Blockchain Explained In Simple Words

Blockchain and Bitcoin : Which came first? What is chicken and what is egg? In the minds of users, the concept of “blockchain” is inextricably linked with the term “bitcoin”. This is in two ways reflected in the perception of the blockchain technology as a distributed registry , which underlies the new, digital economy.

Blockchain Explained For Dummies

  1. Blockchain what it is in simple terms
  2. Why do you need a blockchain
  3. How blockchain technology works
  4. History of Blockchain Technology
  5. Advantages and disadvantages
  6. Types of blockchain
  7. The use of blockchain technology
  8. Reliability and safety
  9. Prospects for the development of blockchain technology
  10. Conclusion

Introduction

The glory of the first Bitcoin cryptocurrency is it’s created on the basis of the blockchain, this attracts special attention to the blockchain technology. Bitcoin very quickly gained popularity, cryptocurrency became available, users began to scrutinize the new financial phenomenon and the technology on which it is based. Gradually, Blockchain technology has ceased to be a mysterious technical term, the meaning of which is known only to a narrow circle of specialists.

But this association has another side. In the mass consciousness for the cryptocurrency, in particular for Bitcoin, the glory of something forbidden and illegal was entrenched. Why pay with Bitcoins when there are many other official methods that are easier to work with? It is clear – behind all this are some kind of “dark business”.

But when the user begins to study the essence of the blockchain deeper and analyze what it means, he realizes that the blockchain is just a tool for transferring and storing data. A tool can not be good or bad: it all depends on how and for what purpose to use it.

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On request “ What is a blockchain? ”, We get a lot of articles with an overview of the blockchain technology as a distributed database, decentralized, consisting of interconnected entries – blocks. All blocks are combined into chains and are subject to accurate accounting.

The blockchain operates without a single server ; identical copies are created that are stored on the computers of all network participants .

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The term Blockchain describes its tasks and purpose. “Block” – blocks, “chain” – chain. A blockchain is a chain of blocks with a consistent, strict sequence.

In this article – A detailed description of what you need to know about the most important technological miracle after the creation of the Internet.

Blockchain Explained In Simple Terms

About the Blockchain technology in simple words.

  • A blockchain is a continuous chain of data blocks, where each subsequent block is linked to the previous one through a set of records contained in it;
  • Each block stores all the information in the chain, starting with the very first block;
  • New blocks are added to the very end of the chain, so the contents of the blockchain gradually increase like a snowball;
  • All blocks of the network are in a strict chronological order and are interconnected by a cryptographic signature created using complex mathematical algorithms;
  • Every change in the system is accompanied by a cryptographic signature, and after completing the transaction and recording it in a blockchain, all network nodes receive information about it;
  • Operations within the network are recorded and processed without the participation of a third-party service;
  • The current state of the blockchain at a particular point in time is loaded, synchronized and provided by hundreds of thousands of computers around the world, which are called nodes or “nodes” (node);
  • What is a node? Speaking in your own words, this is a single computer that stores the full and most current version of blockchain. Every time a new block appears on the network, all nodes update their blockchain.

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Why do you need a blockchain?

What are the reasons for the concept of a blockchain? Why did you need to create a blockchain distributed database at some point?

Block technology and cryptocurrency emerged as a result of the perceived shortcomings of the traditional banking system. First of all, it refers to the speed of operations: international money transfers can sometimes take several days, because the bank needs time to check the information.

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This is inconvenient and does not allow users to make quick settlements.

In addition to the duration of transfers, it is worth noting the significant fees that banks charge for their intermediation. Blockchain allows you to refuse the services of any intermediaries and make payments faster and cheaper.

Simply put, the blockchain performs exactly the same functions that traditional financial institutions have always been responsible for.

But it does it better and more efficiently:

  • Blockchain is faster. Network operations take minutes.
  • Blockchain is cheaper. The cost of transactions is much lower than banking services.
  • Blockchain is safer. The blockchains distributed database reduces to zero the possibility of hacking the system, since it is impossible to simultaneously access copies of the database on all computers participating in the network.

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How blockchain technology works

If we discard the details and describe in simple terms the purpose of the blockchain, then the concept of a chain of blocks was created to convey values. How does the blockchain work and how exactly is the transfer of digital values?

Information in the blockchain is in the form of digital entries that have some value. All records are combined into blocks that form a chain of blocks. Each new element in a strict chronological order is added to the end of the chain and contains the address of the previous block.

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How does technology work? One user places information on the Internet, and another can access it. It does not matter where in the world the addressee is located. The main thing is that he has a cryptographic key that will open access to those blockchain files that are intended for him. The blockchain technology is designed in such a way that by transferring a private secret key to someone, the user transfers to him all rights to possession of the values ​​that are stored in the corresponding section of the blockchain.

We see such a scheme when working with cryptocurrency. The transfer of cash, expressed in the form of cryptomonet, is also implemented using keys that open access to digital assets. Thus, thanks to this algorithm, the blockchain performs the function of registering the transfer of funds that banks traditionally performed.

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In addition, trust is established between the parties to the transaction and the authenticity of the person is confirmed, since no one can access the information without the appropriate keys. Can attackers steal keys and steal files? Yes, keys can be stolen, like ordinary money. But the way the technology is arranged and what methods of protection lie at its core, nullify possible cyber attacks.

The principle of operation of the blockchain described above allows it to perform the basic functions of banks.

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Blockchain verifies the identity of a person to protect data and prevent fraud attempts, and then registers financial transactions. Moreover, it performs these procedures faster and more accurately than traditional financial institutions.

History of Blockchain Technology

A little about the history of the creation and evolution of technology Blockchain.

Who invented the blockchain?

The emergence of the blockchain is associated with the name of Satoshi Nakamoto, the creator of the first Bitcoin cryptocurrency.

When did he appear?

The technology was proposed in 2008. The technical support and implementation took about 10 months, and in 2009 it was first applied in the form in which it exists now.

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The first application of the concept of chains?

For the first time, the blockchain was used as the basis of the first cryptocurrency – Bitcoin, where it played the role of a distributed registry for all operations with digital coins.

What role did blockchain play in digital money?

Thanks to the blockchain, Bitcoin became the first virtual currency that solves the problem of double spending without using an authoritative body or a central server. Blockchain is a single protected register of information and data, which is presented in the form of electronic files, so one block can be copied and spent several times.

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Advantages and disadvantages

Versatility and application in different areas of life are an important advantage of blockchain technology.

The practical use of the blockchain is to:

  • reduction of transaction costs;
  • reducing the time of transactions to a few hours;
  • getting rid of unnecessary items of expenditure.
AdvantagesDisadvantages
Blockchain as a distributed database –  Blockchain exists as long as there is at least one computer connected to the blockchain network in the world, since all data is stored on the computers of all network users, and not in one place.Scalable – At the moment, the blockchain cannot provide a large number of transactions in a short time, like other more promoted systems, and this is one of the main problems of the technology.
MasterCard and Visa process about 45 thousand operations per second; in the blockchain network, these figures are thousands of times lower. In this case, the weight of the database, which is stored on users’ computers, is growing daily.
Blockchain is the openness and security of information. By its nature, the blockchain is able to provide a unique symbiosis of openness and security of user data.
A high degree of reliability is achieved through progressive encryption methods.
The load on the electrical network. Complicated blockchain network calculations make computers consume large amounts of energy.
Blockchain as secure storage. Any information that can be recorded on a sheet of paper can be recorded in the blockchain.
At the same time, intermediaries are not needed for operations: the database is managed in an autonomous decentralized mode, which ensures the transparency of the blockchain.
Insufficient prevalence. The Blockchain technology is not yet globally implemented, so it works very slowly in some projects.
Blockchain is the accuracy of the data. Data on the blockchain network cannot be substituted or forged: it is confirmed by many computers around the world.The probability of “attack 51%”. If a group of users manages to concentrate 51% of computing power in their hands, they can start using the network to their advantage and confirm only transactions that are profitable for themselves. Therefore, to talk about the complete invulnerability of the network is not true, since the risks are still present.
Blockchain is a complete equality of users. A copy of all blockchain blocks is stored on hundreds of thousands of computers around the world, forming a single network. All members of the network have full equality, and can equally as fulfill their duties, and violate them.
Blockchain is anonymous operations. The technology is designed so that the user can maintain absolute anonymity with full access to information.

Types of blockchain

Since different types of services and applications can be built on this technology, they allocate private and public blockchain.

Private blockchain

Such blockchains are considered exclusive and are created for the development of private business. They are closed and centralized, maintained and controlled by their creators and subordinated to corporate goals. To become a member of the private Blockchain, certain conditions must be met, and only certain certified users can mine the new blocks.

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Public blockchain

Anyone can join the blockchain public systems and become a miner, since the community itself administers them.

The use of blockchain technology

We already know who, when and why created the Blockchain technology, how it works and what advantages and disadvantages it has. But one more important question remains open: “How to use it?”

At the World Economic Forum, the Blockchain technology entered the top ten most promising, and IBM experts found out in a survey that a quarter of companies are ready to use this technology in the coming year. According to experts, the massive introduction of the blockchain will occur within 7-10 years.

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The Blockchain technology found its first practical application in 2009: on its basis Bitcoin cryptocurrency was created.

Being both open and protected, the blockchain is most actively used in finance, but is able to optimize and improve other areas of life. Due to its main advantages, the technology is an excellent basis for the operation of all services where the safety of user data is in priority.

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Blockchain has three main banking functions:

  1. Registration of transactions;
  2. Contracting;
  3. Verification of the user’s identity at the identification stage.

The introduction of the blockchain in the financial industry allows you to get rid of intermediate processes in the transfer of money, integration with the bank, etc., that is, the practical use of technology in this area is extremely wide.

But the scope of the blockchain is not limited to banking. The Blockchain technology is multifaceted and can be used not only to store blocks and data on them, but also to store any other computer code.

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The exchange of valuables, documents or money is carried out without banks, notaries and other registrars. Blockchain removes all intermediaries and allows you to directly exchange data. Moreover, the authenticity of operations in the network is verified by the parties to the transaction.

The system of “smart cities” will be based on the blockchain technology: the PRC government is already actively working on its implementation. Based on the blockchain, various identification systems, web browsers, cloud data storage and even social networks are being developed.

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On the basis of the blockchain, special agreements are made – smart contracts or smart contracts. With the help of their procedure of signing contracts has been simplified many times, since there is no need to involve in the process a third party that would act as a guarantor of compliance with the conditions. The program code decides everything: smart contracts are executed only when both parties accept the terms and enter their keys. This implies full automation and reliability of the execution of the contractual relationship.

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BITNATION is a whole virtual nation created on the basis of the blockchain, which opens embassies in different countries, and everyone can become its citizen.

Examples of areas where it is planned to use technology:

Elections and voting

States are working on ways to introduce blockchain technology into the electoral voting system;

The property

With the help of the registry will be confirmed remittances, contracts and data of the owner. Thus, the process of transfer of ownership will be simplified as much as possible, and projects with real estate will be closed faster and on more favorable terms.

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Medicine

Technology has found its application in health care. In the medical field, blockchain-based startups are also being created.

Insurance

There are real examples of how states are planning to closely embed the Blockchain technology into the insurance system. So, China plans to transfer the work of the National Social Insurance Fund to the blockchain.

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Purchases

Technology got to the procurement. In this area, the blockchain will fight with the machinations of state-owned companies, which are often caught in non-transparent work schemes. All data will be recorded in a distributed network, and payments and tax deductions will be made automatically.

Document flow

Blockchain has found its application in the field of document circulation. Convenient and secure services are created, which are a public register that contains electronically signed documents. Each signature is stored in the blockchain, it is unique and practically non-existent.

Logistics

With the help of the blockchain, the delivery process will be improved. The technology allows to reduce the cost of logistics, eliminating unnecessary intermediaries, minimize the possibility of data fraud and prevent mislabeling of illegal goods and other attempts to cheat.

Other uses of the blockchain:

  • Sales;
  • Oil and gas industry;
  • Mortgage credit lending;
  • Agriculture;
  • Industry;
  • Art;
  • Electricity;
  • Bookmaker’s office;
  • Transport.

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Reliability and safety

Blockchain is a decentralized database that is managed autonomously and is not controlled by any center in the world. These are not myths, but the real mechanism of operation of this technology, which is also distinguished by an increased level of security of all data.

The main advantage of using the blockchain are transparent, but completely secure transactions.

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At the same time, all operations carried out within the network are distinguished by multiple copying: each transaction participant always has information about each partner’s action / s.

All data is protected by a cryptographic key consisting of a long set of letters and numbers. This key forms a special algorithm that calculates a single key for a specific data set.

Two types of cryptographic keys are used to encrypt data in Blockchain:

  • public or public key is used to encrypt data and is open to all users;
  • Private or private key is used to decrypt and is kept secret.

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How do they work?

When creating a new block in the blockchain chain, the user places the public key in it

The owner of the contents of this block will be the one who has a private key that matches the public key of this block.

Security in the blockchain is provided through a decentralized server that timestamps and peer-to-peer network connections. This makes blockchains convenient for recording events, any data operations, easy identification management, and source authentication.

How does the Blockchain security system work?

Example 1. Blockchain is like a large shared folder on FTP.

Each Internet user can see the contents of the folder, see who, in which subfolders, when, for whom, and which files downloaded. But at the same time everyone has different access to stored files. Some users can simply see the list of files, that is, they are limited to the role of the observer. The recipient of a specific file can download data to itself and use it, since the file was intended for it, and no one else can access it.

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Example 2. Blockchain as an electronic wallet with open statistics.

All participants in the transaction are free to observe the movement of funds. But access to the funds have only users with the necessary rights. At the same time, they can remain completely anonymous or be identified in the system, depending on the specific platform and the purpose of its creation.

Thus, all transactions based on the blockchain are open to the public: the entire chain of transactions is duplicated and stored unchanged in encrypted form for each participant.

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And they are completely safe: the blockchain is decentralized, there is no “command center” that can be cracked to destroy or replace data.

If a transaction is conducted with the participation of 100 people, then this blockchain chain will remain working even if 99 computers are hacked. Failure of several chain links will not affect the safety of the data and will not damage them.

Prospects for the development of blockchain technology

For several years, the blockchain has gone from an unknown technological innovation to an indispensable tool that is already used at the state level, even in the political sphere.

Thus, the Parliament of the European Union is considering a blockchain technology for creating voting systems with protection against data falsification.

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If the elections will be held on the basis of the blockchain, then the voters can have no doubt about the transparency and honesty of the results of the voting. It is possible that we will choose the next president of the Russian Federation with the help of the blockchain.

A distributed registry is used by banks and large corporations, which simplifies and reduces the cost of daily financial transactions. The future implementation of the blockchain will be very different: from elections and voting to charity and art. Indeed, in the practical application of technology based on a protected blockchain, no one doubts.

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Why is blockchain technology considered future technology? We now use a worldwide network every day for quick and easy information sharing. But when it comes to sending valuables (money), we are still forced to resort to the services of traditional banks. Yes, now there are convenient methods of payments via the Internet, the same PayPal, but they still require integration with a bank account or credit card.

The blockchain technology allows you to completely save the user from unnecessary levels, namely from centralized financial institutions.

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Blockchain assumes the functions that the traditional financial services sector has always played: registration of transactions, identity verification and contracting. At the same time, the effectiveness of such services is greatly enhanced.

Conclusion

Blockchain is an effective detox in the financial world. It eliminates all superfluous, leaving the most useful. The user makes less effort, but gets more results.

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