Imagine a world where banks do not exist, yet you can transfer money from one place to another. Well, this is the future of transactions. Unfortunately, banks and similar platforms offer a centralized system to validate a transaction, making it vulnerable to attacks.
But when there is no central authority to manage a transaction, nothing is vulnerable. The hacker won’t have a head to attack because there isn’t any head. Blockchain works on the principle of consensus.
In 2022, blockchain still is a big mystery for many people. Although it was started back in 2006, people still do not understand it or take it as a fad. However, blockchain technology today is similar to what the internet was in the 2000s.
Blockchain is an upcoming technology that will soon gain a lot of traction, so if you want to ride the future trend, understanding blockchain should be your first step. So, in this article, we will learn about blockchain in the most simplest way and how it is revolutionizing the world.
What is Blockchain?
- Blockchain is a modern facility that helps secure online transactions. Every information or transaction is stored in a block. To access this information, the user has a private key (cryptographic key) to access the information in their particular block.
- The continuous creation of new blocks, also known as mining, increases the security level. Thus, making it a reliable source to store information. Were you able to wrap your head around it? No? That’s okay. Here is the simplest example of blockchain.
- Have you shopped from a mall? When you are at the cash counter, have you seen they generate two bills? One for your record, another for their record. This is a secure way to validate a transaction. However, it is still open to changes, and anyone can tamper with it.
- Many top companies practice bookkeeping to record every transaction. In this double-entry accounting method, the transactions are recorded in two places.
- The entries include sales of goods, petty expenses, bill payments, and every transaction that takes place within the company.
- However, these are still susceptible to changes and amendments. But when you add a third layer to this transaction, it raises the security to the next level.
- So, blockchain has 3 levels, which raises the security to a whole new level. When you make a transaction in the blockchain, you have the first proof of transaction, the second goes to the receiver, and the third is recorded in a block and are recorded in the blocks, which creates a tamper-proof transaction record.
How does blockchain work?
- To understand this, let’s first look at how money is normally transferred. You have to send money to your friend, so what do you do? Normally, you will open a payment app and send money to your friend. Right?
- The transaction that happened here is that you used a third-party app to send a message to the bank to transfer a set of amounts into this bank account, which is carried out by the bank and sends you a confirmation notification.
- Here, you are using a third-party app to send and receive data from a centralized source, that is, a bank. In the blockchain, you have an online wallet where you will store your money in the form of digital currency. This is not linked with any bank or third-party application.
- Your information is stored in a block of which you will have a private key to access and validate a transaction. As we know, blockchain focuses on Peer-to-Peer lending. You can transfer a set amount of money directly to your friend based on mutual consensus using their public key.
- The best part of this is that no third party is involved incomplete transaction, which makes the whole process simple, fast, and reliable.
- While transacting, you will be charged a small network fee for validating your transaction, After which your information will be delivered to a node (computer used by blockchain miner to mine), where it will be bundled with other transactions in a queue to be recorded in a block.
- Here, a blockchain miner will record the transactions happening in a block by completing a series of complex mathematical calculations to develop a hash – a 64-digit hexadecimal number.
- Upon successfully adding the information into the block, they receive a complete transaction fee as a reward. And once your information is on the blockchain, it can no longer tamper, which is used as a trusted and reliable source of information.
- These blocks are then assigned a unique private key created by inserting the previous block’s key and information into a formula.
- With each new block added through the process of mining, it becomes increasingly secure and harder to tamper with.
- This is because each new block will rely on the information from the previous block, which creates a chain of secured blocks known as the blockchain.
Benefits of Blockchain over traditional financing methods
Once you initiate the transaction and all the blockchain’s protocols are met, the transaction cannot be stopped, changed, or modified. Therefore, no third party, bank, or government can stop it.
When something is recorded in a blockchain, it cannot be changed. Every new block is the result of solving a complex mathematical algorithm and is verified by a consensus mechanism.
The whole blockchain system is decentralized. Unlike banks, blockchain uses consensus between two parties to make a decision. It doesn’t solely depend on a single entity to validate a transaction.
Public blockchains are ledgers visible to everyone. These are open-source software where everyone can view transactions and check their source code. People can use these codes and give suggestions that are accepted or rejected based on the consensus.
- Universal bank:
As blockchain is available to everyone, anyone can store money in it. Therefore, it is a great way to protect your money from being robbed in a physical store.
Blockchain is an upcoming online security treasury for people to store their important and necessary files in a safe location. However, it is not so popular right now, but many places have started using an online wallet to store their money. And with time, people will realize its’ effect, and if you want to get into the blockchain Technology, now is the best time to ride the wave.