What is Bitcoin & Blockchain and how does it work?
Bitcoin is one of the trending topics in the world these days and Blockchain has gained traction because of this boom. Yet this technology is elusive to a large group of people. Not anymore, this is your parchment to understand it the way you should. But to understand this new path breaking technology, let’s first understand some fundamentals and dive into the “big thing” next.
The history of money transactions
For centuries now, when it comes to transacting money or anything that holds value, we have been relying upon intermediaries like banks, governments or third party institutions to ensure trust and certainty. These intermediaries take up multiple tasks like authentication and record keeping to help build trust in this process.
Numerous people, however, consider this system as old and want a decentralized system in place of central administrators like banks, governments, and accountants. This is accomplished using a distributed ledger.
A ledger as we know is a record of economic transactions maintained by a centralized institution. A distributed ledger is a database synchronized and shared consensually on a network across multiple sites, institutions or geographies, creating multiple public witnesses and encrypted copies. Once saved this becomes an immutable database governed by the rules of the network only.
Bitcoin & Blockchain
Bitcoin first surfaced on earth in 2008 in a white paper authored by a person under the pseudonym Satoshi Nakamoto. This white paper introduced an innovative peer to peer electronic cash system called ‘Bitcoin’ which could facilitate the transfer of online payments without any intermediary.
While the proposed system was exciting and innovative what was truly revolutionary was the mechanism behind this system, ‘Blockchain’. In a very short span after this paper’s release, it became evident that the real innovation was not the digital currency but its underlying technology.
How does it work?
Whenever a digital transaction is carried out all the transaction information is bundled together and stored in a cryptographically encrypted block along with other transactions that have occurred in the last 10 minutes and published on the entire network. This block is then validated, timestamped and added to a chain in a linear and chronological order creating a Blockchain.
This system is decentralized, open, encrypted and immutable and hence every member can prove who owns what at any given time thus eliminating the need for an intermediary.
The big question
Now comes the big question. How is Blockchain going to change the world?
The Blockchain is to Bitcoin what the Internet is to Email. The blockchain is a technology and Bitcoin is just an application based on it. With Blockchain as an underlying technology, the applications are endless. We can use it for electronic voting, smart contracts, crowdfunding, supply chain auditing, file storage and much more. It can profoundly change any industry that relies on any kind of intermediary.
The potential impact of Blockchain is huge and with its ever growing list of real-world uses, and this is just a beginning.