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What is Blockchain and How Does it Work?
Let’s start this block (chain) party off!
Blockchain is a specific type of database which relies on a unique information storage method. The global blockchain market is expanding exponentially, and it is predicted to grow from $3 billion in 2020 to $39.7 billion by 2025. So if you stumbled onto this article wondering ‘what is blockchain?’ or ‘how does blockchain work’?, you’ve come to the right place.
At the moment, blockchains are primarily used as digital ledgers of transactions, even though they are capable of storing other types of information. According to Lexico dictionary, “blockchain is a system in which a record of transactions made in bitcoin or another cryptocurrency are maintained across several computers that are linked in a peer-to-peer network.” Blockchain was invented in 2008 by a team using the pseudonym name Satoshi Nakamoto, to serve as the public ledger for cryptocurrency Bitcoin. Even now, blockchains are considered payment rails.
How does blockchain work?
True to its name, blockchain is an accumulation of “data blocks” that are periodically added, one after the other. A chain of information exists between these blocks, and as ownership of the data changes, new blocks are added. Besides recording the exact time and pattern of transactions, these blocks are securely linked together, so that no alterations can be made between existing blocks. Cryptography protects the irreversible chain of transactions.
Where can blockchain be used?
Data of any kind can be stored on blockchains, and there are two types. First, public blockchain networks, such as Bitcoin, and second, private networks (like decentralized peer-to-peer networks). Some of the most common uses blockchain uses are:
- Currency - blockchains form the backbone of cryptocurrencies like Bitcoin. When people buy, spend, or trade currencies, each transaction is recorded in blockchain.
- Banking and financing - blockchain allows transactions to be verified outside of scheduled business hours, thereby speeding up transaction processing. Additionally, using blockchain banks can exchange funds faster and more securely.
- Supply Chains - blockchain improves communications between global vendors and identifies issues as soon as they arise.
- Voting - blockchain technology might someday help modernize voting by making the process safer and more efficient, resulting in larger turnout.
- Healthcare - blockchain-enabled storage of patient records offers improved security over current methods. Encoding personal health records and storing them in a blockchain with a private key ensures privacy, by allowing access to specified individuals.
Conclusion: What is blockchain and how does it work?
Blockchain technology is a solution for more accurate, efficient, and secure management and use of online data. Although it is mainly used for cryptocurrency and baking today, other institutions are beginning to realize its many benefits, as evidenced by the blockchain industry’s rapid growth.
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