What is blockchain technology?
Created on 06 Apr 2021
Wraps up in 5 Min
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Updated on 14 Jan 2023
You would have read about the eight wonders of the world (the 8th wonder being compounding). But do you know about this wonder called 'Blockchain'? Well, in this article, let's understand all about blockchain. And the reason why it has become a fad among finance enthusiasts.
Blockchain: Secret behind Cryptocurrency
As the name suggests, it is a chain of blocks. Each block contains the data of the previous block. So, the creation of subsequent blocks looks like a chain. And each block becomes a time-stamp.
In simple words, blockchain is a type of database. A massive database indeed! It helps in storing an enormous amount of data. Many people can access it at the same time. The best example to understand this technology is Google Drive. Everyone having the link can access it. And the changes are made in real-time.
Invented by Satoshi Nakamoto in 2008, it became a revolution in the digital world. And a pioneer of a decentralized network to store data. Let's understand the working of blockchain in detail.
How Blockchain Works?
Spare the technical stuff. We won't confuse you with that. Here's a simple explanation.
The entire process has three aspects: Blocks, Nodes, and Miners. As mentioned above, a block contains the record of data. Each block has a unique number generated randomly. It also has a reference to the previous block.
Miners are the tech guys who create new blocks. They use special software to do so. They have to solve a complex math problem to create a block. Can you believe that there are 4 billion combinations for the right solution? Pretty massive, right?
No one can own the blockchain. The network is distributed among the nodes connected to the chain. They are electronic devices that have copies of the blocks and keep the chain intact. Each node has different copies of blockchains. For a new transaction to be updated, they have to be approved by the network of nodes. Due to decentralization, these people can check each transaction.
You will be surprised to know that the use of blockchain is not limited to cryptocurrency! It is also used in many areas without us being aware of it. Following are some popular uses of it:
- Banks: Although crypto is considered a bank destroyer, the banking and finance sector has evolved. And it has started using blockchain. Its use helps in processing the transactions in the blink of an eye. Now, transactions can be done anywhere and anytime. It helps in exchanging funds quickly and securely.
- Healthcare: Blockchain is used in the healthcare industry as well. It helps in storing the patient's data. This way, the data is protected and can be accessed from anywhere.
- Voting: Due to its immense popularity and potential, the Election Commission of India is considering using it for voting also! It means you can vote from anywhere, anytime during the specified period. It will avoid the blame on the innocent EVM machines. It will also increase transparency and beget lightning-fast results.
- Even after having so many uses, cryptocurrency remains the most popular use of blockchain. You see, the government regulates the Indian Rupee. And banks have information about the accounts. But, there is nothing as such in crypto. The identity of people is kept anonymous. The transaction cost to mine crypto has been reducing day-by-day due to improvements in technology and increasing efficiency.
It also gives the highest returns due to continuously increasing popularity and immense future potential. What's more, it can be accessed even from your mobile phone.
Why is Blockchain the Future?
Yes, you read it right! Blockchain is the future of digital transactions due to its limitless potential. Here are some reasons why:
- Maximum accuracy: A blockchain transaction has to be approved by a network of thousands of nodes. It eliminates human intervention and the possibility of human error. In case of mistake, it will be limited to that copy of blockchain only. For the mistake to spread to the rest, 51% approval is required, which is an impossible scenario for a vast network like blockchain.
- Cost Minimization: In conventional transactions, costs have to be incurred, like banking charges for the various transactions. In the blockchain, there is no need for third-party verification, so the associated cost reduces. Unlike conventional transactions, here, the merchant doesn't have to give commission to banks for processing transactions. Thus, the use of blockchain will help both the customers and the businessmen to reduce their costs.
- Real-Time transactions: Some banking transactions, especially international transactions, may take up to a few days to settle. Even the shares are traded on a T+2 settlement basis. i.e., it gets credited after two days of purchase. Blockchain will help in doing real-time transactions.
- Security: In the world of scammers, blockchain is a hero. It is the most secure way to transact. Each block has its unique code, with the unique code of previous blocks. It makes it impossible to tamper.
- Transparency: Even though the identity is kept confidential, anyone can view the transactions on an open-sourced blockchain. It helps in reviewing the transactions and also updating the system.
- No bias: When opening a bank account, you would have noticed that documents like PAN Card, Adhaar Card are required. It means people not having these documents cannot operate their bank accounts. But there is no such bias in blockchain and crypto. Anyone with the means and the required knowledge can do transactions through blockchain. It will help the unbanked people to do transactions securely.
Like a coin has two sides, blockchain has its challenges too. Even though there are some limitations regarding cost and speed of transactions, they are being minimized by technological improvements.
In this article, you would have understood what blockchain is and how it works. Besides being used extensively in cryptocurrency, it is used in the banking and healthcare sector as well. We may see it being used in the upcoming elections also. Due to its numerous benefits, it is considered as the future of digital transactions. Even though there are some drawbacks, they will be overpowered with time.
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