Blockchain explained: a short recap
[imgtxt type=latex]Blockchain technology is a fairly new concept and it’s possible that you’re not quite sure what it is exactly. Luckily, the internet is here to help. If you have no idea what blockchain technology is and what it does, this article might be for you where we explain the basics. If you want to focus more on Bitcoin blockchain specifically, then make sure to click here.
In short, a blockchain is a chain of blocks (no surprise here) used to store data. Each block has a list of data that needs to be stored. They also have a unique hash, which will be sent to the next block on the chain. A hash is a collection of characters gathered from the information stored on the block. Because any given block also has the hash of the previous block on the chain, it is practically impossible to hack the blockchain. If someone would want to see what is on the blocks, there is no need to hack it anyways. All data stored on the blocks is transparent and visible to anyone connected to the network. This is another reason why blockchains are very safe. Anything that is added to a block is there forever, nobody has access to change a single thing to the stored data.
Blockchain explained: why it is the future
Vitalik Buterin, creator of Ethereum, explained the necessity of blockchain technology as follows: “Blockchain solves the problem of manipulation. When I speak about it in the West, people say they trust Google, Facebook, or their banks. But the rest of the world doesn’t trust organizations and corporations that much — I mean Africa, India, the Eastern Europe, or Russia. It’s not about the places where people are really rich. Blockchain’s opportunities are the highest in the countries that haven’t reached that level yet.”
The most common use of blockchain is for cryptocurrencies. The blockchain is used to store all transactions made between users. The good thing is, especially in the regions of the world Buterin mentioned, that all this can be done without the interference of a financial institution or bank. If someone who doesn’t trust a bank wants to send money via blockchain, all of the process is transparent. Everyone connected to the network of the cryptocurrency sees who is sending what amount to the receiver. Each transaction needs to be validated by the network as well, to make sure the sender has the funds to make this transaction in the first place.
Blockchain in development: 3 generations of crypto coins
Blockchain technology is young, the first Bitcoin was created not even a decade ago. Its technology is still in development. Bitcoin was the first cryptocurrency to use the blockchain technology, and it is almost archaic compared to what newer crypto coins can do. Bitcoin was developed to send money from one user to another. And that was it. Soon this became too limited. Some users felt there was need for a more versatile coin using blockchain technology.
A second generation of coins came out adding useful features. Ethereum, the biggest and most popular second generation coin, made it possible to add smart contracts to the blockchain. With these smart contracts, users add conditions to the transactions. For example, in a smart contract you can add a set date that it should be paid, which is useful for periodic payments. Another possibility is to hold back the transaction until certain conditions are met by the receiver. If the job is done, the money gets paid.
The second generation made blockchain technology practical and useful, but there was still room for improvement. A big issue that was still causing problems was the scalability of the digital coins.
The scalability of a coin indicates how many transactions can take place per given time. Because of the limited size of the blocks, there is also a restriction as to how many transactions can fit on it. Once the block is full, it is placed on the blockchain and the following transactions will have to wait for the next block. Bitcoin is particularly slow. The average transaction time for this coin is about 10 minutes. On busy days, it can take a lot longer than that. Ethereum is significantly faster than Bitcoin. It’ll take about 15 seconds for a transaction to take place. This was still not fast enough. If cryptocurrencies are to become commonly used in the future, it needed to be a lot more scalable. The third generation has coins that can handle millions, if not billions, of transactions per second.
As you can see, blockchain technology is still in full development and it is likely that the perfect implementation for blockchains hasn’t been invented yet. And now we only have been looking at the cryptocurrency part of the blockchain. Its development in other markets will continue to grow just as decisively.[/imgtxt]