by Christie Olsen, Michael Penfield on May 27, 2021
Chances are you’ve heard terms like cryptocurrency, Bitcoin, and blockchain before; and chances are you’ve also heard many misconceptions about them that can cause confusion about the world of blockchain.
That’s why we’re going to break down what a blockchain is at its core, how it’s related to cryptocurrency and Bitcoin, and how it benefits investors.
Blockchain technology is often thought to be synonymous with cryptocurrencies like Bitcoin and Ethereum. In reality, cryptocurrencies are only one use case for a blockchain that have paved the way for the development of blockchains.
The applications and uses of blockchain technology have spread far beyond cryptocurrency. Blockchains are being used to transform industries including healthcare, travel, ride-sharing, education, entertainment, finance and more, in order to efficiently record and verify high volumes of digital data and transactions.
Blockchain technology may seem complex and complicated, but at its core, it’s a simple concept. Think of it as a computer filing system - or database - that allows a group of connected computers to maintain a single, secure, and updated ledger. The database is managed automatically using peer-to-peer networks to verify and time-stamp all entries in the ledger. The ledger contained within the blockchain is immutable, which means the data entered is secure and irreversible. All data is shared among peers with complete transparency, and all network participants can access its contents.
Both historically and even today, most companies maintain their own infrastructure and databases where they restrict access to write and read. In the example of a bank, if you wanted to move money from one bank account to another, it would require both banks to communicate with one another, and for both banks to separately update and record the transactions in their respective centralized databases. This requires redundancy and often introduces unnecessary costs, latency and other frictions. Enter: Blockchain technology and it’s answers to these frictions.
Blockchain includes a chain of data maintained by a myriad of computers spread across the globe. It consists of three essential elements: nodes, blocks, and miners.
Nodes can be any electronic device with a copy of the blockchain data. Nodes communicate with one another to ensure they are all on the same page. And no one computer or organization can own the chain. The nodes maintain copies and keep the network functioning.
Blocks include data that are linked with cryptography. Each block contains transaction data, a time-stamp, and a cryptographic hash of the previous block. The cryptographic hash protects each block as a unique password, calculated with a complex mathematical algorithm based on the data within the block. If incorrect data is input into a block, the password changes, and the block is rejected. This checks and balances process is the responsibility of the miners.
Miners, nodes who independently verify each recorded transaction to confirm the work of the original miner, collect and verify transactions. Verified information may include the name of the buyer or seller, the date or cost of the transaction, and any agreements associated with the transaction. Once the confirmation process is completed, it is recorded into the ledger. The blocks are then connected to form a chain.
This complete process is irreversible and usually completed often within a matter of minutes.
If you’re an investor who wants more access and control all of the time (and really, who doesn’t?), joining a platform that’s leveraging blockchain technology can bring you the following benefits:
These benefits and others open the door to fully-digital end-to-end services that reduce intermediaries, are less limited by jurisdiction, reduce fees and fraud, and increase accuracy and transparency.
Contributing Writers: Michael Penfield, Christie Olsen