We are always looking forward to newer technologies. Productivity gain is at the forefront of research. This attitude has relayed over to financial instruments also. The result is the development and study of blockchain technology. The word blockchain spells complexity and sophistication in people's mind, but rest assured, after reading this article, you would ease.
When we involve ourselves in financial transactions, most often, we require a mediator who oversees the integrity of our deal. The mediator or middle person is usually a bank. While banks are established as trustworthy institutions, paying a commission ends up in considerable loss. The loss is especially evident when large overseas transactions get enacted.
The process of eliminating the mediator is the crucial aim of blockchain. The blockchain is a ledger where transactions in a certain period are collated and recorded. There is always a record of past transactions since each block gets interconnected to its ancestor and offspring. The process of validating transactions is carried out by a miner who gets duly rewarded.
Blockchain explained at length
The blockchain is synonymous with a computer data structure called a linked list. Data structures are specific formats to store and manipulate data stored in computer memory. The blockchain gets designed such that it almost eliminates an occurrence of fraud. The blockchain has also been termed as omnipresent, implying that a copy of the blockchain exists in all machines.
We recommend you not to get bogged down by memorizing too many details. The approach to learning about blockchain is only to know the fundamentals. The actual core details would then be easy to pick up. Any computer holding the full blockchain or fragments of it is called a node. Keeping the entire blockchain is called a full node, and chunks of it are called a partial node.
While each node can't be a full node due to the voluminous data, the blockchain gets designed to make an intelligent choice. There is also a wrong notion that blockchain is associated with only cryptocurrencies. While an intuitive application of blockchain is cryptocurrencies, there are several other functional domains also.
The blockchain gets best understood with an example. Let us consider the case of cryptocurrencies. Say a person A has to send x bitcoins to person B. In traditional methods, a bank is involved. However, for cryptocurrencies, x bitcoins are deducted from A's wallet and credited to B's wallet. All other transactions recorded during a fixed period get recorded.
The blockchain works efficiently on a system called lottery and reward. The chunks of records need validation since there is always a possibility of fraud. For instance, say some bitcoins get taken away from your wallet, or a higher amount gets deducted. The people who validate transactions are called miners and they are eligible to scrutinize transactions after clearing an activity.
Typical applications of blockchain
The blockchain stands to replace the current offering of the internet. While this may sound far-fetched, cutting-edge research is underway. Only the human imagination is the limit to scale the applications of blockchain. With ongoing emphasis given to the internet of things (IoT), the blockchain is considered a worthy candidate to dominate IoT.
Logistics, healthcare, supply-chain, and power industry are some domains well poised to benefit from the blockchain. For instance, there are several reports of effective raw material maintenance enabled by automotive sectors. Patient records have got transmuted into the blockchain, and people are beginning to appreciate the immediate benefits.
Blockchain and cryptocurrencies
It will almost be an injustice if blockchain gets mentioned without touching upon cryptocurrencies. Another term for cryptocurrencies is virtual coins. As we had already discussed, virtual currencies or digital coins facilitate money transfer. Another great advantage of cryptocurrencies is that their value appreciates and is a potential fortune builder.
The first cryptocurrency to be introduced was bitcoin. The virtual coins that came after bitcoin are called altcoins. Ripple, Ether are some altcoins. The miscellaneous coins number in the thousands. There are so many digital coins because each of them has got introduced with a specific purpose. You may never deal with all the coins and it is not required as well.
Cryptocurrencies face stringent regulations in many countries. In countries like India, virtual coins have faced a ban. On the contrary, in other countries, cryptocurrencies are saving millions of dollars by eliminating the need to pay hefty transaction fees. Other nations hard hit by inflation are using the power of digital coins and digital wallets to lead their day-to-day lives.
Although the blockchain looks geared up to almost rule the future, we do not want to give you a revolutionary impression. There is much that needs to get done before blockchain becomes mainstream. There are many loopholes in the current implementation, which have to get patched up. Once the blockchain gets widely adopted, it would virtually be indomitable.
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