What is Blockchain Technology?

You’ve probably heard in the news, from your friends, or on social media sites that blockchain technology is the future of investing or potentially that it’s going to crash and everybody will lose their money. You may have even heard that governments are cracking down on it. It all depends on who you’ve been talking to and what their experience has been.

Some quick overview points about blockchain technology:

  • Blockchain is a way to store information.
  • Information is stored in blocks and then chained together, hence the name.
  • Once a block is filled, it will be chained to the previous block in chronological order. A new block is created for new information.
  • Any information can be stored in a blockchain; however, ledger information for cryptocurrency is the most common.
  • Once data is entered into a decentralized blockchain, it can not be modified or reversed. So the information is recorded and viewable forever.
  • With cryptocurrency, the blockchain is used to decentralize information. No single entity controls it and can’t update it without others reviewing changes.

Let’s review blockchain technology from the standpoint of bitcoin, the most well-known use of blockchain to date. Note that there are some private blockchains that this information wouldn’t be 100% accurate about.

What is Blockchain Technology?

Blockchain is complicated from the technology perspective; however, how you use it does not need to be. Blockchain is a way to store information in a decentralized manner, with complete transparency and security.

Blockchain is Decentralized

Your bank stores your banking information on servers and these servers are all owned by the bank. Your information must always be available and backed up. If your bank lost this information and the backups were old or not functional, then your bank accounts would disappear.

With blockchain, the servers used to keep the information available are not owned by any one person and are spread out around the world. So if one person disappears or loses the data, the information is still available from all the other servers.

Aside from always being available, if a single server accidentally or on purpose wanted to change the information, the other servers in the blockchain would dispute or correct the server. So you can’t have a single entity modifying or updating the blockchain unless there is agreement.

Blockchain is Transparent

Every change is recorded and available in the blockchain. Anybody with access to the blockchain via explorers can also see changes. An example where this is helpful or interesting is where Bitcoins are stolen and then tracked for where they’re used.

It also means that if people know your unique ID used for transactions, they can also track your blockchain activity. This would mean what you purchased or sold, as well as what you used your Bitcoins for.

Blockchain is Secure

Blockchain has built-in technology to handle security and trust around the transactions made using it. Data is stored chronologically, and going back to alter it is extremely difficult, as we saw all blockchain servers would need to agree to modifications.

So if somebody tried to alter the blockchain, all other servers would review and disagree. The rest of the blockchain would dispute and mark the modification as illegitimate. If somebody could take over and modify 51% of the blockchain servers, this could work; however, it would likely be noticed by the humans running the servers, and they would work to revert or create a new version to be used instead.

The larger a blockchain becomes, the more difficult it would be to take over half of the servers within it.

Who Invented Blockchain?

Cryptographer David Chaum first wrote about the idea of Blockchain like technology in 1982. In 1991 Stuart Haber and W. Scott Stornetta added to the ideas of encrypted blocks to secure information.

It wasn’t until 2008 that an unknown entity known as Satoshi Nakamoto improved the design and implemented it into a system, now known as bitcoin.

How does Blockchain Work?

The simple steps of how blockchain works are:

  1. A new transaction is entered.
  2. The transaction is sent to the decentralized network of computers that make up the blockchain.
  3. The network of computers verifies and validates the transaction.
  4. Once verified, the transaction is written to a block in chronological order.
  5. The transaction is completed.

What is Blockchain Used For?

The most common use of blockchain technology is as a ledger for cryptocurrency transactions, such as bitcoin and other cryptocurrencies.

However, blockchain technology can and is used for anything you want. Especially where decentralized and verified information is essential.

  • Food distribution – Using blockchain technology, you can track the progress of food through the distribution process and if there are issues, track items back to where the problem started. Problems could be anything from damage to health contaminants.
  • Healthcare – Submitting and securing patient health information so patients can be confident that information doesn’t get incorrectly modified or lost.
  • Property records – Keeping a historical and distributed ledger of property ownership would be beneficial, especially when ownership may later come into dispute. These records would be forever, and you couldn’t fake ownership.
  • Voting – With voter fraud and miscounts often happening, using blockchain technology to record, verify and then distribute votes could mean they couldn’t be modified or incorrectly counted. This would give people confidence that the result is accurate.

You can use blockchain technology for almost anything that you want an unaltered record of. Businesses are implementing it or at least reviewing how it can save them money or improve their processes.

How Big is the Blockchain?

There is no single blockchain, it is a technology that you can use and set your own limits on.

Looking at cryptocurrency again, two methods are being used. Some cryptocurrencies like bitcoin have a limit, and others like dogecoin have no limit on the size of the blockchain.

How do you Invest in Blockchain?

Most cryptocurrencies use blockchain, and the cryptocurrency is what you would invest in. Because there are so many cryptocurrencies, you can buy inexpensive ones to play around with the technology. Otherwise, you can start investing large sums of money into cryptocurrencies like bitcoin and hope for significant returns.

The easiest way to invest would be to find a cryptocurrency exchange. A cryptocurrency exchange will easily allow you to buy and sell cryptocurrency, as well as store it with them.

Some of the largest exchanges are Kraken, Coinbase, and Bisq. You should review the options and make the best choice for what you need.