What Is Blockchain in Simple Words

What Is Blockchain

Performing various operations with currency, securities and official business papers, information, etc., a modern person has to involve third parties in these processes – intermediaries who would certify documentation, deal with its execution, and verify authenticity. Due to the fact that many specialized companies have been convicted of dishonesty in the provision of such services, it becomes necessary to look for an alternative that could be more reliable. In this context, it becomes necessary to talk about what blockchain is and what role it plays in these processes.

If we explain what a blockchain is (Blockchain) in simple terms, then it can be presented as a kind of diary consisting of events and incidents of real life. This record book is jointly owned by several owners who contribute information to it on equal terms. Pre-made records cannot be changed or deleted at all. The diary “works” according to the principle: what is written with a pen cannot be cut down with an ax.

Blockchain and Cryptocurrencies

Blockchain and cryptocurrencies

On the basis of the blockchain, transactions made with cryptocurrencies are being built today. The first application of the technology took place in 2009. During this period, it was used in relation to a cryptocurrency called Bitcoin in order to save the history of transactions.

Due to the asymmetric hashing algorithms that are used in the technology under consideration, system participants get the opportunity to perform transfers of some internal exchange unit (bitcoins, litecoins, etc.). These operations, due to the properties of the blockchain, receive absolute security. The user has the right to transfer a certain amount of funds exclusively from a personal account. The list of completed transactions exists in a single copy, and it is not possible to replace it with another one.

And the cryptocurrency project called Ethereum provides participants with an additional opportunity – in addition to the implementation of transactional operations, to establish the procedure for their processing. This becomes possible thanks to a special program code that is integrated with blockchain technology and implemented by all users of the system.

To purchase one of the cryptocurrencies, such as Bitcoin or Ethereum, and try blockchain technology in action, you can use a reliable crypto exchange, such as Binance or Huobi.

In fact, to buy / exchange cryptocurrency, you only need to follow a few simple steps:

  1. Decide which cryptocurrency you are buying. Choose where you need to credit the cryptocurrency (online wallet, wallet on a cryptocurrency exchange, etc.)
  2. Go to the exchange service
  3. Select the currency you are giving away and the cryptocurrency you are purchasing.
  4. Make an exchange following the instructions on the site.
  5. Within 15 minutes you will already become the owner of the cryptocurrency. Everything is simple.
  6. If you have any questions, you can ask them in the online support chat on the site.

The Essence of Blockchain Technology

What is blockchain in simple words?

Let’s take a closer look at what a blockchain is. It is a database that provides distributed storage of information related to any sphere of life. Data protection is organized using mathematical algorithms so that any outside information is inaccessible, and the possibility of their theft, change and deletion is zero.

Blockchain is a system that provides an opportunity to independently check all participants in the transaction, without involving intermediaries and without showing priority trust to anyone.

Technology features:

  • Failure resistance. This is facilitated by a distributed type of information storage without a single management center. If any individual nodes of the system fail, the entire database will remain intact and functional;
  • Simultaneous participation of a large number of users. This possibility is also provided by distributed data storage. Each of the participants in the system can view information, simultaneously acting as both its custodian and source;
  • Data uniqueness. Blockchain technology has overcome one of the biggest drawbacks of distributed systems – the threat of multiple different copies of data if changes are made to them by one of the participants in the system. The blockchain uses PoW and PoS algorithms, on the basis of which the validity of each database instance is confirmed;
  • Availability of binding information to time. Data blocks are combined sequentially into a chain, where the very first of them is the initial one, and each subsequent one is connected from the end. Changing the order of blocks is completely excluded;
  • Falsification resistance. In order for the information entered by one of the users to be accepted in the database, an agreement must be obtained from 51% of the total number of its participants. If the data is not approved and confirmed, it is perceived as false and blocked by the system.

Based on the technology under consideration, systems can be created for the implementation of various operations, even if the participants in the transaction are not familiar and have neither reason nor prerequisites for mutual trust.

What Is the Mechanism of the Blockchain?

How blockchain works

All digital records are grouped into blocks. The latter are then connected chronologically, as well as cryptographically, into a kind of chain. For this, mathematical algorithms are used. Each previous block consists of a set of records and is associated with the next one. If another new block appears, then it can be attached to the chain only at its end.

Encryption (so-called hashing) involves many computers that operate within the same network. When, as a result of the settlement operations performed by them, the same result is obtained, the block will be assigned a digital signature, which is unique. After that, the registry is updated simultaneously on all connected computers. A new block will appear, which can no longer be changed.

Blockchain reduces the possibility of hackers to zero. This effect is due to the fact that an attacker will need to organize one-time access to copies of the database created on the computers of all participants in the transaction. And since it is neither physically nor technically possible yet, it is realistic to ensure the safety and integrity of personal information. Due to the irreversibility of the hashing process, if any modifications are made to the data, the documents will have changes in digital signatures. The discrepancy will be immediately detected in the system, as it will signal.

Operating Principles by Example

To visualize what a blockchain is and how it works, we can draw an analogy with a certain FTP shared folder. All electronic files that are placed in it are fully visible, and information is also available about who, when and in which subfolder this or that file was uploaded and for whom it was intended.

But everyone who views the folder has a different type of access to the data that is stored in it:

  • one user can only be entitled to view the list of electronic files;
  • and the second is to be able to download information to your computer.

A good example: several users of the system see that 100 thousand rubles were transferred to the account of an electronic wallet with open statistics. The transfer was made by subject A in favor of subject B. The latter “transferred” these funds to another account. Users A and B can choose for themselves both anonymous names and indicate real ones. All other participants, except for these two, have the status of exclusively observers of the operation, and only the direct addressee, subject B, will have access to financial resources.

Creating a blockchain wallet means ensuring the open nature of the transaction. Everyone who is its participant will have the information duplicated. But it will be stored in an encrypted version so that it cannot be changed or forged.

The advantage of the technology is that it works on the principle of decentralization. None of the participants can claim the role of a control center, and therefore will not get the opportunity to single-handedly hack it and falsify information. As a result, even if the computers of 9 out of 10 participants in the transaction are damaged, the chain will not lose its functionality, the data will remain completely intact, and access to view it will not be closed.

Where Else Can the Technology Be Applied?

Where else can blockchain technology be used?

Since its inception, the technology has managed to turn from a novelty incomprehensible to most into a tool used by large banking structures, corporations and even entire states. An example is the fact that at the end of 2016, Bank of America and Microsoft Corporation announced that they were starting to develop a financial blockchain platform.

In the same year, during the fall, the first transaction was made, in which real, and not cryptocurrency, was used. A letter of credit in the amount of $100,000 was arranged. The participants were Wave start-up (Israel), Barclays bank (Great Britain), Ornua (Ireland), a manufacturer of fermented milk products. The use of the blockchain also significantly reduced the time required for processing and checking documents, and invested in an interval of 4 hours.

December 2016 was marked by another letter of credit transaction carried out using the technology in question. Two parties took part in it – S7 and Alfa-Bank. At the same time, the European Parliament came up with the idea of ​​organizing and conducting an electoral process using blockchain.

At the present stage of its development, the technology is being introduced and tested in various areas of life. Due to such advantages as security, reliability, security, blockchain is considered the optimal basis for many services where cases of fraud or data theft are possible.

In particular, in the area:

  • jurisprudence;
  • logistics;
  • micropayments;
  • banking operations;
  • medicine.

So, using blockchain technology, you can provide the following data:

  • change in the patient’s blood pressure;
  • election voting information;
  • list of protected research papers;
  • the degree of environmental pollution;
  • playlist with video or audio files;
  • notary service;
  • information about the quality of food composition, etc.

The introduction of technology can become the mechanism by which it will be possible to completely avoid issuing loans by banks to customers who have provided a false package of documents. Also, with the help of the blockchain, it is quite possible to prevent fraudulent procedures when purchasing mortgaged apartments, cars in installments. Museums, galleries and other centers of art and creativity would be able to track the location of stolen jewelry, antiques, paintings, etc. And blockchain in elections is an effective way to say goodbye to massive falsifications and manipulation techniques.

The modern blockchain boom in the world testifies to the effectiveness of the technology. Using it as a basis, businessmen from different industries create their own startups, and even officials of international structures have paid attention to it. In the domestic society, few are still aware of what blockchain is, but interest in it is growing.

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