2. What is Blockchain?
The simplest way to understand blockchain is to first find out what problems blockchain technology aims to solve. The key issue solved by blockchain technology is centralization. To explain the issues presented by centralization, we’ll take an example from the current financial climate.
Let’s say that you’re currently travelling abroad on vacation. During your travels, you lose your wallet and run out of funds. Fortunately, you have a friend who lend you some money — let’s say $1,000.
Your friend, although wealthy and generous, is technologically illiterate and consequently relies on telephone banking to manage his finances. Your friend calls his financial institution and requests that his account manager transfer $1,000 from his account to yours. The account manager checks the bank register to ensure your friend has enough capital to facilitate the transfer, and then sends it to your account.
Though this process results in capital being transferred from your friend to yourself, both you and your friend trusted the bank — a centralized third party— to facilitate the transfer. This has been the case for almost all recorded financial history and, although it works, it does present a number of issues.
Centralized systems such as banks can suffer from any number of issues, such as corruption, the destruction of the storage media on which financial information is stored, and more. Relying on centralized third parties can also have a significant negative impact on society as a whole — the 2015 Greek financial crisis resulted in millions of people suddenly unable to withdraw any cash from ATMs, plunging the country into chaos.
Centralized institutions can also dictate terms to users that cannot be challenged. International wire transfers with current financial institutions, for example, are costly and slow.
Blockchain technology provides a means of creating new systems— financial or otherwise— that are immune to the issues that plague centralized organizations and platforms.
The basis of blockchain is an immutable, constantly-growing record of transactions and balances that can’t be tampered with and is completely transparent. Blockchain networks are run by ‘nodes’, or computers connected to the network that download a copy of this record and collectively participate in its maintenance and verification. We’ll explain how this works in more detail further in this guide.
Blockchain’s 5 Common Values
Blockchain technology delivers five key features that solve the issues presented by centralized systems. While blockchain-based platforms differ in their methodology and approach to the implementation of blockchain, they all share these common values.
Security – Centralized platforms are all extremely susceptible to tampering, either from outside or from within an organization. Fiat currencies can be disrupted by central banking authorities who are able to control supply rates or destroy physical documents of ownership. As blockchain technology is completely decentralized and is disrupted across all computers across the network, a blockchain system is virtually indestructible.
Transparency – Blockchain-based platforms are almost all open source in nature, which means anybody is able to analyze the code that comprises a blockchain network. This allows users of blockchain networks to trust them implicitly as code is not subject to the desires of the individuals who control a centralized system, nor is it prone to user error. Similarly, all of the transactions that occur on a blockchain network can be independently verified by anybody.
Immutability – The records that compose a blockchain system, referred to as a ledger, are protected by cryptography that is essentially impossible to crack. This property allows users to verify that transactions have taken place almost immediately without needing to trust in a third party for arbitration.
Borderless Accessibility – Blockchain technology is a truly international platform that allows anybody in the world to access blockchain-based platforms and services, regardless of location. New blockchain-based lending platforms, for example, are now providing startup capital to businesses in developing countries without the need for intermediaries.
Price & Speed – Transactions between traditional financial institutions are typically expensive, especially when international transfers are concerned, and can take days to complete. Cryptocurrencies built upon blockchain architecture can be transferred near-instantaneously and, depending on the state of blockchain network, can be sent with minimal fees.
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