter records. However, in the case of the blockchain, each record entered in the public ledger has to be validated by the members due to decentralized control as each transaction is replicated throughout the network.
The blockchain is further automated such that when a digital transaction is created on the network it is grouped together with others, say conducted within the last 30 minutes, and then cryptographically sealed before being published in the network. After such publishing on the network, the bundled transactions pass through a validation process after which they are timestamped and stored in a sequential manner as blocks of information.
Put in simpler terms this can be equated to a class assignment where each student is allocated a section to complete and then other members have to review and compile each other’s work before combining it together for everyone to obtain a copy and submitting it together as the final group work. In this case, the group work being the equivalent of a block.
These blocks are then arranged in a linear manner. This sequential arrangement then forms the blockchain with information contained in the recently validated blocks linked to the older versions on the ledger. This aspect, therefore, makes the blockchain transparent, irrevocable and immutable.
Importantly, the validation of transactions within the blockchain requires high computing power to conduct the mathematical equations required to encrypt the ledger entries into immutable blocks of information. This process is referred to as mining with members within the network possessing high computing power competing to solve the problems required to validate the blocks. The first miner to solve the problem and validate a particular block, therefore, earns a reward referred to as a token given in form of cryptocurrency. In the case of the Bitcoin blockchain, such reward offered to the miner would be Bitcoins.
Besides such cryptocurrencies like Bitcoin, the blockchain has diverse uses and has applications that go beyond digital transactions and money transfer. The blockchain is quite useful and its current use includes smart contracts, digital asset registry, electronic voting, storage and sale of digital properties, health records management and land registry amongst others. Besides this, the blockchain is expected to affect multiple industries and entirely disrupt sectors that are dependent on third parties and intermediaries such as banking, governments, real estate, healthcare, insurance, legal, and real estate amongst many more others.