It’s been a while since the word ‘Blockchain’ entered our collective lexicon. You hear about it all the time these days, but what is it and what does it do? Some say that blockchain technology is changing the world, and there is plenty of evidence to support that claim. In a nutshell, it provides a quantum leap in the protection of data.
Blockchain is a system designed to keep records safe and secure. But how does it work? Perhaps it’s time to find out more about this amazing technology.
What is a blockchain in simple words?
Saying it’s a chain of blocks is way too simple: Investopedia describes Blockchain as a digital ledger where information is stored in a manner that makes it hard to change. This ledger is then shared among many computers, each one receiving a copy of the same ledger.
It’s called blockchain because information is kept within blocks, each of which maintains a list of transactions. As the block gets filled, it connects to the previous block, forming a linked chain of blocks or a blockchain.
How it works
It starts with mining. Miners are computers that solve complex math problems. Once they solve these problems, they add new blocks to the chain.
Each individual block has a unique code called a hash. The hash helps keep the information secure. If anyone tries to change the information, the hash also changes. That way, it’s easy to spot any tampering.
Cybersecurity
Cryptography keeps the blockchain secure. Cryptography is like a secret code used to protect information. Only people who have the right key will be able to read it.
Another key to blockchain protection is decentralization, which means no individual computer can control it on its own. Several computers work together to keep it safe.
What blockchain is used for
We typically hear of blockchain in reference to cryptocurrency, but it has many other uses beyond money. It can track goods in a supply chain, store medical records safely, and even help with voting in elections.
When it comes to finance, blockchain powers cryptocurrencies such as Bitcoin, the leading digital currency that people can use online.
Blockchain benefits
Speed, money, and protection are the main benefits of blockchain because it makes transactions faster and cheaper, with higher cybersecurity. It removes the need for middlemen like banks, saving time and money.
Another key benefit is transparency. Users can view all the transactions made on the blockchain, helping to establish trust among users.
What is the downside of blockchain?
The challenges or negatives regarding the use of blockchain: Much of the mining is very power consuming. This might not be suitable for the environment.
Aside from this issue, there are even more regulatory ones. Governments and agencies don’t yet know how to deal with blockchain technology.
There can possibly be issues with the Private Key you are issued – the problem arises if you lose it, which prevents you from withdrawing funds from your cryptocurrency account.
Another possible danger is that if a miner has enough computing power to control more than 50% of a blockchain's mining hash rate, they can launch a 51% attack, which can prevent transactions from gaining confirmations and even pause payments between users. Also, completed transactions can be reversed, leading to double spending on the cryptocurrency.
Cleartax lists a few more negatives in detail HERE.
The future of blockchain
As of today, indications are that the future of blockchain is very bright indeed. More and more industries, ranging from healthcare to entertainment, are exploring its potential each day. Developers are also working on making blockchain more efficient and eco-friendly.
The bottom line: Blockchain really stands to change the way we do things.
Frequently Asked Questions
What will replace blockchain?
There is nothing viably on the horizon quite yet, but some alternatives lie within the further development of centralized databases, distributed databases, centralized ledgers, cloud storage, decentralized storage, etc.
What is the method to prevent double spending called blockchain?
One safeguard is a combination of the proof-of-work mechanic, encryption method, and distributed consensus techniques used by Bitcoin and other blockchains prevent double-spending.
Ethereum and a few other blockchains use proof-of-stake, encryption, and distributed consensus to prevent double-spending.
Why can't blockchain be hacked?
Credit the hashes. Each block in a blockchain is linked to its predecessor through cryptographic hashes, creating a secure chain of information. If a hacker attempts to alter any block, the hash of that block would change, rendering all subsequent blocks invalid.
That is how it stands now, but criminals are certainly looking for ways to hack blockchain in the future. Stay informed.
How does blockchain prevent corruption?
It’s the tamper-proof aspect of blockchain records itself that prevents corrupt clerks or bureaucrats from being able to modify them. The distribution of a ledger and the consensus mechanisms also make it difficult for one entity to falsify entries.
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