Generally, blockchain is associated with Bitcoin or other cryptocurrencies. But it has more to it than just being the facilitator for cryptocurrencies. It is more of a distributed database controlled by a crowd, rather than a single agency like a bank, a government or any other third party, thus giving a whole new meaning to decentralization.
Here’s how blockchain works
Whenever there is a request for a transaction, it is sent to a Peer-to-Peer network of computers which are generally referred to as nodes for validation. Algorithms are used to validate the transaction as well as the user’s status. After the transaction is verified, it is combined with other transactions in order to create a block of data for the digital ledger. The newly created block is added to the existing blockchain to complete the transaction. A validated transaction can involve cryptocurrencies like Bitcoin, records, contracts or other information.
As the blockchain works on a large network of computers, no single person can have control over its history, making it tamper proof which isn’t possible with a centralized system. Instead of having a central authority or a third party to trust one another in a transaction and fulfill the needs of a contract, peer review in the blockchain system guarantees that for us in a secure and automated fashion.
How do cryptocurrencies use the blockchain?
Different cryptocurrencies use blockchain in slightly different ways. In the case of Bitcoin, the most popular one of all the cryptocurrencies, a new block is created every ten minutes. The newly created block then certifies new transactions that may have taken place. For the validation of new transactions, “Proof-of-Work” has to be submitted by the miners that require high computing hardware. Proof-of-work is an algorithm that requires its users to perform some kind of work to participate in the verification of the block and the transactions it contains. Once the confirmation on the transactions in a block is received, the Bitcoin transaction is considered to be complete.
However, the catch is, the ten-minute long block creation time can result in backlogs as the Bitcoin transactions increase. This has been somewhat resolved with other cryptocurrencies where the block creation time is reduced. For instance, two and a half minutes for Litecoin and just about 10-20 seconds for Ether (The currency of Ethereum). But the faster rate at which blocks are created can increase the chances of error in the transactions.
Other areas where Blockchain Technology works
Any asset that can benefit from a decentralized system is a use case for blockchain. Smart contracts which are blockchain based contracts that hold both the parties accountable on specific criteria which get discharged only on their fulfillment have multiple use cases across various sectors. Right from warranty claims to insurance claims, identity verification, protection of intellectual properties, Internet of Things (IoT) and many others, the value that blockchain can add is incomparable.
The Future of Blockchain Technology
Undeniably, a game changer – Blockchain technology has a long way to go. Though the possibilities of the blockchain is huge,it is years off from reaching its full potential at the enterprise level.The technology is at its nascent stage so as to entertain the large volumes of transactions required to support enterprise level applications. The enterprise level applications also require establishing of governance rules which may take years to negotiate. If these hurdles can be overcome, there will be widespread use of enterprise blockchain applications.
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