Blockchain explanation | What is a blockchain?

It is safe to say that in the past 30 years, financial institutions have provided financing for the collapse of many industries. Why then? This is because they have an idea of ​​what revolutionary technologies like blockchain can do to static enterprises. Therefore, in order to maintain its leading position, banks have been establishing R&D laboratories, establishing partnerships with blockchain developers, and establishing test centers to fully understand the revolutionary potential of blockchain technology. Although financial institutions are the first to take action, academia, consulting companies, and governments have also studied the technology. Of course, all of this work is outside of what the developers are doing, either by discovering new ways to use the Bitcoin or Ethereum blockchain, or by creating a brand new blockchain. Although the new technology sounds like science fiction, blockchain technology has received a lot of attention, so it is not surprising that people are starting to see blockchain as the answer to everything. This has been going on for more than three years, and the results are finally beginning to appear. As with any new technology, some aspects are unclear, but we can be sure that these are three things that blockchain can do:

1. Acting as a system of record

In essence, the blockchain is a creation of information registration and distribution. They are useful when recording static data (such as the registry) or dynamic data (such as transactions) so that it continues to evolve in the recording system. Regarding the registry, data can be stored on the blockchain in any of the following ways:

• Hash data: This can be displayed together with the function that created it to show that the data has not been messed up
• Unencrypted data: Every blockchain participant in the chain can read this data. It is also 100% transparent.
• Encrypted data: Those who have the decryption key can read this content. The key will provide access to the data on the chain and can prove who added the data and when.

It is important to keep in mind that blockchain hashes are often used in conjunction with raw data stored off-chain. For example, digital “fingerprints” are usually hashed into the chain, while subject information is stored offline.

Shared systems such as these can change the way different organizations work together.

So far, because data is stored in dedicated servers, inter-company transactions involving cross-checking of processes, procedures, and records have incurred heavy costs.

2. Create a digital identity

In blockchain technology, the identity component is realized by using encryption keys. When the public key and private key are integrated, it creates a strong digital identity reference based on ownership.

This is the simple version: the public key is how you are identified in the crowd (a bit like an email address), and the private key is the way you express your consent to digital interactions. This is important because encryption technology is the key force behind the blockchain revolution.

3. Act as a platform

Interestingly, cryptocurrency is the first platform developed using blockchain technology. But now, people are beginning to shift the idea of ​​exchanging cryptocurrencies from platforms to platforms for smart contacts.

Even though the term “smart contact” has been described as an all-encompassing phrase, the concept can actually be divided into three categories:

1. A) Smart contract for vending machine:

This category was introduced by Nick Szabo in the 1990s. It indicates when the machine will participate after receiving external input such as cryptocurrency, or send a signal to activate the blockchain sequence.

1. B) Smart legal contract:

These contracts are sometimes called Ricardian contracts. Much of this application is based on the idea that a contract is a convergence of ideas. In addition, these contracts are any results agreed by both parties. This means that the contract can be a mixture of written agreements, oral agreements, and some useful aspects of the current blockchain, such as tokens, audits, time stamps, business logic, and document coordination.

1. C) Ethereum smart contract

These contracts are procedures for controlling blockchain assets, and these procedures are executed internationally on the Ethereum blockchain. For those who don’t know, Ethereum is a platform for smart contract code.

4. Proof of immutability

One characteristic of the blockchain database is that it has its own history. Therefore, blockchain databases are often referred to as immutable. What does it mean? Well, in other words, trying to change the entire entry in the database will be a huge job, because it will require changing all the data that subsequently appears on every node in the network. Therefore, it behaves more like a system of record than a database.

Takeaway

It is important to know that blockchain is not new. In fact, they are constructed based on a special arrangement of three pre-existing technologies: private key cryptography, P2P networks and protocols.

Featured image: Depositphotos/©Tzido

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