What is blockchain?
As name stands for itself, blockchain is a chain of blocks used for storing and transferring information about transactions taking part in the internet. Each block contains information about specific amount of transactions. Once limit is reached, a new block is formed, making a chain. Depending from the type of blockchain, the new blocks appear regularly each couple of minutes.
The information stored in blocks can differ. Although it is commonly presumed that is stores data only on cryptocurrency transactions (like Bitcoin), there can be stored different data, like:
- physical currency transactions
- stock market transactions
- purchase/sell transaction of physical assets
- payment transactions for services any many more.
How does blockchain works?
The main idea behind the concept of blockchain is to maintain a common accounting book in a digital form (this is why blocks came into existence), which is a decentralized network and spread globally in precisely same copies. It is a peer-to-peer network without central governing authority/body/server managing and verifying transactions. Each computer connected to the blockchain can participate in these actions and see the transactions taking place (in most blockchains transactions are public). Despite the transactions are public, they user can check only his own transactions (all of them). The rest is encrypted by advanced cryptographic tools (hence the prefix crypto- for the digital currencies).
How blockchain can be used?
Currently blockchain is most commonly used for all sorts of financial transactions, with most popular transaction way - cryptocurrency transfers. The first blockchains and their cryptocurrencies (like Bitcoin and Litecoin) are very limited as speaking of their functionality. Yet the idea of blockchain makes it a very flexible tool, which is capable to literally change the world. In last couple of years, with such projects as Ethereum or Ripple the scope of application of blockchained has widened to the limits of human imagination. Blockchain so far had found its way to be used in banking system, transaction platform, digital signature, document verification, contracts for services, logistics, insurance, healthcare, real estate, ecology, charity and even protection of endangered species. World Economic Forum estimates, that by 2025 10% of global GDP will be stored on the blockchain.
Is blockchain technology a safe one?
As for now, there is no chance of breaking the blockchain cryptography based security. This would require, at the moment we are writing this, combining most of the global computing power on one task - breaking into a single blockchain.
As well blockchain records cannot be altered - if someone would try to alter a blockchain in one copy of it, the safety measures (including checking all other copies of records from whole global blockchain) are going to detect that and refuse to accept the forfeited copy.
Is blockchain a threat to the banking system?
Some state that blockchain makes it a vital threat to the banking systems, as it gives to many people a chance to simply bypass the traditional bank networks (eg. in case of international money transfers by banks, which are slow and costly).
Still, blockchain has the potential to make many banks beneficiaries of it. Spanish Santander bank estimates, that full application of blockchain for payments and transactions can even mean tens of billions of USD savings for banking system.
Ripple blockchain was intentionally created to be a tool for banks for cheap and fast transactions. Alternatively, banks can make their own internal cryptocurrency with specific price, benefit from its blockchain and therefore introduce cheap and fast transactions between themselves.
Is blockchain important?
Without any question, blockchain technology has a potential to change our everyday life. When applied properly, it can make data processing (not only in financial sector) much faster, cheaper and safer. We will discuss the practical application of it in details in the next article.