The newcomer to cryptocurrency will encounter many buzzwords or phrases that may be unfamiliar. Blockchain technology is such a phrase. You don’t need to necessarily need to understand how a blockchain works in order to buy and sell Bitcoin on an exchange. The knowledge can be helpful, however, if you want to develop a broader understanding of how this innovation is changing the way the world approaches matters of finance.
Cryptoswede has prepared a basic explanation to help you answer the question, “What is blockchain technology?” You will likely find that learning more about blockchains can serve as a starting point for expanding your overall knowledge of cryptocurrencies.
A System of Distributed Data and Logic
At their most basic level blockchains are systems of record that can be managed by a group of computers. No one entity owns the blockchain, and it is maintained by all the computers connected to the network. Blockchains contain a series of data that has been time-stamped. Blocks of data are linked to one another in such a way that altering one block has a ripple effect that alters the entire blockchain.
The manner that blocks of data are connected to one another is accomplished through what is known as cryptography. A “chain” is formed by connected the data blocks, and cryptography helps to secure the information that is contained in the blocks.
Of all the things we just mentioned, the absence of a central governing authority is crucial. Blockchains are systems of distributed data and logic that have been democratized. The ledger which is a blockchain is transparent, and its information is available for all to see. This type of transparency creates accountability. Everyone that is involved with the blockchain is ultimately responsible for their own actions.
When we speak of distributed data we are talking about passing information from one point to another. This information is passed in a safe manner through cryptography. Logic allows for the automation of data transactions that are carried out on a blockchain.
Blockchain Technology Applications Beyond Cryptocurrency
Obviously, the original purpose of a blockchain was to be a support structure for Bitcoin. It was meant to underpin the Bitcoin framework by providing an immutable record of transactions. Bitcoin and other cryptocurrencies are financial instruments. Most people tend to think of blockchains in a financial sense, but blockchain technology can be applied to other areas as well.
Ticket agencies can use a blockchain to issue tickets for travel. Freelancers can use a blockchain to manage orders and payment for their work. Even business models like Uber and Lyft could potentially benefit from the technology. Some blockchains like the one that powers Ethereum have also enabled the use of so-called Smart Contracts that carry the potential to create autonomous management of various projects.
Perhaps one of the most useful applications of blockchain technology is that it allows different agencies to access and record important data in one single location. This reduces the time and expense that is often incurred when agencies share information among themselves.
Ebooks, music, and other media might benefit from blockchain technology. Think about a system where an individual could pay an author for the book that the author has written. The blockchain could make it possible to immediately transfer money to the author for the purchase as well as unlocking the book for the buyer. The potential applications of blockchain technology are limitless.
Some Advantages of Blockchain Technology
One of the things that people commonly point to as an appeal of blockchain technology is cost. We know that blockchain technology can be used to store and transfer money, much like a bank. However, blockchains offer the possibility of reducing or eliminating fees altogether.
Perhaps you are familiar with Fivver, Upwork, and other freelance platforms. These platforms allow freelancers to post their availability for jobs. When the freelancer is hired, the platform receives a small fee. At Fiverr where the gimmick is offering jobs for $5, the platform charges $0.50.
A similar transaction could be carried out on a blockchain for free. This would be a huge benefit to freelancers, and it would also undoubtedly put some freelance platforms out of business.
Using the same freelancer example, blockchain technology also offers the ability for individuals to market their services in every part of the world with no concern for geographical barriers. It can be hard for the freelancer to access money when one considers the costs and other issues of currency exchange.
Security is also an advantage of blockchains. It is virtually impossible for the record contained by a blockchain to be altered. The cryptography protocols and the consensus management of a network offer safeguards that are far greater than those offered by traditional data management.
A Final Word on Blockchain Technology
This brief explanation should clarify for you what blockchain technology is, some ways it can be used, and the benefits it offers. We will close by stating that the widespread acceptance of blockchain technology is good for the cryptocurrency market. If you are an investor in digital tokens you should be excited by the prospects for this innovative form of data management.
The values of cryptocurrencies are driven ever higher by renewed interest in blockchain applications. Some tokens like Ripple have already made headway in getting established financial institutions on board. That type of acceptance increases legitimacy, and legitimacy increases trust on the part of the general public.
It has been an ongoing challenge for cryptocurrencies to be regarded as serious investments. As blockchains are adopted and used successfully by more institutions, this challenge is going to be overcome. Digital currencies are just the beginning. The blockchain could truly move us in the direction of a more productive and efficient society.