Cryptocurrency is seeing a huge rise in popularity, and many consider it the future of money. Crypto enthusiasts believe that it will replace traditional currencies controlled by governments. Many terminologies are associated with Bitcoin mining, blockchain technology, and more. Since it is so much in the news, many people who are not into trading these digital currencies may have read or heard about it but not understood much about it. However, Blockchain technology is the backbone of cryptocurrencies and has potential beyond the financial markets. So it is important to have at least a basic understanding of it. Keep reading to know more about its implementations in simple terms:
What is Blockchain?
Blockchain is often tied with Bitcoin, and that is because the foremost implementation of this technology happened with the release of Bitcoin. Read here to know what is bitcoin. It started as a decentralised ledger to store transactions in a fixed way. The transactions are stored as blocks and are secured and connected together through cryptography. Thus the name blockchain. The most important property of blockchain is its decentralisation feature. It means that there is no entity governing the blockchain, and the ledger can be accessed by millions of computers across the globe. Each participant in the network can access the complete blockchain along with its history, and when there is a change, all the accounts are updated with the latest information. Due to the use of cryptography, the records are almost impossible to alter or falsify.
How Does it Work?
As mentioned earlier, there is no involvement of a third party in a blockchain transaction. When two parties agree to take part, the information is sent to the nodes or computers of the peer-to-peer network. This is the place where the transaction gets verified; once the transaction is validated, it gets added to a block along with other transactions and then hashed using cryptography. Each such block has a reference to that hash it came prior to it. This ensures it is not altered, and the position of the block is guaranteed. The new block is added to the blockchain and distributed to all the participants to complete the transaction.
Types of Blockchains
Though blockchain is said to be decentralised, there can be different levels based on the permissions needed to access the network.
- Public blockchain: These can be accessed and used by anyone and anywhere globally. These rely on an algorithm for issuing new tokens and do not need any permissions.
- Private blockchains: These use a private network and are owned by a single entity. It cannot be accessed by anyone and needs permission from the entity that owns it.
- Hybrid blockchains: These are a combination of public and private networks. The network has layers where the outer layer is publically accessible, and the inner layer is governed by a private entity.
- Consortium blockchains: These are blockchains where many private entities own the network. Accessing the functionalities need permissions from the consortium.
Advantages of Blockchain
No matter the type of blockchain, it provides the following benefits:
- Decentralisation
- Better privacy and security
- Transparency
- Reduced costs of transactions
- Traceability
- Gets rid of intermediaries
Blockchain Use Cases
Blockchain has many used cases due to the implementation of smart contracts which are programs that run when certain preconditions are met. These decentralized programs are being used in financial markets, governments, supply chains, health care, and more.
Blockchain in the past few years has disrupted the financial and banking system by providing an alternative and is just the start of bigger things. Slowly but surely you will see more presence of blockchain in other industries too.
