Just recently, on October 31, 2018, Bitcoin celebrated its first anniversary – the first cryptocurrency turned 10 years old. Now almost all modern people have heard about Bitcoin. But only few of them can clearly and concisely answer the question: what are cryptocurrencies, and moreover, what is blockchain? In this article we will try to describe in simple words, what blockchain is and how it works.
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- The history of creation and a brief description of Blockchain
- Technical Brief
- Private and public blockchain
- Advantages and disadvantages of blockchain technology
Blockchain technology is the basis of cryptocurrency, and since recently it is being applied in other areas of life. From its name it becomes clear that, in fact, it is a chain of interconnected blocks.
The most important feature of the Blockchain technology is decentralization. That means, that the network operability is provided not by a single center, but by all its participants at the same time. For ease of understanding, the principle of operation of the blockchain can be compared with Torrent, where the user and the server are the same. Files that are downloaded from the tracker, are not located on the central server – they are stored by other users. Operations in the blockchain occur exclusively between users, without any intermediaries as well.
The term “blockchain” was first used on October 31, 2008. On the same day, the mysterious creator of Bitcoin Satoshi Nakamoto published his legendary article “Bitcoin: a one-time electronic monetary system.” The Bitcoin network was launched in early January 2009. But the concept of the modern blockchain itself was announced in the 1990s. Satoshi Nakamoto has put a lot of effort into the systematization of cryptographic works, which has been published over the past 20-25 years.
We will not go delve into of cryptography, use narrowly defined terms and draw complex graphs. Firstly, 99.99% of people simply will not understand this (including us), and secondly, in order to open this topic completely, not one article, but an entire book is needed. In this article we are talking only about the basics of the architecture of blockchain systems.
So, the blockchain ledger can be conditionally compared with a book. It contains blocks that can be called “pages” of this book. Each block has a name that contains information about the previous block and the key from the next one. This is called a “chain of blocks”. All information is contained in an encrypted HASH. The keys from blocks are found by miners who maintain network performance.
We all are used to associate blockchain with finances only, and more specifically with cryptocurrencies. But it is worth noting, that this technology is much more versatile, it can be applied in other areas of life, such as:
- proof of intellectual property rights;
The Bitcoin or any other cryptocurrency network uses a public blockchain, the keys of which are publicly available. It is perfect for the concept of cryptocurrency, but it cannot be used to maintain the workflow of private companies. The private blockchain is perfect for this. Lately it causes increased interest in many companies. For example, it can be used for tracking of goods trade and shipping companies. Such a solution will significantly reduce costs, as well as eradicate all sorts of fraud.
First, let’s talk about the advantages:
- Decentralization. Such network is almost impossible to be closed, because for this it is necessary to disconnect all its members from the network.
- Safety and reliability. Technical features of the technology exclude falsification, data fraud, and hacker attacks.
- Versatility. This technology is predicted a great future, because it can be used in various industries.
Unfortunately, the blockchain technology is not perfect and has several disadvantages:
- Scaling issues.
- Irreversibility of operations. After the operation was recorded in blockchain, it is impossible to cancel it, even if it was done by mistake.
Blockchain technology can cardinally change our lives. Only narrow specialists are able to understand all mechanisms of its work. Basic principles, which we discussed in this article, will be enough for the vast majority of people.
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