What Is Blockchain Technology?
Blockchain technology has an incredible potential to revolutionize the web as we know it. If we want to join that revolution in its early stages, there are a couple of things about blockchain that we need to understand.
In this article, we discuss the key aspects of blockchain technology, some of its most popular use cases, and its general advantages.
*As a side note, in this article we are talking about public and permissionless blockchains like Bitcoin and Ethereum. These blockchains are open for anyone to use, read, and interact with. There are blockchains that are private and permissioned -- but that’s another story.
Blockchain 101
In short, a blockchain is a ledger. A digital database.
In blockchain, you collect data until you “fill” a block. Once a block is ready, it gets verified and then added to the chain. Block by block, tied together in chronological order… Blockchain.
If that sounds overly simplified, it’s because it is. There’s a lot more to blockchain technology, of course. Still, at its core, blockchain is just a way to record, verify, and store data.
What makes blockchain unique is the fact that it’s shared, decentralized, open, and cryptographically secure.
What does that mean? Let’s break it down.
Shared: Blockchains are distributed. The data in public and permissionless blockchains is shared among network participants. That means that anyone can download the Bitcoin blockchain and have a copy of all its data on their computer.
Decentralized: A blockchain doesn’t have a CEO. There’s no central authority figure that makes decisions in blockchain systems. There’s no central database. There’s no one unique blockchain copy that is more important or valid than others.
Open: Anyone can read data recorded in a blockchain. All transactions are transparent.
Cryptographically secure: Identities, transactions, wallets, and blocks are all secured through cryptography. What really ties the blocks in a blockchain together are their cryptographic hashes. Each block contains a cryptographic hash that you can think of as a unique identifier of that block. Because it’s nearly impossible to change one block without altering all the blocks connected to it, data in a blockchain is considered immutable.
Advantages of Blockchain
Every blockchain is different and uses different software protocols and rules. Still, the general attributes of blockchain technology typically amount to several advantages over legacy systems.
Decentralized systems are harder to attack
There’s no single point of failure. For example, the Bitcoin blockchain is distributed among thousands of network participants (nodes). Even if the majority of these nodes fail, the network can still be rebuilt from one node.
Decentralized networks function peer-to-peer, there’s no need for intermediaries
If you want to send money to your friend on the other side of the world, you’ll have to go through a bank. The bank transaction fees are usually higher than in most blockchains, and it will probably take days for your friend to receive the money. In blockchain networks, you can send money directly to your friend, without any intermediaries to slow down the process. Your friend can receive the funds in just a couple of minutes.
Sometimes you won’t be dealing with a friend. In those cases, intermediaries with authority provide assurances that both parties will respect the terms of the deal. In a blockchain, the intermediary is the technology. You don’t have to trust the person on the other side -- you both trust the technology. That’s why blockchain networks are often called trustless.
Data is immutable, easy to track, and verified through a consensus mechanism
As we previously mentioned, it’s extremely hard to change data that’s already been added to a blockchain. That characteristic of blockchain technology is called data immutability. Why is that important? The fact that no one can change data means that we can all trust it. There’s no probable chance that someone can falsify past records for their benefit.
In addition to cryptographic hashing that secures blocks, blockchains also use consensus mechanisms to arrive at an agreement over the truthfulness of data. Consensus mechanisms ensure that the network participants are in agreement and that everyone’s version of the blockchain is synchronized.
Public blockchain networks are transparent, have open source code, and are available to everyone
Anyone with an internet connection can use public blockchains like Bitcoin or Ethereum. You can send and receive funds, build decentralized applications, or create NFTs. Blockchain technology is also democratizing financial access, with people everywhere now having the chance to use different decentralized financial services.
The open and decentralized nature of blockchain also means that users have an active investment, ownership, and responsibility in the network. Instead of directives coming from the top, blockchains function on a community-based consensus.
Blockchains are more secure and private. You are the only one in charge of your data
It’s not impossible to attack a blockchain, but it’s quite difficult. And although blockchains are transparent, they are also private. The majority of information, especially regarding identities, is cryptographically hashed. You don’t need to provide any personal information in order to use a blockchain.
You are also the only one who has ownership of your data. For example, if you keep your money in a bank, do you really own it? The bank can close tomorrow or deny you access to your funds. When you hold your funds in a blockchain wallet, you are the only one in control of that money.
Blockchain Use Cases
The first application of blockchain technology was in finance. We’re talking about Bitcoin -- the first cryptocurrency. Bitcoin made it possible to send money peer-to-peer without relying on banks. With Ethereum and its smart contracts, we got decentralized finance (DeFi).
Today users can lend, borrow, and trade various cryptocurrencies. People can use many traditional financial instruments in DeFi, with the added benefit of faster transactions, more access, and lower fees. Additionally, blockchain technology paved the way for innovation in the space, with new financial services popping up every day.
For businesses, blockchain technology can offer various benefits. From reducing costs to improving cybersecurity, any industry that relies on keeping accurate records can benefit from blockchain solutions. Blockchain tech can also be beneficial in industries like real estate, healthcare, supply chain management, and the Internet of Things, to name just a few.
Join the Web3 Community
The potential of blockchain has inspired people to start building Web3. This “new” internet is being built on principles of decentralization, transparency, security, and inclusivity. You don’t need to be a developer to join the crypto space. There are many opportunities to leverage your skills and take part in blockchain projects around the world.
These are still the early days for blockchain technology and there are plenty of things to be figured out. If you’re curious about the crypto space, join our Discord and get in on the conversation.
After all, how often do you get a chance to join in building a new world?
