BLOCKCHAIN — IN SIMPLE WORDS.
About Blockchain technology in simple words.
Blockchain is a continuous chain of data blocks, where each subsequent block is linked to the previous one through a set of records (data) contained in it.
Each block stores all the information in the chain, starting from the very first block;
New blocks are added to the very end of the chain, so the content of the Blockchain gradually increases;
All blocks of the network are arranged in strict chronological order and are linked by a cryptographic signature created using complex mathematical algorithms;
A cryptographic signature accompanies each change in the system, and after the transaction is completed and written to the Blockchain, all network nodes receive information about it;
Operations within the network are recorded and processed without the involvement of a third-party service;
The current state of the Blockchain at a certain point in time is loaded, synchronized, and provided by hundreds of thousands of computers around the world, which are called nodes
A node is the only computer that stores the complete and latest version of the Blockchain.
Every time a new block appears on the network, all nodes update their Blockchain.
What is Blockchain for?
Blockchain technology and cryptocurrency emerged from the apparent shortcomings of the traditional banking system. First of all, it is the speed of operations: international money transfers can sometimes take several days because the bank needs time to verify the information.
This is inconvenient and prevents users from making quick calculations.
In addition to the duration of transfers, it is worth noting the significant fees banks charge for their intermediation. Blockchain allows you to refuse the services of any intermediaries and make payments faster and cheaper.
Blockchain performs the same functions that traditional financial institutions have always been responsible for.
But it does it better and more efficiently:
✔️Blockchain is faster. Network operations take minutes.
✔️Blockchain is cheaper. The transaction costs are much lower than banking services.
✔️Blockchain is safer. The Blockchain Distributed Database nullifies the possibility of compromising the system since it is impossible to simultaneously access copies of the database on all computers participating in the network.
✔️The Blockchain is decentralized. No one can gain control over the Blockchain and change the recorded information.
How does Blockchain technology work?
Setting aside the details and describing the purpose of the Blockchain in simple terms, the concept of a blockchain was created to transfer value.
Information in the Blockchain is represented as digital records with a certain value.
All records are combined into blocks that form a blockchain.
Each new element in strictly chronological order is added to the end of the chain and contains the previous block’s address.
One user places information on the Internet, while another can access it. It doesn’t matter where the addressee is. The main thing is that he has a cryptographic key that will open access to those Blockchain files that are intended for him.
Blockchain technology is designed so that by transferring a private secret key to someone, the user gives him all the rights to own the data stored in the corresponding section of the Blockchain.
We see this scheme when working with cryptocurrency.
The transfer of money, expressed in crypto coins, is also carried out using keys that open access to digital assets. Also, trust is established between the parties to the transaction and the authenticity of the transaction is verified, since no one can access the information without the appropriate keys.
At the same time, the participants in the transaction do not need to provide personal data or identity documents.
The above-described principle of the Blockchain operation allows it to perform the essential functions of banks.
The emergence of Blockchain is associated with the name of Satoshi Nakamoto, the creator of the first cryptocurrency, Bitcoin. The technology was proposed in 2008. It took about 10 months for technical support and implementation, and in 2009 it was first applied in the form in which it exists now.
In this, Blockchain was used as the basis of the first cryptocurrency — Bitcoin, where it played the role of a distributed ledger for all digital coin transactions.
Versatility and application in different spheres of life is an important advantage of Blockchain technology.
The practical use of Blockchain is as follows:
✔️ reduction of transaction costs;
✔️ reduction of transaction time;
✔️ getting rid of unnecessary spending;
✔️ the ability to transfer any data.
Advantages of Blockchain Technology.
✅ Blockchain as a distributed database exists as long as at least one computer is globally connected to the Blockchain network. All data is stored on the computers of all network users and not in one place.
✅ Blockchain is openness and security of information.
By its very nature, Blockchain can provide a unique symbiosis of openness and security of user data.
A high degree of reliability is achieved through advanced encryption methods.
✅ Blockchain as secured storage.
Any information that can be written on a piece of paper can be recorded in the Blockchain.
Also, intermediaries are not needed for operations: the database is managed in an autonomous decentralized mode, ensuring the Blockchain’s transparency.
✅ Blockchain is data accuracy.
Data on the Blockchain network cannot be tampered with or forged: many computers worldwide confirm this.
✅ Blockchain is the complete equality of users.
A copy of all Blockchain transactions is stored on hundreds of thousands of computers worldwide, forming a single network. All members of the network have full equality and can equally fulfill their duties and violate them.
✅ Blockchain is anonymous transactions.
The technology is designed that the user can maintain absolute anonymity with full access to information.
Disadvantages of Blockchain technology.
🔻Scalability — Blockchain cannot provide a large number of transactions in a short time, like other more advanced systems, such as Visa or MasterCard, with their speed of 65 thousand operations per second. And this is one of the main problems of technology.
The lack of scalability will be solved after the transition to other algorithms for confirming transactions.
🔻The probability of “attack 51%”. Suppose a group of users manages to concentrate 51% of the computing power in their hands. In that case, they can begin to use the network to their advantage and confirm only those profitable transactions.
🔻Blockchain technology has not yet been implemented globally, so it works very slowly in some projects.
Use of blockchain technology.
The first practical application of the Blockchain technology was found in 2009: on its basis, the Bitcoin cryptocurrency was created.
While open and secure at the same time, Blockchain is most widely used in finance, but it can optimize and improve other areas of life. Due to its main advantages, technology is an excellent basis for the operation of all services, where the security of user data is a priority.
Blockchain performs three main banking functions:
✔️ registration of transactions;
✔️ contract;
✔️ verification of the user’s identity at the identification stage.
The implementation of Blockchain in the financial industry allows you to get rid of intermediate processes when transferring money, integrating with a bank, etc. The practical use of technologies in this area is extensive.
But the scope of Blockchain is not limited to banking. Blockchain technology is multifaceted and can store blocks and data on them and store any other computer code.
The exchange of valuables, documents, or money is carried out without banks, notaries, and other registrars. Blockchain removes all intermediaries and allows direct data exchange. Moreover, the authenticity of transactions on the network is verified by the parties to the transaction.
The system of “smart cities” will be based on blockchain technology: the Chinese government is already actively working on its implementation. Various identification systems, web browsers, cloud storage, and even social networks are being developed based on Blockchain.
Based on the Blockchain, special agreements are concluded — smart contracts. With their help, signing contracts has been dramatically simplified since there is no need to involve a third party in the process, who would act as a guarantor of compliance with the conditions. The software code decides everything: smart contracts are executed only when both parties accept the terms and enter their keys. This implies complete automation and reliability of the execution of contractual relations.
Examples of areas where it is planned to use Blockchain technology:
Elections and voting
States are working on ways to introduce blockchain technology into the electoral voting system.
The property
With the help of the register, money transfers, contracts, and owner details will be confirmed. Thus, the process of transferring ownership will be simplified as much as possible, and real estate projects will be closed faster and on more favorable terms.
The medicine
The technology has found its way into healthcare. In the medical field, blockchain-based startups are also being created.
Insurance
There are real-life examples of how governments plan to integrate Blockchain technology into the insurance system tightly. So, China intends to transfer the work of the National Social Insurance Fund to Blockchain.
Document flow
Blockchain has found its application in the field of document flow. Convenient and secure services are being created, a public register containing documents with an electronic signature. Each signature is stored on the Blockchain and is unique.
Logistics
With Blockchain, the delivery process will be improved. The technology reduces logistics costs, eliminates unnecessary intermediaries, minimizes the possibility of data fraud, and prevents mislabelling of illegal goods and other attempts to deceive.
Other use cases for Blockchain:
✔️ trade;
✔️ oil and gas industry;
✔️ mortgage lending;
✔️ agriculture;
✔️ industry;
✔️ transportation.
Soon, Blockchain technology will be used in almost all spheres of human activity.
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