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What is a Blockchain?

A blockchain is a shared digital ledger that records transactions that cannot be altered. It is the underlying technology behind bitcoin and other cryptocurrencies.

Data stored on the blockchain is tamper proof and there is no single point of failure. Once data is stored on the blockchain, it will remain there forever. The details of transfer and storage is visable to everyone.

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Centalized Ledgers

Usually transactions are complex because we depend on a intermediary and every person has a copy of their own ledger. This increases the chance of fraud and increases risk of human error.
Also, paper documents and even data systems can cause delays.

Your bank has full control of what to show on your statement. Your bank statement is an example of a centralised ledger. The bank uses internal and external records to ensure your account is accurate and in agreement.

Centralized ledgers have a single point of failure. Theft of data from one central system can cause losses in mulitple accounts.

Centralized ledgers have a single point of control, the bank. They do not use cryptography for verification purposes.
 

How Blockchain works

With a blockchain, there is one ledger and certain indiviuals who act as nodes, hold a full copy of it and verify transactions with their copy. Entries are made on the blockchain only after all participants verify the transaction by consensus.

Because the ledger is distributed across hundreds of computers, there is no central point of failure. It is more secure and the blockchain and transactions cannot be changed.

There is no paper trail and this speeds up the process and cuts costs too.

Transactions are stored in blocks. Every block has the hash function of the previous block. This connection makes bitcoin transactions irreversable. All transaction blocks are connected, all the way back to the first transaction block - the genesis block. 

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There are public blockchains, private blockchains, and permissioned blockchains.

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Public Blockchains

Public Blockchains are completely decentralized peer-to-peer networks, meaning they are not controlled by a central authority.

It is a trust-less system and therefore transactions are verified by consensus. A transaction fee is charged by those who verify the transactions by acting as nodes on the network. 

Anyone can send data, receive data, and view the details of transactions on the Blockchain. All they need to do is have the required software to connect to the network.

The Blockchain of Bitcoin and Ethereum are examples of Public Blockchains.

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Private Blockchains

Private blockchains are also decentralized, but people need permission to join access information on the blockchain, on a need-to-know basis. Permission could be through given through a cryptographic license, or by owning a cryptocurrency.

Once accepted, the member can use the decentralized features of the blockchain. Smart contracts can be used to settle disputes and increase trust. Again, transactions are validated by consensus and no one can delete them.

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Problems Solved By Blockchain Technology

Blockchain technology solves issues around trust, accountability, and transparancy.

An organisation can have more control over the running of a project. Tokens or coins can be used as an incentive to continue project tasks.

Blockchain technology solves the problem of trust between two parties during a transaction. People can do exchange value without needed an intermediary to instill trust. The trust is placed in the technology itself.

Transactions are viewable by anyone as it is open source. If someone wanted to view details of a trade.

For example, a blockchain can be used to record details of a products origin, it's features, and composition. The blockchain could also track all transactions and store a cryptographic certificate the provide owner authentication.

For businesses, Blockchain saves transaction times, removes overhead costs, reduces risk of fraud, and increases trust. 
 

The most important thing about blockchain is that it takes away the power from governments and banks. This power shift has already started. The disruption of financial control has begun.