What Is Blockchain?
Cryptocurrency is one of the most popular and discussed topics today - especially among people, who are constantly searching for different ways to generate profit with the help of digital money. However, only limited number of people know that digital currencies exist only due to blockchain. If you are really interested in cryptocurrencies, it’s crucial to get at least basic knowledge about blockchain technologies.
This brief blockchain tutorial will give you answers to the most popular questions about the world of virtual coins. All the information is presented in a very simple way, so that it could be understandable even for beginners.
The very first thing every newbie needs to know is the blockchain definition. Essentially, it is a digital/virtual records ledger that consists of blocks that include all data about cryptocurrency transactions. It is also necessary to mention that these blocks are connected with the help of cryptographic validation called hashing, and this connection can’t be broken - that is why it was called “blockchain”. It is also possible to define Blockchain as a basis of Bitcoin and other cryptocurrencies.
The invention of digital currencies was a long and complex process that took developers many years. Only in 2009, S. Nakamoto created Bitcoin blockchain technology - this is how the first crypto-coin in the world - Bitcoin - has appeared. For some period of time, it was a common thing to define blockchain as a technology for Bitcoin. However, when the other cryptocurrencies were launched, it became clear that blockchain is more than just the basis for Bitcoin.
Importance of blockchain
Beginning cryptocurrency traders can’t understand why blockchain technology is so important, which makes it a very popular question in the blockchain FAQ section.
Let’s start our explanation with a simple example. Imagine you have an object in your hands. You give this object to your friend, and now he/she holds it, but you don’t. The object isn’t under your control anymore, while your friend can give it to someone else. This process is called in-person exchange. That is the exact idea of any cryptocurrency. In other words, people have to be confident that one unit of a cryptocurrency is sent only to one person.
Before the blockchain system was created, it was impossible to find out whether the object sent online was unique or it had several copies that could be sent to other people. This problem even got its own name - “double-spending.”
The idea to create a ledger with transactions became a solution to this problem. Yet, this virtual ledger should exist somewhere and should be charged by someone, which is also problematic for several reasons. First of all, such system can be easily manipulated by a person or a group of people in charge. Apart from this, the system creates a third party that takes part in the exchange process. In other words, you can’t give the object to your friend without the help of other people. The solution of these two problems is very simple – it is necessary to give this ledger to everyone.
If everyone has the ledger, it is very hard to break the system - every person within the chain controls it, so that the exchange processes is fair. This is called decentralization.
How to use blockchain?
If you have read blockchain definition carefully, you should remember that this technology is often associated with digital money. However, it is necessary to mention that it can be utilized in different ways.
Instrument of finance. First of all, this technology created for different financial operations. Such cryptocurrencies as Bitcoin and Ethereum are based on blockchain, which allows to conduct safe transactions. There are different applications, like blockchain viewer, that helps see what is going on with the virtual coins in real time.
Smart contracts. Due to blockchain, such thing as Smart Contracts exists today. Basically, Smart Contract is an agreement between two people. Yet, once a deal is accomplished, none of them can reverse or change it. Such contracts can be used in many spheres when it comes to digital agreements.
Bookkeeping platform. The blockchain is the best platform for keeping such data - it can’t be corrupted, it guarantees transparency and helps to bypass censorship. This can help to solve some problems with corruption in different spheres of life.
Cybersecurity. If to implement this technology to various processes of passing data, it will be possible to protect data from fraud. For example, it is a good idea to use it for the vote-counting system. It will guarantee voter legitimacy.
These days, blockchain system hasn’t been studied well yet. For this reason, people don’t know where else it can be beneficial, though they realize that it’s a very advantageous thing today.