What is Blockchain Technology? A Step-by-Step Guide for Beginners

What is Blockchain Technology
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It’s very likely that you would have come across the term Blockchain – through the internet, social media platforms, newspapers or casual conversations with friends and colleagues. In recent times, it has manifested into public parlance due to the rise (and later the fall) of bitcoins or cryptocurrency.

Hang on!

Blockchain is much more than just the underlying technology on which various cryptocurrencies came into existence. In this piece, we will attempt to give you a starter dose of what Blockchain is and its vast potential in bridging existing transactional efficiencies.

How did Blockchain Technology Get Conceptualized?

The genesis of Blockchain technology was introduced to the world through a whitepaper published in 2008 by a person called ‘Satoshi Nakamoto’. The whitepaper discussed the fundamentals of this technology as well as the creation of bitcoins.

So, What is Blockchain all About?

Blockchain, when introduced, was proclaimed to be the technology that would alter everything presumed to lack in existing financial systems around the world. As the name suggests, it is a sequence of blocks/groups of transactions that are chained together and distributed among the users. It can be used to store and transfer any kind of information (financial, legal, etc.) on the blocks to other users without the need for an external authority validating its authenticity.

blockchain technology

To understand this better, imagine an existing centralized network, say a user is searching for some information on Google. He/She will enter the search string and get the desired results from the search engine. The point to note is, all data resides with Google. In the event of any hacking activity, system upgrades or rare system downtime, the data will not be retrievable for that timeframe. On the other hand, data in a Blockchain network is distributed among all users in a ‘distributed ledger’ form and new data put into the Blockchain must be verified by the users (nodes/computers) in the network. Any new user joining the network receives a copy of the blockchain which acts as a proof of all the transactions that have been performed.

What this means is that there is complete transparency of data on the network and everything is available in public, although in an encrypted format. Also, as multiple copies of the same blockchain exist with various users, tampering with the blocks on one particular node will not corrupt/delete the blockchain network.

Where Can it Be Used?

As a result of security and transparency offered by Blockchain, it is being widely touted to transform various use-cases, especially in the financial domain.

  1. ‘Smart’ Contracts– Smart contracts are self-executing contracts coded on a blockchain, authenticating transactions between involved parties based on their cryptographic consent. As these contracts are automated and based on logic, it intends to simplify interpretation thus reducing human intervention and the need for expensive litigation, if the need arises.
  2. P2P transactions– Carrying out peer-to-peer transactions (through cryptocurrencies) across the globe without any government regulations can increase autonomy and save on currency conversion costs and other taxes.
  3. Easy Payments & Banking– Paying for a product or a service by eliminating middle-man like payment gateways such as Visa/Mastercard can help individuals and businesses save on hefty transaction fees.
  4. Decentralized Source Of Funds –Many ICOs (Initial Coin Offerings) have come up recently seeking funds in lieu of ‘coins’ that could be en-cashed at a later point of time. They are seen as alternatives to the usual route of raising money through Initial Public Offering (IPOs) and private investments.
  5. Distributed Computing and Storage– Breaking up your documents into ‘blocks’ and storing them in an encrypted fashion across multiple locations can enhance the security and accessibility aspect. It can be imagined as crowdsourcing of massive amounts of storage space through the computers connected to the Blockchain network.

Although the use-cases can have far-reaching consequences, the technology is itself in the infancy stage. It is majorly due to the various regulations and restrictions put into place by countries to restrict the development. There is a fear of an increase in nefarious activities in case the blockchain technology given a full go-ahead. However, the technology keeps on evolving at its own pace and there will be a time in the future when the world will adopt it for solving existing challenges.

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