What is Blockchain?The key to blockchain is decentralization. A topical understanding of how blockchain works is helpful in understand its applications. Quite literally, blockchain is a chain of blocks. These blocks contain some sort of data, whether is is how many bitcoins someone has or who owns suite 206. The blockchain is organized chronologically, giving a history of changes. This chain of blocks, called a ledger, is copied and shared with everyone on the network. This makes up the decentralized aspect of the system. The benefits of this become more apparent as your understand of blockchain grows.
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Blockchain MetaphorThink about the classic telephone game. For those who don't know, telephone is where a group of people stand in a line. The first person makes up a statement, and whispers it to the person next to them. This statement is then passed from person to person down the line by word of mouth. Almost always, by the time it reaches the last person, the final statement is completely different than the initial statement.
Now let's relate this to Blockchain. With blockchain, the objective remains the same: pass information from one person to the next. Blockchain is different though because each person is given a written copy initial statement. Now, when the information is passed down the line of people, each person can verify that the information they hear matches what the paper says. Blockchain also allows you recognize the people around you. This allows two things to occur, you can verify that the initial statement is not altered AND you can verify that the people around you the same. This demonstrates the concept of network consensus, where everyone has to verify that what you're saying matches what they have recorded. At the same time, you recognize that if the person in front of you doesn't look the same. This prohibits any changes to the blockchain history. While blocks of information can be added to the end of the blockchain, a block in the middle cannot be altered, or else the person behind you will notice something doesn't add up. |
Bitcoin as an application
Bitcoin is often confused with Blockchain. Bitcoin uses the concept of blockchain to function as a decentralized currency. At the moment, Bitcoin is the most prominent implementation of Blockchain but is far from the only application. Bitcoin utilizes the decentralized ledger system, or Blockchain, to keep track who how many Bitcoins members have. When you make a digital wallet, you are essentially given two numbers: a public and private key. The public key is your "bank account" address. Let's say Ax345 is your Bitcoins address. If someone wanted to send you Bitcoin, you would give them this key and they could direct the Bitcoin to Ax345. Do you want to send your Bitcoin to someone? Then you supply the Blockchain with your private key, similar to a passcode, and authorize the transaction. This private key is the ONLY way to move your Bitcoin. The blockchain stores information about who owns what.
Lets say Young has 1 Bitcoin, Eva has 3 and Anna has 2. The blockchain stores Young, Eva and Anna's public keys next to how many Bitcoins they have. Since their names are not in the Blockchain, this allows for a degree of anonymity. Young knows his public key is AX342 and Anna's is AQw34. If Young wants to buy a car from Anna, Anna will tell him to send the price of the car, say 1 Bitcoin, to her public key, AQw34. Young would send 1 Bitcoin to AQw34. In order for him to be able to send the Bitcoin, he would enter his private key. When the transaction is initiated, the other network members will go to Young's public key to verify that 1) it exists, 2) there is enough Bitcoin in that key location, and 3)the private key Young entered is the same as the one on file. Once 51% of the other members verify with the copy of the Blockchain that these 3 things are satisfied, a new block is created reflecting the updated quantify of Bitcoins in each account. Young's public key now has 0 Bitcoin, and Anna's has 3. Every member updates their copy of the ledger to reflect this for future verification.
Lets say Young has 1 Bitcoin, Eva has 3 and Anna has 2. The blockchain stores Young, Eva and Anna's public keys next to how many Bitcoins they have. Since their names are not in the Blockchain, this allows for a degree of anonymity. Young knows his public key is AX342 and Anna's is AQw34. If Young wants to buy a car from Anna, Anna will tell him to send the price of the car, say 1 Bitcoin, to her public key, AQw34. Young would send 1 Bitcoin to AQw34. In order for him to be able to send the Bitcoin, he would enter his private key. When the transaction is initiated, the other network members will go to Young's public key to verify that 1) it exists, 2) there is enough Bitcoin in that key location, and 3)the private key Young entered is the same as the one on file. Once 51% of the other members verify with the copy of the Blockchain that these 3 things are satisfied, a new block is created reflecting the updated quantify of Bitcoins in each account. Young's public key now has 0 Bitcoin, and Anna's has 3. Every member updates their copy of the ledger to reflect this for future verification.
Further Applications
This technology is great for information that requires pinpoint accuracy and security. The obvious use is the financial sector. Aside from a form of currency, Blockchain is having other financial implications. One common one is the tokenization of assets. When you tokenize an asset, you open it open to outside investors. Similar to the stock market, companies are offering ICO, or Initial Coin Offerings, that allow anyone to invest in their company. Other applications include: storing government documents, storing medial records, general cloud storage, voting for elections, securing a digital identity, and smart contracts.