The word “blockchain” has been trending all around the world. Many people conflate blockchain with bitcoin and other cryptocurrencies, but they are not the same!
So what exactly is blockchain, and why should you care?
Blockchain is a type of technology that involves the distribution of a ledger through a set of nodes in a computer network. This ledger contains chunks of data known as blocks. These blocks are linked in the form of a chain (hence “blockchain”) in such a way that it is updated every time new data is added. Once the data has been validated, the block is closed and a new block is created for further data. Old blocks are unable to be altered, thus creating a permanent store of records for future reference.
While it has a variety of uses, the most common task that is supported by blockchain technology is the recording of transactions.
For transactions to be accepted on the blockchain, all participants or nodes must agree to follow the same set of rules. This is also known as the consensus algorithm. But why do people have so much faith in blockchain as an alternative to centralized finance?
Characteristics of blockchain technology include:
Decentralization: No authority, be it a corporation or government, controls blockchain technology. Rather, the group of nodes that manage transactions is responsible for the upkeep of the chain. As the number of nodes in a blockchain increases, the level of security and decentralization rises.
Transparency: Every transaction, no matter how insignificant, can be traced from start to finish through the ledger.
Anonymity: While the transactions themselves are completely transparent, the actual persons involved are kept anonymous through the wallet addresses used. A user does not need to add personal details to their wallet, allowing transactions to remain anonymous.
Data immutability: Arguably the most important aspect of a blockchain. Every node that makes up the blockchain has a copy of the ledger, meaning that all nodes must agree when altering any data. This makes blockchain resistant to fraudulent activities.
In summary, blockchain technology is far more than just cryptocurrencies like bitcoin. It can be used in fields such as healthcare, fraud detection, and smart contracts just to name a few. Blockchain has the potential to create a trusted, unfilterable, and uncensorable data repository, which will be the driving force behind web3.
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