Blockchain is essentially a “chain of blocks.” This might lead you to ask – what kind of chain and what kind of blocks? Blockchain’s name comes from its structure. Whenever the blockchain database gets updated with new information (transaction or another type of update), a new block is formed into the system, and all the database replications from all the servers display this new block in the same way (as a single system). Once the blocks multiply, it resembles a chain – thus the title “blockchain”.
To explain this point further, Blockchain is a technology in which a database/ledger is distributed and shared among different computers and servers, suggesting that it has no single entity controlling it. This database allows updates, and when it updates, all the database replications from all the computers/servers get updated.
Why is this technology revolutionary? Because of its many benefits:
- Security – it’s difficult (and experts say almost impossible) for hackers to attack such a database. If a hacker would damage or manipulate the database from one server, the rest of the replications from other computers would hold the valid and true version anyway, which will help the blockchain technology easily compensate the damage. Hackers cannot attack a thousand servers at once.
- Blockchain destroys monopoly – there is no single authority in a blockchain system, which means there is no need for a third party to play boss (for example, government or banks). Blockchain is self-sufficient and is based on consensus among its community members.
- Transparency – blockchain allows for true transparency. When an update happens within the system (a transaction for example), all the database replications get updated so everyone can see the latest transaction. There is no possibility of faking a transaction since the other databases won’t display it or get updated. A transaction is confirmed when all the servers show the same transactions and occurrences.
- No intermediaries – building on the last point – blockchain reduces the need for a middleman. A currency based on the blockchain system would not need any bank, central bank, regulators, etc. The new coins are issued based on rules rather than by a central bank, and the transactions happen peer-to-peer rather than with the bank’s intervention. It also means a system that is much more affordable.
There are more benefits that come with a blockchain system. In fact, using blockchain technology is not limited to Bitcoin, as many people tend to think. It’s a much more flexible concept. It can be used for e-governing, e-voting, supply chain management, trade, product tracking, data management, and many more.
Ethereum is a good example of blockchain’s great potential. The platform allows smart contracts – a way in which people can negotiate contracts without third parties.