A simple decentralized ledger technology that is behind the rise of crypto assets and DeFi. Read this blog to know all about Blockchain Technology and how it works?
What is Blockchain Technology?
Blockchain is a Distributed Ledger Technology (DLT). Simply speaking Blockchain is a distributed database and the data is verified through the nodes of a network. This database stores information electronically.
Let us understand as this –
Any financial transaction has huge amount of information attached with that transaction. Sender and receiver details, amount, time, process, remaining balance and a lot more. Intermediaries store this information in centralized servers and they use it for verifying and releasing payments. There are lots of drawbacks of this centralized database information management – human error, double spending, no anonymity in transactions, hacking of accounts, high transaction fees, time delay etc.
Hence there was a need of better, cheaper, secure and swifter information sharing and verifying process. A process where there would be no centralized authority to interrupt or intervene. This led to the birth of Blockchain technology and consequently the rise of crypto assets and DeFi etc.
Traditionally database store information through tables or rows etc. Whereas Blockchain stores information in Blocks, collective groups of information. Blocks have limited storage capacities. When one Block is full, blockchain uses a new block to store further information. These blocks are connected with one another chronologically. And collectively they form a chain. Hence the name, Blockchain.
Each block is timestamped when it is added to a chain. Therefore, changes in one block would result in altering the whole chain too. Hence the added security of information.
How Blockchain Works?
Blockchain works as a Distributed Ledger. You can store, distribute or access information easily however you cannot alter it in any way. Today we associate Blockchain with the crypto assets, however this technology predates the first cryptocurrency by decades.
To understand how blockchain works, take a look at the flowchart below –
- A transaction request is generated (A sending money to B)
- The information is distributed to different nodes of a computer network
- These networks check and confirm the validity of the transaction
- Blocks hold confirmed transaction information
- Blocks form a chain and the transaction information is secured
- Transaction complete (B receives the money)
The main reason behind the success of Blockchain is that it is decentralized. No single source to verify, record, maintain transactions data and hence no vulnerability.
Imagine yourself storing all your photos, videos and document in your phone. And one day you lost your phone or somehow damage it beyond repair. You lose all those memorable keepsakes and important documents. Now if you had only used Google Drive or another storage device to store your data. Only if you have distributed your data storage then you wouldn’t have lost all that information.
Similarly, centralized storage is not that safe and the solution is decentralized storage i.e., Blockchain Technology.
Adoptions of Blockchain Technology
Blockchain is a very revolutionary technology, it is transforming businesses across many industries. There are many use-cases of Blockchain technology, the most popular one, crypto assets.
- Banks and Financial Institutions are adopting Blockchain to give a more secure transaction system to their customers.
- In 2016, an online retail company used Blockchain to sell and distribute company shares.
- Travel Platforms are utilizing this technology to make the travel industry more decentralized
There are many other industries utilizing Blockchain technology