Blockchain is an innovative technology that has gained widespread recognition along with the growing popularity of cryptocurrencies. Conversations regarding blockchain have extended beyond the domain of Wall Street financiers for quite some time. Right now, blockchain is actively used for financial transactions, processing personal data, as well as in logistics and cybersecurity. What exactly is blockchain? Let’s find out.
In simple terms, a blockchain is a continuous chain of blocks that contain records of various transactions. The distinctive feature of blockchain compared to traditional databases is that the records within it cannot be modified or deleted. Only new blocks with new data can be added.
Blockchain is also known as distributed ledger technology, as all transactions and the current list of owners are stored on the computers of numerous independent users. Even if one or several computers suddenly stop working, the information remains intact and won’t be lost.
How Does It Work?
An example of using blockchain can be illustrated in the context of sending digital currency, such as Bitcoin:
When Jane wants to send bitcoins to Kevin, she creates a transaction. This transaction is added to a block, which is then sent for verification to all network nodes. The nodes verify that Jane has enough bitcoins to carry out the transaction. After successful validation, the block is added to the chain of other blocks and becomes part of the overall transaction history. Each new block contains information about the previous one, ensuring the integrity and connection between the blocks.
Blockchain maintains a reliable and transparent history of all transactions, which can be viewed and verified. The principle of blockchain can be compared to a necklace. In this context, each block is a bead. It cannot be removed or replaced, as it would break the necklace. Thus, blockchain represents a sequential and immutable chain of recorded actions.
Key Principles of Blockchain in Detail
Decentralization: blockchain lacks a central controlling authority.
Consensus: decisions regarding the acceptance or rejection of a transaction are based on consensus, rather than relying on a centralized institution.
Immutability and resilience: records in blockchain are immutable and cannot be changed or deleted.
Transparency: the history of all transactions can be viewed and verified.
In short, the principles of blockchain can be described as less centralization, more transparency, the absence of intermediaries, and operation based on consensus.
Key Advantages of Blockchain Technology
Blockchain technology offers numerous advantages. Let’s list some of them:
Enhanced security capabilities: blockchain provides a high level of security and trust required for modern digital transactions. The aforementioned principles of blockchain create a secure environment that is practically impervious to manipulation and external interference.
Increased efficiency: operations between traditional commercial structures can be labor-intensive and time-consuming, especially involving third parties. Transparency and the use of smart contracts in blockchain contribute to the acceleration and improvement of business operations’ efficiency.
Faster audits: companies need the ability to securely generate, archive, and exchange electronic operations. With its sequential data storage and transparency, blockchain expedites the auditing process significantly.
Areas Where Blockchain is Applied
Banking
Blockchain ensures heightened security, reliability, and transparency in all processes within the banking industry. Now it is possible to carry out fast and secure money transfers, conduct securities transactions, facilitate convenient “Know Your Customer” (KYC) procedures, and automate routine tasks in banking back offices.
In 2017, analysts from financial giant Morgan Stanley announced that blockchain technology could soon cut bank costs by up to 50%.
Cybersecurity
Every node in the blockchain system stores copies of the entire database and conducts its analysis. This ensures the viability of the system even in the case of successful hacker attacks on individual nodes.
There was a startup that developed a convenient way to securely record, track, and transfer property rights through a blockchain platform. This has helped numerous real estate firms simplify record management, reduce search time, and enhance transaction confidentiality.
The Energy Sector
Energy companies are actively adopting blockchain technology to create platforms for trading energy resources and facilitating access to renewable energy sources.
For example, through blockchain crowdfunding, users can sponsor and support the operation of solar panels in areas without access to electricity.
Conclusion
Every year, blockchain technology expands beyond the financial sector, spreading across all areas of the economy and society. Shortly, areas such as insurance, e-commerce, taxation systems, and industries among others, may become potential applications of blockchain. Many analysts compared this technology to the internet. However, we can now see that blockchain has the potential to surpass the global information network.
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