Talks on bitcoin have dominated the online and offline world. Nevertheless, despite its pervasiveness, many people still have a vague understanding of what bitcoin is and most importantly, blockchain as the technology behind the digital currency. Understanding how blockchain works is essential in knowing what bitcoin is, so here are the 12 things you need to note down about blockchain.
1. Blockchain is a digital public account book controlled by a network of hundreds of computers worldwide. Intricate cryptography keeps the network secure from dangers such as hacking and bot attacks.
2. Blockchain, for many, is a cost-efficient technology that generates digital assets - the bitcoin - that is exchangeable for various products and services payable online. You can have an entire unit of bitcoin, or you can have a fraction of that unit
3. When someone successfully completes a transaction, a block is added to the chain, which is basically a growing list of records, which are linked and secured using cryptography. The process is managed by consensus method whereby multiple computers certify that the transaction has taken place. Other users can look at the whole process
4. The success of bitcoin is underlined by the fact that blockchain acts as a substitute for a central authority, such as a bank or government, by acting as the guarantor of a transaction’s legitimacy
5. The technology claims that it can eliminate issues connected to persons, such as dishonesty
6. When you get paid using blockchain technology, you need to trust that the payment you receive will maintain or increase in value in the future
7. By maintaining a constant ledger secured by a decentralized network, we all know who owns how much bitcoin at a specific time
8. When a transaction happens by you sending .003 Bitcoin or Ether or other crypto tokens, the network will be aware that assets has changed hands
9. There are also “miners” who devote their resources, especially computers and servers, to authenticate transactions by ensuring that you have the token in the first place and that you have signed the transaction with your private key
10. After the process is complete, miners will use mathematical algorithm to secure the network and spread the information throughout the network. The reward for miners? Bitcoin or other tokens if they are using different blockchain technologies
11. When you transform an asset into a token(which is a representation of any exchangeable good such as currency, loyalty points and gold certificates),the asset will suddenly have value. The value can be small or large, but it’s unique because nobody else have the same asset as yours. For example, Jane sells diamond. However, diamonds are hard to transfer to buyers due to security and thorough inspection to make sure that the diamonds are real. Joe, on the other hand, wants to invest in diamonds but he does not want to deal with the troubles of physically receiving them. What Joe can do is to buy a friction of Jane’s diamonds using digital tokens.
12. Blockchains are still a very new concept and there are many problems surrounding it starting from instability, security, and interoperability. However, people remain interested in bitcoins and other digital tokens because they promise security, speed and ease of transfer that are connected with real-world assets.
13. For simpler explanation, we can use the example between the banking system and bitcoin. When you utilize your bank account, you send an instruction to a bank where the request will be performed by someone, and you will identify yourself through your login id and password. When you use bitcoin, when doing a transaction, you need to use your unique digital signature, which is already enough to let the transaction to be completed.
14. All trading infrastructure involves a depository, an exchange, a clearing house and client software. Tokenization assumes that all of these elements will be far more unified. Blockchain technology will authorize decentralisation of the entire framework, distribution of storage and processing capacities between all the parties concerned. Decentralizing the process will make the system stronger, since there will be no single point of failure; it will diminish the need for a central provider; it will also allow prompt audits since numerous parties have real-time access to the public ledger.
No matter what kind of opinions you have about the blockchain technology, it will be worth your time to understand them better as it has the potential to be more prevalent in the future. It is also time to consider how blockchain can help your business evolve by making transactions digitally programmable.