March 29, 2023

Blockchain Basics

Blockchain Basics

Traditionally, society is reliant on financial institutions and government rules to manage their own money. Whether you want to transfer money to a friend, buy a product, take out a loan, or any other transaction type, you need an intermediary to provide a service. Usually, this financial institution takes a cut for this.

With this blockchain basics article, we’re going to tell you how this can all change and why blockchain technology is the driving force in giving individuals control over their own finances and giving everyone access to financial services they may not be able to receive today.

There’s nothing quite like blockchain technology to leave people feeling a little confused. Serving as the entire foundation on which the crypto world is built, it’s a profound technology that is only set to grow in scope. So here we’re going to provide a basic outline as to what blockchains are and why they’re so useful.

While some still remain skeptical of blockchain technology, those early adopters and developers continue to push on making ground-breaking breakthroughs every day. We believe it’s only a matter of time before mass market adoption occurs, with many of the world’s best-known brands joining the push.

Anyway, you’re probably here because you aren’t too familiar with the basics of blockchain technology, its purpose, and how it will be used. So, let’s get down to it, and by the time you’ve finished reading, you’ll be ready for those jargon-filled articles and to begin exploring the world of blockchain.

The Basics of Blockchain: What Is It?

Blockchain is a database that stores information electronically in a digital format. One type of information it holds is transactions. Once created, these transactions cannot be altered, tampered with, or questioned. This creates transparency and impenetrable security of transactions without the need for a trusted third party.  

Each transaction forms its own block of data. The blocks are limited to a certain capacity, and every time a new transaction takes place, an additional block is created – hence the name blockchain.

A blockchain at its most basic is a decentralized ledger. With the ledger distributed across any number of parties and their computers, it’s incredibly reliable as there’s no single point where it can fail. It is secure too, as in order to tamper with it, a fraudster would not only have to alter numerous copies of the ledger, but they’d need to do it before the next ‘block’ on the chain is added (which happens every few minutes or so).  

What’s great about blockchain technology is its transparency. Anyone can see transactions taking place. Essentially, this is the perfect way to ensure the legitimacy of a transaction, as it can never be changed, destroyed, or deleted.

How Does A Blockchain Work

As the blockchain is replacing the middleman that is a financial institution, there needs to be a way of securely verifying transactions. With this technology, verification is done by consensus protocols. Essentially, transactions are verified by blockchain users in two ways – proof of work or proof of stake.

If you’re slightly familiar with cryptocurrency, you’ll have heard of Bitcoin mining – this is proof of work. Every transaction on the Bitcoin blockchain is verified by miners. Crypto miners are individuals or organizations who compete with each other to gain the opportunity to add that new block to the chain. These miners are racing to complete mathematical equations – the first miner to complete the equation is rewarded with Bitcoin.

By being the first to solve these complex problems, the successful miner gets to add the new block and receives a crypto payment as a reward (often quite substantial). The rest of the miners then verify that the block is correct and it’s added to the chain which everyone then receives an updated copy of. However, POW is a big business and requires a lot of processing power, meaning ridiculous energy consumption.

On the flip side, Ethereum 2.0 will be using a proof of stake consensus protocol. This more energy-efficient method allows Ethereum owners to stake their cryptocurrency to validate transactions. Again, in return for a guaranteed percentage yield.

Types of Blockchain

Public Blockchains

Accessible to anyone in the world who wants to validate or request a transaction, a public blockchain is currently the most-known type of blockchain, using both proofs of stake and proof of work consensus models.

Private Blockchain

As the name suggests, private blockchains are invite-only platforms. Unlike their public compatriots, these platforms have access restrictions in place and are overseen and governed by one body or project. Essentially, they’re centralized platforms utilizing blockchain technology.

Who Owns The Blockchain Technology?

Nobody – blockchain technology can't be owned. Much like the internet, anyone can use and create with blockchain technology, making it impossible to own.

What Is Blockchain Technology Used For?

At the minute, blockchain technology has mainly been used for transactional purposes. However, this spans cryptocurrency, non-fungible tokens (NFTs), DeFi applications, and smart contracts.

In addition to transactions, the blockchain can be used as proof of ownership, product authentication, legal contracts, and much more.

Due to its certainty and irreversible properties, blockchain technology has the power to improve many day-to-day processes of life. from buying products online or in-store to purchasing and selling real estate, even digital identification.

How Is The Blockchain Secure?

Blockchains are incredibly secure, thanks to operating on a consensus basis. Once a new transaction has been added to the chain, it is almost impossible to revert back and edit the information within that block because it requires the majority of nodes processing transactions to agree.

For example, if a hacker was trying to divert crypto from genuine transactions to their wallet instead, they’d need to change data in a block. Every node in the network has a copy of the blockchain on their device, so although the hacker has edited their version, they haven’t altered everyone else’s. Therefore, over 50% of the blockchain would need to change their version to match the hackers – never going to happen.

Blockchain Keys & Wallets

Central to blockchain security is the use of public and private keys. With keys being the code needed to decrypt transaction data (and stop people from stealing your money), they are, needless to say, essential.  

When it comes to blockchain transactions, there are two types of keys used — a public and a private key. Each is a complex string of cryptographically created characters, and almost impossible to copy. With your public key being the address that people use to conduct transactions with you, your private key (which is only known to you) is needed to verify and authenticate these transactions — so without a private key, transactions can’t proceed.

With both keys stored in your crypto wallet — a digital incarnation of a traditional wallet in that it holds all the financial tools you need to make transactions — the process is not only safe but remarkably convenient.

How Is Blockchain Different From Banks?

Blockchain technology challenges the financial system and institutions we’re all accustomed to. Firstly, banks have restricted opening hours, yes, you have online banking, but if you need customer service – it’s limited. The blockchain never closes – it’s always open and online.

Bank transaction speeds are slow, they take a few business days to process. Blockchain transaction speeds do vary, but usually, they take a matter of minutes. Better yet, they don’t come with hefty transaction fees or currency exchange rates.

Privacy is a hugely important factor in today’s digital world. To open a bank account, apply for a loan, or any other financial service, you have to provide copious amounts of personal information and financial history. That doesn’t exist with blockchain technology. Anyone can create a digital wallet, purchase cryptocurrency, and use the blockchain without handing over any personal data.

In Summary

Our blockchain basics article outlines what the technology is, why it’s important, and how it can be used. Essentially, this ground-breaking technology can change how society and financial institutions operate. Traditionally, individuals have to operate under the constraints of third parties and government restrictions – not anymore. Now, they can freely transact digitally, no matter who they are or where they are.

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