2. What is Blockchain and Why is it Needed?
Think of a blockchain as a way to digitally store information with no way to fake or alter the data. Proponents of the blockchain call it, “a trustworthy system in a trustless world” because by removing the third party middleman; safer, faster, and cheaper transactions can occur. The blockchain is basically an immutable public database. Blockchain’s conceptual framework and the underlying code is useful for a variety of financial processes because of the potential it has to give companies a secure, digital alternative to banking processes that are typically bureaucratic, time-consuming, paper-heavy, and expensive.
How do Bitcoin and Cryptocurrencies Use Blockchain?
Information held on a blockchain exists as a shared and continually reconciled database. This is a way of using the network that has obvious benefits. The blockchain database isn’t stored in any single location, meaning the records it keeps are truly public and easily verifiable. No centralized version of this information exists for a hacker to corrupt. Hosted by millions of computers simultaneously, its data is accessible to anyone on the internet. The Blockchain ledger contains every transaction ever processed, allowing a user’s computer to verify the validity of each transaction. The authenticity of each transaction is protected by digital signatures corresponding to the sending addresses, allowing all users to have full control over sending Cryptocurrency from their own Cryptocurrency addresses.
Prime blockchain examples include cheap, instant, and secure peer-2-peer money transfer that is not completed through PayPal or another centralized and 3rd party service. The blockchain can also be used as a decentralized supercomputer network which employs PCs all over the world to perform computing tasks. The gaming and movie industry could utilize these supercomputer networks to do 3D rendering for their projects. Peers generate income by renting their computers out to process and perform tasks within the supercomputer network.
Lastly, Smart contracts can be built on top of blockchain technology and are currently used by some cryptocurrencies; most notably Ethereum. With smart contracts, you can exchange property from one user to another. Smart contracts can be used in almost any type of business or industry. There are already use cases for smart contracts in the automotive, financial services, healthcare, and retail industries.
Characteristics of The Blockchain
1. Decentralized Ledger Technology: A join only, decentralized distributed database. You can only add transactions and data to a blockchain, you cannot remove.
2. Consensus: Before one can execute a transaction, there must be an agreement between all relevant parties that the transaction is valid. For example, if you’re registering the sale of a cow, that cow must belong to you or you won’t get agreement. It helps keep inaccurate or potentially fraudulent transactions out of the database.
3. Immutability of the data: Once you have agreed on a transaction and recorded it, it can never be changed. You cannot go back and edit it. I’m sure you know our banks, they want to balance their sheet, so they go back and edit transactions, that’s not possible on a blockchain.
4. Transaction Linkage: Every transaction record (ledger entry) is linked to previous transactions and is standardized for every participating node. Every ledger entry is retraceable across its full history and can be reconstructed. That’s why it’s called a blockchain, every transaction is linked or chained together. Nothing like missing money, data or unknown transactions.
5. No single point of failure: If a hacker or a corrupt politician attack a single node (a person participating computer database), and deletes or add transactions. It will immediately be spotted as a hack since that transaction is not on other member nodes.