How Blockchain Transactions Work
If you often use the internet, watch TV or read a newspaper, there is a good chance that you have heard the word “blockchain” being thrown around. It is the technology that all cryptocurrencies in the world are based. Here is a bit more information about the blockchain that we at Bit Gale have prepared for you.
What is Blockchain?
The blockchain is probably one of the best inventions since the creation of the internet. It allows two or more parties to exchange value without the need for supervision from a central authority. For example, if you bet $100 on something with someone, you will have three options:
You can either trust each other and hope each party makes good on their promise
You can create a contract, in which case the losing party will have to pay for legal expenses
You can choose to involve a third party, who may also decide to run away with the cash
Thus, the two optional solutions are trust and a contract. However, with the blockchain, you do not have to worry about all these issues. You simply need to write a few lines of code. The code will then check the outcome of the bet, and award the money to the winner.
One of the most popular applications of blockchain technology is the Bitcoin. This digital coin can be exchanged for products, services, or even fiat currency. With Bitcoin, users can transfer value from one party to the other in a safe, secure, and verifiable manner. However, Bitcoin is only one use of the blockchain, what is most important is the blockchain ledger underneath.
Understanding the Blockchain Ledger
Blockchain, in the simplest terms, is a distributed ledger or a decentralized database. This database keeps records of all transactions, and everyone has a copy. This is quite different from the ways banks work, where only the bank can verify whether a transaction occurred or not. Instead, this decentralized ledger synchronizes over the internet and can be seen by all participating in that network. The Blockchain network can be private with restricted membership, or it can be public and visible to everyone in the world.
When a transaction occurs, it is grouped together with others in a block that cryptographically protected in the last 10 minutes. It is then sent out to all participating in the network. Miners will then compete to validate if the transactions in the block are valid by solving complex equations. The first one to solve the equations is awarded.
The solved block is then time-stamped and sent to a linear chain arranged chronologically. As more blocks are solved, they are added to the chain. It is then possible to trace all transactions that were made in the block since its inception. Thus, it leads to the creation of a blockchain.
In other terms, a blockchain can be described as a type of computer that allows anyone to upload a program, and leave it to self-execute. In addition to that, all current and previous states of this program are visible to all. It also comes with a strong guarantee that every program running here will continue to act in exactly the same way for all time.
The decentralized and open nature of the blockchain is what allows people to trust each other and trade directly with each other without the need for a third party. This technology offers immense benefits in terms of security.
For one, hacking attacks are quite common in centralized systems. A hacker will only need to find one weakness in the system, which they can use to get in and steal money from depositors. However, that is not possible with the blockchain. Not only would the hacker need to hack a specific block, but they would also need to hack every other block that has ever existed in that chain. Besides that, they would need to access the ledger held by everyone, which could be in the millions and change them. Not only that, he or she would need to be able to do it at once.
The true impact of Blockchain on the World
The blockchain is no doubt going to be a disruptive technology. Those players that embrace it, no matter the industry, are the ones that will emerge on top. Not only will it change how the internet is used, but it will also affect the global economy.
The blockchain is allowing for the creation of a new type of economy where immediate value transfer is possible. In this new system, new intermediaries will no longer have an important role to play. You will only need consensus and the use of complex algorithms to make a transaction.
The blockchain goes well beyond its current use in Bitcoin and other altcoins. It can be used in areas such electric voting, digital records of property and much more. In general, any area where secure records are required can utilize blockchain technology.