Most people are familiar with cryptocurrencies such as Bitcoin and Ethereum. These digital currencies are based on a technology known as “blockchain.” Besides enabling online payment transactions without the need for banks, blockchain technology has many other advantages that can enhance business and people’s lives.
What is blockchain?
Like the term suggests, blockchain is a chain of blocks of data that functions as a record of transactions. This is similar to a ledger of accounts that a bank would use to keep a running balance of who has what. The digital ledger is shared among millions of computers through a peer-to-peer system.
The technology was initially developed by the inventors of Bitcoin to keep banks out of payment transactions so that people could have more anonymity online and provide quicker processing between countries. Bitcoin had a shady reputation at first, but now it and other cryptocurrencies have become mainstream, and they may even begin to replace standard “fiat” currencies.
How does it work?
Most blockchain transactions are digital currency payments at retail websites. For this example, you would be using a digital currency such as Bitcoin to purchase a product. When making a purchase with traditional currency, your identity is verified through an institution such as a bank or other third party. However, with blockchain, a network of computers using the blockchain platform verifies a number of details that confirms that the payment is valid.
After the transaction occurs, the payment is stored in a block of data. This transaction, along with thousands or millions of others is stored on the blockchain as a permanent public record. However, personal information is encrypted.
How is blockchain changing the world?
Although people are all used to performing transactions and sharing information over the internet, we still rely on centralized systems such as banks and government agencies for many things. For example, people still rely on banks for transferring funds and various central agencies for validating ownership rights and other legalities.
Blockchain is already nearly 30 years old, and it’s gaining more prevalence and acceptance. The rise in Bitcoin and other cryptocurrency values during the last two years is just one example of this trend. Sooner or later, blockchain is likely to replace many traditional centralized agencies and systems to allow a more transparent and efficient environment in which businesses and consumers can operate.