What Is Blockchain Technology?
Blockchain technology is an easier and tamperproof way of carrying out transactions without any third party applications like banks and wallets. It’s characterized as a decentralized, shared database that stores the origin of a digital asset. It is a collection of interlinked records, highly resistant to alteration, and protected using cryptography.
We can understand blockchain technology with various examples. One of them is as simple as creating a Google Doc. We create a document, then share it with multiple people, and instead of being copied, the document is distributed. This enables a decentralized network of circulation that allows everybody to not only access the doc but also make changes and record these changes in real-time, making it fully transparent.
This example is an oversimplified one but highlights three significant concepts that form the foundation of blockchain technology- public ledger, digital identity, cryptography.
Since each user has a copy of the ledger (distributed P2P network) and the data in the blocks are protected by complex algorithms, a hacker will not be able to alter the data in the blockchain.
If you need a more in-depth guide, check out, Blockchain Simplified
“Bitcoin is either Myspace or Facebook, I don’t know but the blockchain is social media. So at the macro, blockchain is going nowhere. Right, like blockchain is here to stay forever and it’s a very big deal.” -Gary Vaynerchuk (entrepreneur and internet personality)
2008- Paper is published with a model for blockchain by Satoshi Nakamoto, a pseudonym for a person or group.
2011- 1 BTC = $1USD, giving the cryptocurrency parity with the US dollar.
“So the choice, when i talk to people, so what do you think will be here in 2040, approximately 22 years from now? Will Gold still be here? Well, it’s been here since eternity. Will the dollar be here? I don’t think so. Will blockchain be here? I think so.” Robert Kiyosaky (American businessman and author)
2012- injected into pop culture (mentions in shows like The Good Wife etc.)
2013- “Ethereum Project” paper suggesting that blockchain has other possibilities besides Bitcoin (e.g., smart contracts) is published by Buterin.
2014- several gaming companies start accepting bitcoins as payment, PayPal announces Bitcoin integration, blockchain firms are formed to find new ways to use the technology.
2016- Japanese government identifies the legitimacy of blockchain and cryptocurrencies.
2017- Cryptocurrency market cap reaches $150 billion, Dubai announces that its government will be bitcoin-powered by 2020.
How Does Blockchain Work?
It is comprised of three important principles: blocks, nodes, and miners
Each block has: data, hash- acts as a unique fingerprint of the block and a 32-bit whole number called a nonce creates it, and a hash of the previous block.
Miners add new blocks to the chain through a process called mining. Mining a block is complex, mainly on large chains, not only because each block consists of a unique nonce and hash but also the hash of the previous block. Since the nonce is only 32 bits and the hash is 256, there are approximately four billion potential combinations of nonce-hash that must be mined before finding the correct one. When that happens, the “golden nonce” is said to have been found by miners and their block is added to the chain. This is what makes blockchain technology highly difficult to manipulate. It ensures safety, accountability, and transparency since finding “golden nonces necessitates a lot of time and computing power. Once the mining process is completed, the miner gets paid.
One of blockchain technology’s key concepts is decentralization. Nodes can be any type of electronic device that maintains records of the blockchain. Each node has its own copy of the ledger. To update, trust, and verify the chain, the network must accept any newly mined block.
Types: There are three primary types of blockchains:
- Public Blockchains like Bitcoin and Ethereum:
-Highly resistant to censorship, as everyone is able to access the chain, regardless of location, nationality, etc.
-Have a token typically to incentivize and reward participants in the network.
- Private Blockchains like Hyper ledger and R3 Corda:
-Users need permission to access the network
-Transactions are private (only available to members who are given permission)
-More centralized than public blockchains
- Hybrid Blockchains like Dragon chain:
-Multi-chain network of blockchains made possible by patented Interchain™ capability
-Facilitates transparency without compromising on security and privacy
-Benefit from the combined hashpower being applied to the public chains
What Is a Consortium Blockchain?
Instead of being a different type of blockchain, it can be considered to be a subpart of private blockchains
-Governed by a group and not a single entity
-It makes competing businesses work together
-because of collaboration they are highly efficient, both individually and collectively
-Anyone from central banks, to governments, to supply chain can be a participant
Recommended Blockchain Books
- “The Handicap Principle” by Amotz and Avishag Zahavi
- “Bitcoin Money” by Michael Caras and Marina Yakubivska
- “The Bitcoin Standard” by Saifedean Ammous
- “Mastering Bitcoin” by Andreas Antonopoulos