There are new technological revolutions every few years, but cryptocurrency, in particular, is set to bring about significant changes to business and private life. In fact, the technology is so important that governments of major countries across the world are investigating its potential applications.
So the question arises as to what blockchain is, why it is so important, and how it works. Here’s a quick rundown to get you up to speed.
What is Blockchain?
Cryptocurrencies like Bitcoin and Ethereum are designed to leverage technology to eliminate the need for a go-between to facilitate and guarantee transactions and tokens of value. So whereas previously central governments or banks would need to act as the guarantor of value and sign off on currency creation and transfers, now cryptocurrencies serve as a decentralized monetary system that is fraud resistant all on its own.
The way this is achieved is through cryptography, the science of encoded information transfer. This allows cryptocurrency data to be unique and secure, using the information to act as the basic token of exchange (instead of gold, food, or government-backed paper money).
The details of how this works are quite intricate, but essentially it involves a decentralized database or list of all transactions of tokens between users, with each user having a public address that tokens can be sent to. In the case of the blockchain, users have their private key which they use to unlock the tokens that they have in their address when they want to send them to someone else (spending them, in other words). Because this decentralized list (or ledger) needs to be up to date for all users to prevent double-spending of tokens, each full participant on the cryptocurrency network has a complete copy of the entire ledger on their computer. This ledger is blockchain.
New blocks of data are added to this blockchain as more tokens (the unique cryptographic units of data that act as money) are “mined” or calculated by trial-and-error computing.
So you end up with a ledger database of the whole currency’s ecosystem in sequential data form, which is added to over time. This is the blockchain, and blockchains are used in nearly every cryptocurrency system.
Why is Blockchain so important?
Aside from the lack of need for a middleman, blockchain and crypto open up a whole new range of possibilities that were previously impossible. For example, due to their cryptographic properties, cryptocurrencies can be used to create smart contracts, which are rule-based digital agreements that automatically pay the relevant party based on some event (like bad weather automatically processing an insurance payout).
Blockchain technology is also novel in that it allows more secure databases that cannot be overwritten without leaving a trace.
Blockchains are the foundation of next-generation tech
So in summary, blockchain tech is a secure means to transfer data and ensure transparency in a decentralized system, and these properties open up a whole new range of possibilities for future technology applications.