What is Blockchain Technology? – Explained

We’ve all heard about the fame of Cryptocurrencies, but do you know what inherently makes them so popular? In this article, we shall be talking about the underlying catalyst behind Bitcoin’s & other Cryptocurrencies’ journey into the limelight. Yes, the fundamental technology we’re going to discuss today is the infamous Blockchain Technology!

We already know that Blockchain is something that enables Cryptocurrencies to function. But how does it do that? And what makes it so special?

It is essential to grasp the concept of blockchain technology to better understand the nature of these digital assets that we’re so fond of. So, let’s get started!

Blockchain Technology emerged into the world by the advent of Bitcoin in 2009 (See our article on Bitcoin for more info). While many consider Bitcoin itself overrated & too volatile when compared with other Cryptocurrencies, introducing Blockchain Technology to the world opened a world of opportunities for us and businesses around the globe!

Blockchain Technology is primarily a revolutionary technology. It helps tackle the risks and concerns related to cybersecurity, stamps out frauds, and brings transparency in a scalable way for a myriad of uses. In simple terms, its best defined as a decentralized, distributed ledger that records transactions made by digital assets that run on it. Hence, ‘Distributed Ledger Technology’ makes transactions made by any digital asset unalterable and transparent through decentralization and cryptographic hashing.

What is behind Blockchain Technology?

A perfect analogy to understand Blockchain a little better before we dive into its specific jargon is to think of it as a Google document. When we create a Google doc & grant other people access to it, we aren’t sharing a copy of or transferring the document, but simply allowing them access to the same original document at the same time. Everyone has access to it, everyone can make modifications to it in real-time, and everyone can see the changes that are being made. This is what is meant when we say Blockchain Technology is decentralized & transparent.

Firstly, think of Blockchain as two separate words: Block & Chain. A blockchain consists of several individual blocks; these blocks contain information regarding all the past and present transactions. Hence, each block is like a file that contains a ledger of transactions. Upon joining together, these blocks form a connected network or a chain, hence the name Blockchain.

To understand the fundamentals of how a Blockchain works, let’s dig a little deeper into the technology. The concept comprises three important elements which are blocks, nodes, and miners.

Blocks

Every chain consists of multiple blocks. Think of these as permanently recorded data files.

Nodes

Any time a crypto token transaction occurs, it is verified. All the participants in the blockchain, known as ‘network nodes’, verify the transaction, and hence, each transaction is verified in a decentralized peer-to-peer manner.

Miners

Now let’s talk about how miners play their role in this. The two primary purposes that miners serve are first, the creation of new blocks on the blocks on the chain & second the validation of all transactions that occur on the chain which gives blockchain its ‘trustless’ attribute. Similar to traditional mining, cryptocurrency mining is time-consuming, costly, and occasionally rewarding. They use special software to solve complex math problems (to a point, it is partly a guess¹), and have financial rewards in the form of crypto tokens in return for their services.

These items create a trust-less environment. Meaning, a third party or intermediary will not validate or confirm transactions. All validation is done by the community, which makes this decentralized!

Characteristics of Blockchain Technology:

There are quite a few exciting characteristics of Blockchain. Let’s take a look at some of the most vital aspects that makes this technology so special.

Immutability:

Immutability means that it cannot be reversed or altered in any way once it is completed. What this essentially means for blockchain is that all transactions on the blockchain once made and added to the ledger are permanent. This makes the whole space an unalterable network and makes it nigh impossible for anyone to change, hack or cheat the system.

Decentralization:

Perhaps the most crucial aspect of Blockchains among all is their decentralization. This eradicates the need for assets on the blockchain to be governed or regulated by a single authority, government, or central bank. Rather a group of nodes maintains the network making it decentralized. This grants freedom to these assets and they are hence controlled by the protocols of supply & demand. This is what makes cryptocurrency so attractive to some people; due to the lack of middlemen, they can avoid hefty fees while making transactions, especially those related to international payments.

Security:

Keeping your hard-earned assets under tight security is among Blockchain Technology’s foremost concerns. The combination of immutability & decentralization already ensures that. However, blockchain employs another layer of protection for its users, using Cryptography, a complex algorithm, which acts as a firewall against attacks. In order to tamper with your data, a hacker will have to simultaneously hack all the nodes and blocks that contain your data, and that’s well kind of impossible!

Pseudo-Anonymous:

The ownership of Cryptocurrencies conforms to a wallet ID instead of an individual’s name and his bank account. Hence, blockchain technology allows some anonymity to its users and enables them to purchase merchandise anonymously. Since every transaction is transparent on the blockchain, every transaction is trackable. Even better, since wallet IDs are randomly generated 256-bit hashes that do not contain personal information, no one can know or use the wallet, unless explicitly told.

Faster Settlement:

As compared to our traditional banking, blockchain allows way faster settlement of payments. This is true especially in the case of international transactions which sometimes take days. Whereas blockchain-powered assets such as Cryptocurrencies are to make the same transactions within mere seconds! What’s more, is that this added speed is provided with just a minimal fee. So with blockchain, you’re getting a better service at an even cheaper rate! No wonder banks are so against them…

Innovative opportunities Blockchain Technology has created:

Now that you have a pretty good idea about Blockchain Technology, what do you think? Is the creation of Cryptocurrencies all they’re capable of? Or does it offer opportunities beyond comprehension?

NFT’s and Cryptocurrencies are just the beginning; this era of digital assets is changing the world slowly and gradually in many ways. Businesses worldwide are always looking to conduct their transaction more efficiently and cost-effectively, and blockchain provides the exact solution.

Firms around the world are climbing onto this bandwagon and positioning themselves in a way that helps them capitalize on the opportunities provided. Let’s take a look at a few of those firms.

Hub-Star

Hub-star is a new firm that allows people to store their data on a revolutionary decentralized storage location. Through Hub-star’s platform, personal data is encrypted then stored employing blockchain technology. This gives you both secure access and storage to your data. To take it further, they estimate that actionable data collected by a single individual is worth $32 to a company. Hub-star allows people to take control of their data and sell only actionable data to these firms directly. This essentially allows them to capitalize on their data while keeping their privacy intact!

FNDZ

Another new firm, FNDZ, is one of the best Defi copy trading platforms. Designed specifically for Cryptocurrencies, it allows for copy/social trading happening in a genuinely decentralized way. Based on the Binance Smart Chain and Ethereum, the FNDZ platform enables its users to make up for their lack of experience and effort, and make profitable trades by imitating the trades made by their favorite traders.

Firms such as these are just the beginning. Just you wait, as the revolution has just begun!

Conclusion:

To conclude, despite my optimism whether these digital assets are really the future is yet to be seen. However, my optimism isn’t entirely baseless as the exponential rise seen in blockchain-powered assets isn’t just based on hype; its real-world applications have started taking root. Albeit, some people are still finding it hard to accept the technology that supports digital assets that have no tangible existence, I believe blockchain technology has more potential than Cryptocurrencies themselves!

Let us know what you think, and whether this article has been helpful/not helpful. As a reminder, we are not financial advisors or life coaches. You just might see some success in the things we say don’t work or no success in the things we say do. We are always open and hopeful for friendly discussion or constructive criticism and can’t wait to hear your thoughts on this article!

Helpful Links (superscript number references, also known as sources)

1. Bitcoin Mining is NOT Solving Complex Math Problems [Beginner’s Guide] – https://braiins.com/blog/bitcoin-mining-analogy-beginners-guide

Hamza Bashir

Hamza has been passionate about the subjects of finance, investment & the stock market ever since he read his first book encompassing the 3 respective niches: The Intelligent Investor by Benjamin Graham. He’s been investing, analyzing, and writing articles on the stock market, cryptocurrencies, real-estate & commodities for over 2 years.