It’s no surprise that only a select few individuals truly understand the vast and tempestuous crypto jungle. As an industry often saturated with technical jargon, highly complex technologies and new cryptocurrencies popping up seemingly by the hour, it can certainly be a challenge to keep up with it all. But here at YAP Global, we’re here to guide you through the jungle and help make sense of crypto’s most complicated topics.
One of the most common terms thrown about in the space is ‘blockchain’ – a vital component of every piece of technology in crypto. A blockchain is a distributed ledger of transactions that is duplicated and then distributed across a network of computers, with transactions being recorded with an immutable cryptographic signature called a hash. But put simply, blockchain is a specific type of database and a way of recording information in a way that makes it difficult or impossible to hack, cheat or change a system.
What is blockchain?
When trying to explain blockchain technology to an individual new to the crypto space, it can be easy to get sidetracked. While a blockchain can be defined in digestible terms as a database, it differs from others in the way it stores its information as data is stored in blocks that are chained together – hence the name blockchain.
When new information is entered into a blockchain, it is stored in a fresh block and once all of the data has been inputted, it is chained onto the previous block – keeping everything together in a chronological order. Once data is entered into a blockchain, it cannot be altered or removed – making it almost impossible for fraudulent transactions to be facilitated.
Many different types of information can be stored on a blockchain, but they are most commonly used as a ledger or wallet for crypto transactions. Every time a new transaction occurs on a blockchain, a record is added to all participants’ ledgers within the network. As it is decentralised among a large number of participants, it allows for a group consensus who agree on a transaction, rather than a centralised database that lacks transparency.
Let’s use the cryptocurrency Bitcoin as an example. In Bitcoin’s case, blockchain technology is used in a decentralised way so that no single person or group has control – rather, all users collectively retain control. Decentralised blockchains are immutable, which means that the data entered is irreversible. For Bitcoin, this means that transactions are permanently recorded and cannot be altered by anyone.
How is a blockchain created?
A blockchain exists in code like other modern databases, and collects data together in groups which are stored in cryptographic ‘blocks.’ Because each block only has a certain capacity for data, once the limit has been reached for each block, a new one is then created and fastened on to the preceding block, with all new information added to this block.
As more blocks are added to a blockchain, this inherently creates a timeline of information that cannot be altered or reversed if the blockchain operates within a decentralised network. When each block has reached its data capacity, it is given an exact timestamp before the next block is added and linked to the previous one, ensuring the utmost traceability for the ledger records.
What are blockchains being used for?
The technological beauty of blockchain technology is perhaps its versatility – hence the plethora of varying use cases in multiple different industries. A particularly recent and apposite example of blockchain technology making a positive contribution is in healthcare, where important data such as age, gender and immunisation and medical history of patients can be stored on a shared blockchain platform and allows access to multiple individuals without the risk of compromise.
As blockchain technology slowly starts to become more mainstream, there are more examples of its use in contemporary society. For example, many charities have utilised blockchain technology to ensure donations are delivered directly from donor to beneficiary without any interference from third parties, such as intermediaries that may take a cut of the organisational profits.
There is so much untapped potential for this technology to truly revolutionise how we store data, and in the years to come it is likely that with appropriate education and advances to existing protocol that blockchain will be used to record governmental election votes, verifying financial records and equity in the real estate industry and for filing tax returns.
What are the benefits of blockchain technology?
There are a number of key benefits to operating with blockchain technology, such as the completely transparent nature of transactions. As data cannot be altered or deleted, everyone using a blockchain will have access to all transactions and no one will be able to alter the data, which helps to prevent fraudulent activity and prove the source and journey of an asset or product recorded along the chain.
Decentralisation is also another important plus point of blockchain technology as this allows for verification without being dependent on third parties, meaning that there is no danger of anyone interfering with the transaction or the data in the blockchain. If no one person is in control of the transaction or the blockchain itself, then this ensures greater security.
In addition to this, transactions are recorded in chronological order, meaning it is easy to keep a record of a certain ledger’s activity. The origin of any ledger can also be traced which can identify any dubious wallets, blockchain users, transactions or currencies – all helping to prevent criminal activity. Blockchain technology also ensures greater freedom for remittances and transnational transfers across borders, minus unnecessary intermediaries.
What will happen to blockchain technology in the future?
The future of blockchain technology is pretty unprecedented, especially as crypto shoulder-barges its way into the mainstream and more people are realising the possibilities of a world that is not only accepting but encouraging of digital currencies. Further adoption of this technology increases opportunities for voting transparency, peer-to-peer collateral trading and greater data security where personal information is locked via a blockchain’s secure encryption mechanism where computers, rather than humans, are responsible for confirming transactions or interactions.
With blockchain technology slowly but surely becoming more mainstream, there are plenty of benefits to the wider crypto space. Education will be key to a wider adoption of this technology as there are still so many individuals who are unaware of the benefits and uses of blockchain technology, but in the meantime all we can do is continue to demonstrate why it could revolutionise how we transact currency in the future for the better.