If you’re interested in cryptocurrencies, blockchain is sure to creep into conversation. The term defines the system which underpins digital currency such as Bitcoin or Ethereum. It forms a digital ledger, recording cryptocurrency transactions across various computers in a peer-to-peer network.
Blockchain was invented by a person (or persons) using the name Satoshi Nakamoto in 2008, to serve as the public transaction ledger of the cryptocurrency Bitcoin – the reason the two are often conflated. It’s worth noting that Satoshi Nakamoto has yet to be identified.
Each ‘block’ in a blockchain is a collection of data, connected to other blocks chronologically. This forms the distributed ledger, which can’t be easily tampered with. The information is open for anyone to see, and has no central authority. Advocates say this decentralised system makes bitcoin transactions more secure and safer than the norm.
👉 The blockchain starts with a transaction, which is then verified. It’s stored in a block, before being given a unique identifier called a hash. Once sent through the network, the funds will be available at their destination.
Blockchain can’t be tampered with because of the cryptographic reference to the previous block. (Cryptography is a method of protecting information through the use of codes.) However, the decentralised network can cause problems such as longer transaction times and illicit material buried in the blockchain.
Ethereum, Ripple, and IBM are among the more popular blockchain alternatives, with some designed for specific tasks; for example, Ethereum specialises in smart contracts, and has the Ether cryptocurrency attached.
There are four types of blockchain networks. These 👇 are:
- Public blockchains
- Private blockchains
- Consortium blockchains
- Hybrid blockchains
Public blockchains have no access restrictions, while you’ll need an invitation to use a permissioned private blockchain. A consortium will see the verification process controlled and performed by a select number of nodes; they are also known as “partially-decentralised” blockchains. Hybrids use a combination of centralised and decentralised features, setting them apart.
Each type has its pros and cons, but it’s clear that this technology has helped to revolutionise online transactions. It also has the potential to do much more, from guaranteeing the legitimacy of election results, to ensuring aid reaches refugees without any money going missing along the way.
Most focus is on Bitcoin and cryptocurrency, but, more broadly, blockchain is great at cutting out middlemen when used correctly. It’s a viable method for keeping track of multiple payments, agreements, or contracts, and as such is likely to be used more frequently in future. This is especially true in countries which may lack the necessary infrastructure or institutions to do so otherwise without problems such as corruption.
Blockchain still has a lot to prove, and might not be the technological wonder it’s made out to be. However, a transparent, publicly-accessible ledger does have many practical applications in the real world. The three pillars of decentralisation, transparency, and immutability make it a trustworthy boon for cybersecurity purposes.