If you are interested in the future of money, it’s high time you got familiar with Blockchain technology, the new internet which has the ability to transform not only the idea of money but also the global record-keeping systems.

The idea of shared ledgers has indeed existed for some time. Central banks do share their ledgers with financial institutions including banks which operate in a centralized system. However, a blockchain does not have a central authority and therefore the system is decentralized. Blockchain is a broad concept but let’s get to the basics first.

What Is Blockchain?

Blockchain is a distributed digital ledger that records data or transactions in multiple places on computer network that makes it impossible or difficult for the system to be changed, hacked or manipulated.

For example, the digital ledger is like a Google spreadsheet shared with various computers in a network, in which, transactional records are stored on actual purchases. The interesting thing is that anybody can see the data, but nobody can corrupt it.

Whose Idea Is Blockchain?

The first blockchain-like protocol was proposed by cryptographer David Chaum in 1982. Later in 1991, Stuart Haber and W. Scott Stornetta wrote about their work on Consortiums.

But it was Satoshi Nakamoto (presumed pseudonym for a person or a group of people) who invented and implemented the first blockchain network in 2008 after deploying the world’s first digital currency, Bitcoin.

How Does Blockchain Work?

Blockchain got its name by the way it stores transaction data – in blocks linked together to form a chain. As the number of transactions grows, so does the blockchain.

Blocks record and confirm the time and sequence of transactions which are then recorded into the blockchain network administrated by rules agreed by the network participants.

Each block contains a hash aka a digital fingerprint with timestamped batches of recent valid transactions and the hash of the previous block.

he previous block hash links the blocks together and prevents any block from being altered or a block being inserted between two existing blocks. In theory, the method renders the blockchain tamperproof.

Why Is Blockchain Important?

  • Blockchain is secure
  • Blockchain is transparent
  • Blockchain is tamper-proof
  • Blockchain enables peer-to-peer transactions without reliance on a central authority or third parties like banks

Are There Different Types of Blockchain?

Yes, and here they are:

  1. Public Blockchains

    These are open, decentralized network of computers accessible to anyone wanting to request or validate a transaction.

    Two common examples of public blockchains include the Bitcoin and Ethereum.
  2. Private Blockchains

    These are not open and have access restrictions. People who want to join require permission from the system administrator. They are typically governed by one entity, meaning they are centralized.

    For example, Hyperledger is a private, permissioned blockchain.
  3. Hybrid Blockchains or Consortiums

    These are consortiums, a combination of public and private blockchains and contain both, centralized & decentralized features.

    For example, Energy Web Foundation, Dragonchain, and R3 are hybrid blockchains.
  4. Sidechains

    A sidechain is a blockchain that runs parallel to the main chain. It allows users to move digital assets between two different blockchains and improves scalability and efficiency.

    An example of a sidechain is the Liquid Network.

About Author

Kapil Rajyaguru

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