Blockchain is a word that many people are now familiar with, given the explosion of interest in cryptocurrencies using the technology.
However, there is often a need to understand precisely what blockchain is and how the system works.
Blockchain technology is quite simple in its concept and goals - to enable data to be securely shared. Traditionally, data is held in a database, and transactions are registered in a ledger.
With sufficient access and authority, it could alter or delete this information.
In contrast, the ledger or database is distributed with blockchain, so it is correct to describe it as an example of distributed ledger technology (DLT).
This means the ability to revise a blockchain is spread across the nodes of a network. The incentive for the nodes to update the blockchain comes in the form of issued digital currency or tokens.
Blockchain, therefore, allows for a transparent, permanent, and immutable record of information and transactions. This is why this technology is so exciting.
It represents a total paradigm shift in how we think about data storage and access and transact with one another.
Blockchain: Essential Attributes
There are three crucial attributes that every blockchain possesses:
Digital / online - Unlike traditional filing systems or account book ledgers, a blockchain is a digital transaction register that operates exclusively online.
They are shared across a network - Private, public, or hybrid. Bitcoin (BTC) is the most well-known show on public networks. There is no restriction to any individual setting up a network node or creating their Bitcoin wallet.
This is evident in the ease of setting up a BTC wallet via your Plasbit card.
You are quickly interacting and transacting with the Bitcoin blockchain via a public ledger that is both transparent and immutable. Private and hybrid networks can also be used for fintech and banking solutions.
Cryptographically secure - To access or add data to the database, two cryptographic keys are required - a public key (the individual address in the database) and a private key (personal and required for network authentication. This highlights the importance of security around private keys, the gateway to a wallet, and its funds.
How Blockchain Works
The access or alteration of data on the blockchain leads to a record being stored in a block together with other transaction records.
Individual, immutable hashes encrypt these transactions, one example being those generated by the SHA-256 algorithm developed by the US National Security Agency (NSA).
This is the encryption method used by the Bitcoin network.
In contrast to legacy technology systems, old data blocks are not written over by new ones.
Instead, they link to form a chain that can be analyzed and compared for change. Therefore, the network must identify and reject any alterations on the ledger since all transactions are encrypted and records are unchangeable.
This creates an audit trail that is immutable and transparent for every transaction that ever occurs on the blockchain.
To add new data, most nodes on the network must verify it through a consensus mechanism. These can be established by anyone ed on permission
or economic incentive basis.
For example, Bitcoin, as a public network, pays a reward for the first node to verify the legitimacy of a transaction (the 'mining' process).
Once consensus is achieved, a new block forms and is linked to the chain with this system. Nodes across the network are then updated to reflect this accordingly.
Ultimately, the beauty of the blockchain is that no single entity can assume control of its data. This is the quality of being trustless that is often spoken about.
There is no need to trust a single entity since the agreement of many entities can be relied upon.
A Real-World Example
Let's say you want to sell a smartphone you no longer need. You find a local buyer, and they want to pay via Bitcoin.
This is a simple transaction that can be made to your Plasbit Wallet. Once the transaction has been sent and verified on the network, it is permanent and irreversible. You can then use crypto, fiat, or ATM withdrawals.
Compare this to a situation where the buyer perhaps paid via their bank or a third-party processor and tried to claim a chargeback or reversal dishonestly.
This could come from a single employee at the bank or processing company agreeing to reverse the transaction.
At this point, you would have lost both the smartphone and the money. In comparison, the Bitcoin transaction would require consensus across the entire network to alter the transaction. (Hint: It simply wouldn't happen!).
This certainty that transactions on the blockchain bring via cryptocurrency payments is one of the major attractions of its application in finance.
There is also the fact that many people in the world lack access to conventional financial services. For these people, cryptocurrency via the blockchain provides a natural and practical solution.
Traditional banking can be restrictive due to bureaucratic and regulatory requirements.
However, blockchain-based crypto solutions allow this group to access a financial model that provides cheaper transactions, faster processing, and instant access to their funds.
Since information is a constant factor in our everyday lives and work, the quicker and more accurate it is, the smoother things run.
Blockchain is, therefore, a natural evolution in technology because it provides transparent, shared, and immediate information. Plus, it is all kept on an immutable ledger that only network members with permission can access.
Blockchain offers opportunities and benefits across many different areas, including:
- Smart contracts - Greater efficiency and transparency in all types of contracts, business or personal.
- Medical records - Trustless, immutable, and secure systems for healthcare data.
- Electoral voting - Improved openness and the potential to eliminate corruption and voter fraud.
- Supply chain management - Tracing goods and preventing counterfeiting in retail.
- Insurance - Faster, more efficient claims with less paperwork.
- Intellectual property - Managing copyright and tracking incidences of plagiarism.
- Real estate - Proving title for the property and facilitating faster transactions.
- Finance - Increased cost-effectiveness, security, and transparency in settling transactions, especially cross-border payments.
- Food & drink - Tracking products from origin to the moment of consumption.
- Energy & utilities - Managing energy better, monitoring usage and peer-to-peer distribution networks.
In the future, blockchain could be integrated into almost every aspect of our lives, including the Internet of Things (IoT) and artificial intelligence (AI).
As an emerging technology, there will be use cases that we have yet to discover.
In the future, blockchain could integrate with the internet, smart devices, the metaverse, and almost everything we experience.
Security and Blockchain
One of the strengths of blockchain is the inherent security enhancements that it brings.
For example, there is no single point of attack for hackers to target, and Distributed Denial of Service (DDoS) attacks become more difficult to employ successfully.
As blockchain becomes further integrated into every aspect of our lives and finances, the attraction grows for bad actors to exploit it.
While the cryptography and encryption used in blockchain may be virtually impossible to hack, that does not mean networks and projects on them are not susceptible to security risks.
The so-called '51% Attack' is the most well-known network risk when hackers try to control a network by taking over most of the mining.
Thankfully, successful cyberattacks and fraud are rarer than they often appear in the media on genuine projects with truly decentralized networks.
Responsible companies utilizing blockchain will also provide extra levels of security to ensure that you, your data, and your funds stay safe.
For example, when using your Plasbit card and wallet for crypto transactions, you will sleep better knowing there is additional protection for your private keys in the form of encryption with Secure Enclave, plus Biometric and 2-Factor Authentication (2FA).
Practice Makes Perfect
First, using blockchain is the best way to improve your understanding. This means getting confident in sending and receiving cryptocurrency transactions for most people.
Looking beneath the surface of some of your transactions is worthwhile for a deeper understanding.
You can use many online tools, such as Blockchain.com's BTC Explorer.
This way, you can see your transactions, the block they are in, how they join the chain, and also review the activity of your wallet.
Blockchain Integration in Everyday Life
Ultimately, the successful adoption of blockchain technology will be noted more by how we are unaware of its presence.
There is no better example than using your Plasbit card to make purchases from your crypto funds. Because of how the wallet is integrated, it will auto-convert regardless of what local currency you use to pay.
You might be spending BTC while on vacation in another country and paying in the local currency.
All the blockchain activity that underpins the transaction will continue behind the scenes, but your user experience is the same as any other card transaction. This type of seamless integration is the accurate benchmark of blockchain adoption.