Only the laziest person in the world talks about blockchain, but not many understand what it is all about. Here is one phrase that explains what blockchain is and why it is needed.
What if blockchain could be described in one simple and straightforward sentence that gave a complete but sketchy idea of its structure and potential? Here it is:
Blockchain is a whole new way of transferring money without the involvement of traditional banking networks, and an image of storing data in a transparent and immutable way.
It’s a relatively uncomplicated proposition, but all of its elements need further explanation.
„A completely new way of transferring money.“
Blockchain was developed in response to the shortcomings of the existing banking system. One of them is the time it takes to make payments, which greatly reduces business efficiency (some transactions, especially overseas, take up to five business days). For many people and companies this is simply unacceptable, especially considering the huge fees charged by banks.
Blockchain solves this problem by processing transactions more efficiently. Payments are verified and go through almost instantly (or in a few minutes).
Clearly, there must be a method in blockchain like Ethereum Code or Bitcoin to guarantee that transactions are true. In other words, double spending of the same funds must be prevented.
In the case of mined cryptocurrencies such as bitcoin and ether, the transactions are checked by miners. They compete against each other to solve complex mathematical problems that are part of the encryption process to protect the data. When a group of transactions, known as a block, is validated, it is added to the previous ones, forming a chain. This is where blockchain gets its name (blockchain).
It is worth noting that not all cryptocurrencies rely on mining. Some (like NEO) use the Proof-of-Stake method. It has a similar purpose – to verify transactions and add them to the blockchain.
The difference is that in this case, miners and their powerful computers are not needed. Instead, the network member checking a particular block is chosen at random. This „randomness“ depends on how many coins he has. In other words, the more coins you have, the more likely you are to be chosen to check the block.
„Without the involvement of traditional banking networks.“
Today, companies and individuals exchange payments through traditional banking networks. The banks themselves only provide the infrastructure and do almost nothing, seriously enriching themselves in the process. Some people really didn’t like that and decided to develop a way to make payments without banks involved.
With blockchain, transactions are simplified to the extreme. There are only senders and receivers. There is no third party involved in the process. Because blockchain payments bypass traditional banking channels, fees are usually much lower (and sometimes none at all).
It is worth emphasizing that low fees are not necessarily a plus for consumers. In some cases they can affect the profitability of a business and even threaten its existence.
„And also the image of data storage.“
These words are crucial because they show that blockchain is not just a new way to send money. The list of non-financial applications of the technology is constantly growing. In fact, it provides a new and unique way to store data.
In recent years, companies in the healthcare sector have been actively moving away from paper and into the digital space. In other industries, this process is not yet as pronounced. Blockchain can aid this transition by increasing operational efficiency.
One of the most exciting potential applications of blockchain is supply chain control. Although some elements of this process have already been digitized, paper documents still play a significant role in it. The problem is that the traditional approach is not very efficient and significantly reduces the speed of getting goods from the supplier to the vendor or the customer.
Blockchain allows for digital control. Manufacturers, retailers, wholesalers, and even end customers (depending on the industry) will be able to track the movement of goods in real time. Additionally, the new technology helps companies identify problems much faster.
„In a transparent and unchanging way.“
Blockchain is superior to paper documents in another important area: it is much more rigorous and legally binding. Ordinary documents can easily be altered or tweaked. In contrast, the data in the blockchain is virtually unrealistic to change.
This feature allows people and companies to rely on the information entered into the blockchain. Because blockchains are usually transparent (unless they are a private network of a company), it is impossible to make changes to the blockchain unnoticed, because everyone in the network would notice it immediately. This transparency and immutability of the blockchain makes it a great solution for storing and recording data.
Of course, there are other nuances to this revolutionary technology.) But to get back to the point, blockchain is a new way to send money without banks and store data in a transparent and immutable way. It’s as simple as that.