If not for Bitcoin’s sharp rise and equally sudden fall in prices, Blockchain, the technology on which the cryptocurrency is based, would not have been a household name by now.
Even if the buzz around Blockchain technology is lost in the deafening noise around Bitcoin, the world is slowly realizing the ‘disruptive’ significance of the former. It adds new dimensions to recording, dissemination, and safety of details of any transactions – money, goods or data.
Despite the interest, it has generated and attention it has got of late, understanding about the Bitcoin technology remains very sketchy. Through this article, we would try to understand what Blockchain is, how it works and what the future uses of this technology are.
What is Blockchain?
Blockchain, at the core, is about recording details of transactions in such a way that the details or any changes in them are shared with all other people in the network. This is done in such a way that each participant in the transaction gets a copy of the record, and each participant can track any changes made in the same.
Unlike in the traditional method where each transaction is recorded in a central repository and is not available for everyone to see or use at the same time, under Blockchain technology, the details of the each transaction is with all the participants, and they can see if any changes are made in the record by any of the participants.
Imagine a series of money transactions involving four individuals. It starts with one of the participants (A) with $100. He decides to transfer $50 to another participant (B). Now, B decides to transfer $30 to C, who in turn decides to transfer $10 and so on.
These details get recorded as a block of information and get telecasted among other participants. Since each participant has the records of the transactions, they can verify if anyone of them tries to pass off a ‘sham’ transaction. For example, in the above case, A tries to record a new transaction where it transfers $80 to C. Since everyone in the network knows that A only has $50, a $80 transaction between A and C could not be verified and hence recorded.
While in the above example, we considered each transaction to be a block, in reality, each block can have a series of transactions – each block is like a page of a ledger.
So, blockchain is necessarily a public ledger or a shared database, where the information is distributed among all the participants in the network and the information can be continually changed and reconciled. The information is not stored in a single or central location, which makes it difficult for hackers to corrupt the database. That makes it both easily verifiable and difficult to corrupt.
On next page: How it works?