What is Blockchain? – Learn more about this technology and its main applications

What is Blockchain? Blockchain technology is the great innovation that made Bitcoin possible. BTC was its first application. In the words of Satoshi Nakamoto, with the Blockchain it became possible:

“[…] that online payments were sent directly from one entity to another without having to go through a financial institution”. 

This means digital transactions without the need of a third party, such as a bank or a government. In addition to this, the anonymity, speed, and low transaction costs that have made Bitcoin – and cryptocurrencies in general – a resounding success. At its beginning, BTC was worth cents. Today its price is in the five digits.

However, other applications for blockchain technology were soon developed, such as software, games, insurance, accounting, among others. Today, there are master’s degrees and specializations in the area.

In this article, the Cripto InterCambio blog will further explain what blockchain is, and some of its main applications.

What is Blockchain?

Blockchain is literally a digital chain of blocks. Let us explain the concept by exploring each of these terms.

Blocks: These are blocks of digital information. Theoretically, blocks can be made by any type of file that can be stored on a computer.

In the case of Bitcoin, blocks store information about transactions. Details such as the sender’s and recipient’s addresses, as well as the quantity, are stored in the blocks. Each block size is 1 MB and can store information from thousands of transactions.

Also, the block contains a number known as hash. A hash is like the “ID” of each block, and it ensures its uniqueness.

Chain: This is a kind of public database on which information about each of the blocks is stored.

The concept of blockchain goes hand in hand with that of decentralization. Since the network is public, the blocks are not verified by a central computer, but by all the computers that have the blockchain software.

Why a chain? The blocks are structured like a “pearl necklace”. After the first pearl is inserted, then the next one is added, and so on. Each block has a fixed position, which cannot be changed in any way.

That is why blockchain technologies are so safe. If one of the computers tries to trick the system by changing a block or validating transactions that were not made, then the other computers on the network will easily notice the error and report it.

In addition, data immutability is excellent for multiple applications, as we will see later on.

Blockchain Applications

Cryptocurrencies

One of the main uses of the blockchain is for the development of cryptocurrencies, not just for Bitcoin. Although there are small variations in the architecture of altcoins (for example the size of blocks, how to validate transactions, degrees of anonymity, etc.) the logic behind the structure is similar to the one described above.

Online Games

Blockchain technology works well in online gaming. Proprietary companies can create their own tokens, which are then used to bet, buy equipment in the virtual universe, grant access to VIP clubs and so on. All this without a payment company mediating the transactions.

Digital IDs

Blockchain is an excellent option for generating digital documents. Since its blocks are immutable and can only have one identity (the “hash”), it is perfectly feasible that these blocks could store information about national/personal documents: birth certificate, passport, driver’s license, etc.

Blockchain could completely digitize the document creation process, avoiding the bureaucracy responsible for managing that data.

Loyalty Programs

Large companies can build customer loyalty with their own tokens. For example, someone who usually shops in the same store could earn special tokens, and exchange them later on for discounts, gifts, airline miles, etc.

Copyright

The idea of large blocks of public and unalterable data could modernize the way we treat copyright. Blockchain can be used to associate a song, a photograph, a book or whatever, and a unique ID. This would be more dynamic than the current process, which depends on national bureaucracies.

Cloud storage

Data storage could be revolutionized by blockchain in the coming years. Instead of storing your data on a large company server (Drive, Dropbox), it would be possible to rent hardware from individual users.

Blockchain encryption technology would keep this content anonymous. Also, it would fragment the data between several computers.

Freelancer Work Platforms

Blockchains are excellent for direct agreements between two parties. Smart contract technology would enable the development of algorithms mediating the relationship between the service provider and its customer.

This could eliminate both the mediation of payment companies – since payments could be made with cryptocurrencies – and the mediation of platforms, which can absorb up to a quarter of freelancer’s income.

Conclusion – Blockchain still has a lot of room to grow

The cryptocurrency market was the first testing ground for blockchain technology, and it was very successful. More than ten years after the launch of Bitcoin, no one has been able to defraud this currency security system. As a result, trust and interest in this technology has only grown.

Besides crypto, we have seen blockchain initiatives flourish in other areas. There are countless blockchain games on the Internet, as well as startups that promise the use of this technology to solve hundreds of real-world problems. Countries, such as China and Germany, have invested great resources into this field.

This is just the beginning!

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