A couple of years ago, when I first heard the word, “blockchain” and “cryptocurrency” — both, under the same breath, I’d be honest, it felt like yet another obscure “get-rich-quick” scheme or a scam, for that matter!
We all know of a certain friend’s friend’s fried who invested in crypto and has made big bucks along the way!
The discussion on Blockchain and Cryptocurrency has clearly shifted gears, from the boardroom to the living room, where families/ friends, everybody seems to have an opinion on the same.
Discussions like these can often leave you relegated to a corner, nodding your head and smiling away (aka Joey from Friends, if you know, you know) while thinking, what the heck is blockchain and how does it impact my life?!
So, what is Blockchain?
Blockchain is nothing but a chain of blocks.
Okay, what do these blocks contain?
The blocks contain data which are organised in a chronological order.
What kind of data is stored in these blocks?
Data could be as simple as a record of transactions that are unchangeable and do not rely on an external authority for validation / authentication. The transactions are mostly economic in nature but we can store any kind of information in the blocks.
In the words of authors, Don & Alex Tapscott “The blockchain is an incorruptible digital ledger of economic transactions that can be programmed to record not just financial transactions but virtually everything of value.”
How is all the data chained together?
The data is chained / linked together and are secured using cryptography.
What is cryptography?
Cryptography is the science of protecting information and keeping it secure using the process of encryption.
Remember the time when you and your friend spoke/exchanged secret codes when you had to discreetly talk about a certain teacher or a classmate?
What you did there, my friend, was essentially “encryption” (albeit, in it’s most basic form)!
You converted common parlance to an unrecognisable or an encrypted format (secret codes) that only authorised parties (in this case, you and your friend) could recognise/ understand.
Today, cryptography is used to protect digital data.
What is the need for Blockchain?
Blockchain enables its users to to build a trustworthy, immutable computational network with clever use of cryptography and decentralisation, for recording any kind of transaction or information. The chain of information / transaction can never be hacked / corrupted and can never be lost / broken.
The key word here is “trust”.
To cite an example,
N: Hey R, sorry I could not transfer the $ 100 last week, let me do that now.
R: Thanks, N.
[ Background flow ]
- N clicks a button on her mobile app to transfer $ 100.
- N’s bank confirms and passes the transaction forward to R.
- R’s bank confirms and informs R about the credit.
Advantage : Easy and popular, as of now.
Disadvantage : Only the bank knows about this transaction and it can control you, probably use your data as well.
In Blockchain terms:
Let’s say, we have a network of four friends N, R , B, A and G.
– N decides to send $ 100 to R
– B, A, G have to approve and validate this, since its a transaction between the network.
– All of them validate it with their own methodology and they also get paid for validating it.
– R receives the $ 100 and all is well with the world.
Advantage : Your data is not stored or controlled by a single entity like a bank.
Blockchain really proves its value when there’s no central actor (read banks, insurance companies, financial institutions) who enables trust.
Anyone who wants to access your data or the transaction should be able to get to the private network.
This is also where cryptocurrency comes into the picture, you get paid in cryptocurrency for several transactions like these, for validating them.
Blockchain & Cryptocurrency:
If I were given a dime every time someone used cryptocurrency and blockchain interchangeably, I’d be a millionaire!
Cryptocurrencies are digital currencies whereas blockchain is the ledger for storing records of crypto transactions. Bitcoin is the name of the best-known cryptocurrency, for which blockchain technology was invented in the first place!
Blockchain applications go far beyond cryptocurrency. With its ability to create more transparency and fairness while also saving businesses time and money, the technology is being used in a variety of domains, including real estate, healthcare, money transfer among others!
Future of Blockchain:
The Blockchain technology is continuously evolving; even now, as I write this!
Blockchain is here to stay, because, ultimately, privacy and freedom of expression matter. A lot, at that!