January 26, 2021

What is blockchain in simple terms

What is blockchain in simple terms

If you are new to the world of cryptocurrencies, then first of all you should find out how the technology that lies in based on digital assets.

Blockchain is a distributed database,existing on several computers at the same time. This database is constantly growing as new sets of records or "blocks" are added to it. Each block contains a timestamp and a link to the previous block, so they actually form a block chain.

The database is not managed by anyone in particular,instead, every user on the network has a copy of the entire database. Old blocks are retained forever, and new blocks are added to the ledger, making it impossible to manipulate by forging documents, transactions and other information. Falsification of one record leads to falsification of the entire chain.

Everyone has access to all information onblockchain, but only a user with a specific private key can add a new record to a specific chain. As long as you are the only person who knows the key, no one can manipulate your transactions. Additionally, cryptography is used to ensure that copies of the blockchain are synchronized on every computer (or node) on the network.

Blockchain does not require transaction costs - only infrastructure costs.

By definition, blockchain is decentralized, transparent and secure. Thanks to these properties, the new technology has the potential to change the financial system.

Decentralization

Blockchain undermines the foundation of a centralized service delivery system. The technology allows transactions to be made directly between parties without intermediaries (for example, banks).

With the help of the blockchain, any contract turns intoa program that will be executed only when both parties have fulfilled the terms of the contract. This mechanism is called "smart contracts", and the areas of their possible application are almost limitless.

The same program can track information fromexternal data sources (for example, stock prices, weather forecasts, news headlines, and anything else that can be analyzed by a computer) and create contracts that will be automatically executed when certain conditions are met. Smart contracts can be used for anything from financial derivatives to insurance premiums and real estate leases to legal processes and crowdfunding.

Transparency

Blockchain hides the identity of a person or company and only shows the public address. The public address gives access to information about transactions on the wallet, but not to personal information about its owner.

Any user can view all transactions that were performed from a specific address. This transparency adds a high level of accountability.

Security

Security in the blockchain is, first of all, the impossibility of changing data after their initial entry into the chain, that is, “retroactively”.

The hash pointer provides this property. When transferring data, the hash pointer contains not only the address of the previous block, but also the hash data inside the previous block. Therefore, minimal changes to the record of one block activate the "chain reaction" of changing the hash of all blocks. This setting makes the data recorded on the blockchain unchanged and secure.

The very idea of ​​distributed ledger technology is notis new: it was originally outlined in a 1976 research paper "New Directions in Cryptography", but for a long time its implementation was considered too complex and insecure.

But in 2008, an unknown programmer (or group of people) under the pseudonym Satoshi Nakamoto introduced Bitcoin - a simpler, safer and much more efficient implementation of blockchain technology.

Bitcoin became one of the first digital currencies inwhich used this technology to process payments. Thanks to the blockchain, Bitcoin also became the first digital currency to solve the problem of double spending.

Benefits of such a distributed ledgerObviously, by reducing costs and risks, data security and transparency of all transactions, companies and corporations from most industries can benefit from this technology. Many companies and organizations have already started using blockchain to reduce the cost of international transfers. Several countries, including China, have already developed their own national blockchain and are preparing to launch it.

By 2020, the blockchain sector has changed a lot. Developers started creating their own blockchains and cryptocurrencies. According to them, the new blockchains have much more potential than the bitcoin blockchain. Influencers, popular investors, traders and crypto media have appeared in the community, whose words are listened to by millions. Almost all of them agree on one thing - in the future, blockchain technology will radically change not only the financial system, but also most spheres of human life.