Blockchain and cryptocurrency are modern-day buzzwords. Everyone is either talking about it or investing in it. But many of us still don’t understand what a blockchain is. So, if you are planning to invest in cryptocurrency you need to know how it works. Most guides on the internet are too heavy on tech jargon and don’t make sense to regular people. So, this article will simplify the basics of blockchain, its types, and its most common uses.
The modern economic world is changing because of cryptocurrencies. It has been over ten years since the first-ever cryptocurrency, Bitcoin, came to market. Since then, it has been a roller coaster ride. Now, more people are investing in bitcoin than ever before. There are countless documentaries and informational videos that talk about blockchain in detail. You’ll need an internet connection or TV package like Cox cable bundles if you want a deep-dive. But here is blockchain 101 for beginners.
What Is Blockchain?
Blockchain is the basis for almost all cryptocurrencies and NFTs. It is one of the most secure ways to store and write data for online servers. The dictionary definition of blockchain is
“A system in which a record of transactions made in bitcoin or another cryptocurrency are maintained across several computers that are linked in a peer-to-peer network.”
So, let’s explore that further in easier words that everyone can understand. its a decentralized database that can store information. The different sets are not connected with the same processor that keeps them separated. But the distributed database is stored between the nodes of a computer. A blockchain is able to store information digitally and securely through a key. If you don’t have the key to the database, you cannot view or write on it.
Moreover, it is consists of a series of information packets that are known as “blocks”. These blocks are stacked upon each other through cryptography. Each block is linked to the one before it and records such as creation time stamps and transaction data are maintained electronically. As a result, it can be extremely difficult to go around a blockchain.
How Does It Work?
Most people think that blockchain was invented in 2009, the same time as Bitcoin. But that is not true. That might only be getting all the attention now, but it predates Bitcoin by almost two decades. It was first rolled out in 1991. Since then, it has found appreciation and widespread use in different fields such as decentralized finance, NFTs, smart contracts, etc.
One of the most important differences between a regular database and a blockchain is how it collects data, the data is stored in blocks that are stacked in a timeline. When a block is filled, there is no way to alter it. So, it is set in stone and practically irreversible. As a result, it is easier to maintain a database that cannot be edited. So, any information on the digital database is secure and cannot be deleted.
Using this information, we can use it to track all our data in real-time. It can be a useful tool to maintain financial ledgers and track all transactional data. This is the reason blockchains are sometimes also called distributed ledger technology (DLT).
What Are the Types of Blockchain?
The primary goal of a blockchain is to decentralize a set of transactions. However, the extent of the decentralization can vary depending upon the type of blockchain. Here are the four different types you should know about:
As the name suggests, anyone, anywhere in the world can access a public. They don’t have a key and don’t regulate use through permissions. Moreover, they are not governed by a single person or entity as well. They can rely on different algorithms to generate new tokens and anyone with the necessary hardware can access them. One of the most common examples of a public blockchain could be Bitcoin.
In contrast to public blockchains, private ones are governed by a single entity. Only a person with permission from the entity can access them. So, the network is exclusive and can be used to maintain private records and business operational details.
A consortium blockchain is also a permission network. But it can be governed by more than one entity or a consortium. So, the different entities can have collective or individual control over how and what someone else can access.
A hybrid blockchain consists of a layered network. The outer layers can be public, while the inner ones could be permission networks.
Final Words – Blockchain vs Bitcoin
Many people think that Bitcoin and blockchain are the same. However, that is the biggest misconception one can have. Cryptocurrency is developed on a certain blockchain specific to its use. Depending upon the creator, any type of that can be used. So, Bitcoin has been developed on the public.
We can understand it better by putting Facebook against the internet. Facebook exists because of the internet and not vice versa. So, it will be completely wrong to say that Facebook is the internet. Similarly, Bitcoin exists because of and not the other way around.
Pros and Cons:
If we focus on the unlimited ability to maintain decentralized data,it seems too good to be true. There are multiple uses and almost no margin of error. But there are disadvantages to the system as well:
|Reduced human involvement means an increased level of accuracy.|
|Mining bitcoin can come with unprecedented increase in energy consumption and high cost.|
|No need for a third-party verification system.|
|Number of transactions per second are considerably lower.|
|Almost impossible to edit or delete it.|
|Threatens the world economy and country currencies as we know it.|
|It is transparent and secure technology.|
|Can easily be used for illegal activities and purchases.|
|Provides an alternate method of banking and transactions for people who don’t have access to it.|
|Uncertain and unpredictable jurisdiction in different countries and states around the world.|
|Easier to maintain time stamps and real-time transactional information for stored data.|
|Limits storage of data.|