So you’ve heard of cryptocurrencies but are still unsure what blockchain is? No worries! We’ve got you covered.
In this guide, you will learn what blockchain is, how it works, and what it can be used for beyond cryptocurrencies.
The blockchain refers to a shared, open-source, immutable digital ledger that is used to process and record data. In the case of cryptocurrencies like Bitcoin, the data processed are units of digital money.
Open blockchains work without approval from any central authority, enabling anyone with an Internet connection to participate in the network.
Due to their distributed nature, open blockchains networks record information in a manner that is impossible or difficult to hack, cheat, or corrupt, which is why this relatively new technology has become so popular in such a short period of time.
When a party broadcasts over a blockchain network, say when transacting in cryptocurrency, each computer connected to the network receives the communication. This broadcast has unique identifiers, such as a hash and time stamp. Many broadcasts are lumped together to create a block. This is where the innovation gets its name, as each block is connected to the one behind it, creating a so-called “blockchain”.
The transaction or broadcast transmitted over a blockchain network must first be validated before it can be added to the ledger. This is where consensus mechanisms come into play. These are cryptographic frameworks used to secure blockchain networks.
Examples include Proof-of-Work (PoW) and Proof-of-Stake (PoS). Today, there are myriad consensus mechanisms leveraged across different blockchains.
Each connected computer or server in a blockchain network is referred to as a node. Once nodes validate a transaction or broadcast, it is added to the ledger and distributed to every connected node, even those uninvolved in the consensus mechanism. Whenever a new block gets created, it gets added to the already existing blockchain network, which certifies that it is immutable and secure.
This is why you can carry out transactions on the blockchain without involving or needing a third-party intermediary. However, before you can broadcast on the blockchain, you will need to connect to the network.
In cryptocurrencies, this takes the form of a cryptocurrency wallet. This refers to a digital wallet that enables users to spend and store cryptocurrencies, such as bitcoin or litecoin. These wallets are secured cryptographically by use of both private and public keys. This way, you as a user can be able to have full control over your transactions.
Although most of its association has been with cryptocurrencies, blockchain technology can be used in various industries.
Blockchain is currently being deployed in the healthcare sector, land title registration, money transfers and payments, supply chain management, and governance, among others.
With all the various use cases and benefits the blockchain presents, its adoption is expected to continue to grow as more real-world use cases become realities.