Understanding Blockchain Technology

Understanding Blockchain Technology
Updated on
February 13, 2023

Blockchain, at its core, is designed for the distribution of information. Wikipedia is a good example to use for comparison when tackling the subject of ‘what is blockchain technology’. At a glance, the two systems have much in common like the fact that they are both published by many people. No one person is tasked with the role of distributing information on Wikipedia. The same goes for blockchain – a group of individuals is allowed to post entries into the ledger.

Upon further scrutiny of how the two technologies function, the distinction is apparent. The structure of Wikipedia is such that the user, who is the client has an account that grants permissions to make adjustments to the entries that are found on a central server; this is the client-server model. There are administrators who have control of the database, giving access and permissions whenever a user requires it. With this network model, a user gets access to an updated version of the entries. In this system, the owner retains control. It is the same technology that government, companies and banking institutions use for their databases. Blockchain technology offers a different infrastructure. Instead of giving users a master copy with updated entries, every update is conducted independently. Rather than a master copy, the most popular version of an entry automatically becomes the official record.

The Value and Potential of Blockchain

The database is reconciled continuously, providing users with the latest records. This structure means that the system does not need to be centralised, making it truly public. The registration and distribution of information don’t have to rely on a third party, which is blockchain’s biggest advantage. Millions of computers are entrusted with the storage of data, which makes it difficult for a hacker to gain access by corrupting a single point.

Blockchain technology may have become popular in the last several years, but it is not novel. The system was created by an entity called Satoshi Nakamoto by combining already existing technologies to create an information distribution network that has proven useful in various ways. Nakamoto structured a protocol governing incentivisation to work with the internet and private key cryptography. The result of this collaboration is a robust network that is simple to use without requiring a trusted third party to oversee interactions.

The Concept of Digital Trust

Due to the public nature of blockchain technology, trust is critical. In digital transactions, trust is established through authentication that is verifying the identity of a user and authorisation, which is the permissions given to a user. Before users can be granted access to records, the system must be certain of who they are. In this age of ever-evolving cybercrime, technologies have to be built with strong security measures to minimise threats. With blockchain, the private key cryptography element is the system is responsible for security. Every user owns a private key, which is how they gain access to the system. Having a private key means that individuals get some degree of protection against hacking attempts because they don’t have to give out any more information than they have to. For authorisation, the network has its requirements like broadcasting the correct transactions and having sufficient funds.

The distributed network that blockchain is built on must be designed for maximum security and accurate recordkeeping. The blockchain protocol is a collection of rules that the network refers to when authorising transactions. With this type of structure, the authorisation and authentication provided by blockchain technology reduce the cost of digital interactions.

When people try to answer the question, ‘what is blockchain technology’, they think about cryptocurrency. However, the technology is promising to achieve much more than the birth of digital currency. The system set up is ripe for all kinds of digital relationships. Players in the industry are discovering that blockchain holds the key to the Internet of Value where people can transfer anything from one part of the internet to another.

The lack of a single source of entry makes blockchain a viable solution to securing information. Any organisation that requires a secured system for its records can turn to this technology. The blockchain ecosystem provides transparency of data that gives legitimacy to transactions, which is why different entities from banks to governments are considering adopting it.

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