Unless you have been living under a rock, you might probably have heard of the word Blockchain. It seems to be one of the buzzwords of the past years. But many people seem to know what blockchain is or how does it work. But… How does Blockchain really works?
To understand blockchain technology and its potential impacts, it helps to get your head around a few non blockchain concepts. Here’s the thing, blockchain has the potential to fundamentally transform the global economy as we know it by changing the way governance systems, individuals and businesses function and transact with each other.
Imagine you and your friend are transacting/transferring money from one account to another. You would first reach the bank and ask them to transfer the money to the account address of your friend.
On transferring the money from your account to your friend’s account, the banks keep an entry on register of transactions. The entry needs to be updated on both, receiver and sender, account. But there is one problem:
People who know how the banking system works are trying to avoid them because of this problem. This is where Blockchain comes in.
Let’s start from the beginning. The first major application of blockchain technology was bitcoin which was released in 2009. Bitcoin is a cryptocurrency and the blockchain is the technology that underpins it. A cryptocurrency refers to a digital coin that runs on a blockchain.
To keep track of the amount of bitcoin each of us owns, the blockchain uses a ledger, a digital file that tracks all bitcoin transactions. The ledger file is not stored in a central entity server, like a bank, or in a single data center. It is distributed across the world via a network of private computers that are both storing data and executing computations. Each of these computers represents a “node” of the blockchain network and has a copy of the ledger file.
The fact that the ledger is maintained by a group of connected computers rather than by a centralized entity like a bank has several implications:
Overall, the blockchain technology has the potential to revolutionize several industries, from advertising to energy distribution. Its main power lies in its decentralized nature and ability to eliminate the need for trust.