What is Blockchain Technology?

Blockchain technology appears to be all the rage online, so you’ve probably heard of it. Maybe it sounds rather complicated and… esoteric.

Not to worry – it’s a lot more straightforward than that. Blockchain is essentially a tool for the quick, transparent and secure, peer-to-peer transfer of digital goods. More specifically, money and intellectual property.

If you’re cryptocoin or Bitcoin mining, it’s essential to have an understanding of the topic.

Blockchain can still be confusing – after all, it’s one of the most misunderstood topics of today. What doesn’t help is that it’s used interchangeably with the term “Bitcoin”. Although they are related, they refer to two very different things.

Blockchain Technology – A primer

There’s a lot of talk around blockchain technology nowadays and as stated before, many people don’t quite understand what it actually means. What doesn’t help is that it’s used interchangeably with the term “Bitcoin” and cryptocurrency. Although they are related, they refer to two very different things. That being said, understanding one helps shed light on the other.

The Bitcoin cryptocurrency is a decentralized, virtual currency. Users can use it to exchange money among one another without using a third party (such as a bank). Every Bitcoin transaction is logged in what’s known as a “public ledger” (similar in concept to the old-fashioned accounting ledgers). This helps to prevent fraud, ensuring authenticity.

Now we get to the underlying machine that facilities these transactions and eliminates the need for middlemen. That’s blockchain technology.

When a transaction occurs, its details (source, destination, timestamp) get added to the block. The block contains this and all other recent transactions. With Bitcoin specifically, recent transactions are stored in the last 10 minutes.

Why is this necessary?

Users have been distributing digital assets since the dawn of the Internet. It was done long before blockchain technology was even a thing. That naturally makes us question why it’s even needed in the first place. Yet there’s a very good reason for this – an important ingredient for decentralization and security.

Using Bitcoin again as an example, we’ll illustrate:

• You want to buy a new sofa that costs one Bitcoin. In order to purchase it, you have to transfer it to the company that accepts Bitcoin.
• You also borrowed a Bitcoin from a friend of yours last month that you need to pay back.
• Without the blockchain in place, there’s nothing stopping you from transferring the digital token twice – both to the furniture store and your friend.

What’s going on here is a dishonest practice known as double spending. It’s pretty much thanks to this practice that digital currency never really took on. With the advent of blockchain, it became a lot easier wipe out the possibility of fraudulent activity. With blockchain, transactions are distributed in a public record. Each block is then confirmed before the transaction is finalized.

This process was originally carried out by the banks and other institutions. With cryptocurrencies, there’s no need for them which makes them revolutionary.

Blockchain Technology and the Future

At the moment, blockchain technology is known for its role in distributing cryptocurrencies – more than anything else. However, it has the potential for so much more especially in the long run. In fact, digital currencies could end up being only a fraction of what the technology can produce.

For example, it can be useful in:

• Executing contracts
• The safe purchase and sale of intellectual property
• The distribution of essential medical information
• Ensuring that electoral votes aren’t corrupted

We’ve only just scratched the surface when it comes to blockchain technology. Who knows what else we could add?