What is blockchain technology? What makes it so important?
Imagine a world where you can send money directly to someone without a bank – in seconds instead of days, and you don’t pay exorbitant bank fees.Or one where you store money in an online wallet not tied to a bank, meaning you are your own bank and have complete control over your money. You don’t need a bank’s permission to access or move it, and never have to worry about a third party taking it away, or a government’s economic policy manipulating it.
This is not a world of the future; it is a world that an avid but growing number of early adopters live in right now. And these are just a few of the important blockchain technology use cases that are transforming the way we trust and exchange value. We’ll get into the rest later on.
Yet, for many, This technology is still a mysterious or even intimidating topic. Some even remain skeptical that we’ll use this technology in the future. This skepticism that exists today is understandable because we’re still very early in the development and widespread adoption of blockchain technology.
2021 is to blockchain what the late 1990s were to the internet. And like the internet, this technology is anything but a fad, it’s here to stay, and if you’re reading this, you’re early too.
This post demysties blockchain technology. This is your ‘intro to blockchain technology 101’. A complete, easy-to-understand, step by step beginners blockchain breakdown. You’ll learn everything from what blockchain is and why it matters, to how blockchain works (step by step) and what today – tomorrow’s – most promising blockchain applications may be.
You’ll also walk away from this post confident, and well on your way to making informed, independent blockchain technology investment decisions. And you’ll be no slouch if you want to hold your own in conversations with family and friends too!
So let’s dive in
Blockchain 101: For Beginners
This technology is the concept or protocol behind the running of the blockchain. This technology makes cryptocurrencies (digital currencies secured by cryptography) like Bitcoin work just like the internet makes email possible.
It’s an immutable (unchangeable, meaning a transaction or file recorded cannot be changed) distributed digital ledger (digital record of transactions or data stored in multiple places on a computer network) with many use cases beyond cryptocurrencies.
Immutable and distributed are two fundamental blockchain properties. The immutability of the ledger means you can always trust it to be accurate. Also Being distributed protects the this technology from network attacks.
So Each transaction or record on the ledger is stored in a “block.” For example, blocks on the Bitcoin blockchain consist of an average of more than 500 Bitcoin transactions.
The information contained in a block is dependent on and linked to the information in a previous block and, over time, forms a chain of transactions. Hence the word blockchain.
Types of Blockchains
There are four types of blockchains:
Public blockchains are open, decentralized networks of computers accessible to anyone wanting to request or validate a transaction (check for accuracy). Those (miners) who validate transactions receive rewards.
Public blockchains use proof-of-work or proof-of-stake consensus mechanisms (discussed later). Two common examples of public blockchains include the Bitcoin and Ethereum (ETH) blockchains.
Privates are not open, they have access restrictions. People who want to join require permission from the system administrator. They are typically governed by one entity, meaning they’re centralized. For example, Hyperledger is a private, permissioned blockchain.
3. Hybrid Blockchains or Consortiums
So Consortiums are a combination of public and private blockchains and contain centralized and decentralized features. For example, Energy Web Foundation, Dragonchain, and R3.
Take note: There isn’t a 100 percent consensus on whether these are different terms. Some make a distinction between the two, while others consider them the same thing.
A sidechain is a blockchain running parallel to the main chain. It allows users to move digital assets between two different blockchains and improves scalability and efficiency. An example of a sidechain is the Liquid Network.
History of Blockchain
Blockchain history goes back farther than you might imagine, but we’ve condensed it by answering four critical questions:
Who Invented ?
The first blockchain-like protocol was proposed by cryptographer David Chaum in 1982. Later in 1991, Stuart Haber and W. Scott Stornetta wrote about their work on Consortiums.
But it was Satoshi Nakamoto (presumed pseudonym for a person or group of people) who invented and implemented the first blockchain network after deploying the world’s first digital currency, Bitcoin.