Bitcoin (BTC), upon its creation in 2009, brought us a revolutionary technology called the blockchain. To some, the concept can be a little intimidating. The amount of jargon and slang alone is enough to terrify any newbie. However, once it’s all broken down, it’s much simpler than it sounds.
Breaking it down
We know what you’re thinking: why is it called the blockchain? Well, in the most basic terms, it’s called a blockchain because that’s what it is: a chain of blocks.
Essentially, blocks are batches of data that tell you everything you need to know about the transactions inside them. Mainly, they store three kinds of data:
- Details of a transaction – Information such as date, time, and amount for each exchange
- Participants of a transaction – Those who participated in a transaction, stored in the form of a unique “digital signature” (kind of like a username) to protect personal information
- Distinguishing data – Data that differentiates each block called hashes
Each block on the BTC blockchain can store about 2-4 MB worth of data. Although it doesn’t seem like a lot, 2-4 MB can house a few thousand transactions (depending on the size of each transaction).
Now, let’s get onto the “chain” side of things. The chain in blockchain refers to the linking of all blocks. Once 2-4 MB worth of transactions fill up a block, it’s then added to the blockchain. However, before it gets added, it’ll have to meet specific criteria:
First, the transactions need to happen. Without them, there’s no data for the block store. These transactions will also have to be verified before being added to the block—this is where Bitcoin mining comes in. The blockchain has a network of computers (miners) that verify the details of the transactions: time of the transaction, dollar amount, and its participants. Once verified, all the data is stored in a block where it will join other transactions.
The other thing a block needs before it gets added is a hash (the data that distinguishes each block). In addition to the hash assigned to the new block, it also receives the hash of the previous one on the blockchain. Essentially, this ensures that the new block doesn’t get mixed up with the others.
As soon as this new block is added to the blockchain, it becomes public information. This is why it’s often referred to as a public ledger—anyone can see the details of the transactions.
|Blockchain Ledger Size|
|Bitcoin Cash||164 GB|
The reason why blockchain technology is so revolutionary is that it creates a public record that cannot be tampered with unless the blockchain itself is attacked. Additionally, each transaction is traceable to a certain degree, meaning that when you receive BTC, you’ll have an idea of where it came from.
Think of the blockchain as the imaginary scoreboard in a pick-up basketball game. During the game, each player knows what the score is. They can’t also change it without convincing everyone else that there’s a good reason for doing so. Similarly, each node in a blockchain-based peer-to-peer network has a copy of the network’s ledger of events. That ledger is immutable. Both instances achieve a situation where you have people who agree upon a record of events that cannot be changed.
Blockchain’s selling points
If you’re wondering why many businesses and industries are rushing to integrate blockchain technology, it’s because of these three main selling points:
With an entire network of computers working to verify transactions using a consensus mechanism called Proof-of-Work (PoW), human error is basically removed from the equation. Suppose a node were to malfunction and commit a mistake. In that case, that mistake would only happen on one copy of the blockchain. For it to spread throughout the entire blockchain, the same error needs to be made by 51% of all computers.
Transactions made through traditional means have their setbacks. For example, banks have operating hours and are closed on weekends and holidays. Let’s say you were thinking of depositing a check on a Friday afternoon. In that case, there’s a good chance the transaction won’t push through until Monday the following week. Blockchain, on the other hand, works 24/7, and transactions usually only take up to 10 minutes depending on the load of the Bitcoin network.
Although transactions aren’t entirely anonymous on the blockchain, they’re confidential (pseudo-anonymous). The technology itself is open-sourced, meaning developers can modify the blockchain code as they see fit—assuming they’re backed by the majority of the total computing power. Additionally, as mentioned earlier, these records cannot be tampered with, making it nearly impossible to change the ledger without millions of computers noticing.
Blockchain technology and its practical uses
We know that blockchain technology applies to monetary transactions. However, people are beginning to realize that it can also apply to other industries.
For example, how can blockchain technology work in the healthcare industry? With its integration, healthcare providers can safely store medical records within the blockchain, giving patients confidence that their documents are kept safe, confidential, and unalterable. In supply chains, this technology can drive transparency, traceability, and reduced administrative costs. Japan is even coming out with a blockchain-based stock exchange in 2022.
The blockchain represents a new and more effective way to share information. It holds the idea of creating secure and real-time communication networks with partners. Right now, we’re looking at the tip of the iceberg. The more people educate themselves on the matter, the more developments we’ll see in the future. Make sure you don’t blink—we might be seeing the start of a blockchain revolution.