Blockchain is the technology that makes NFTs and cryptocurrencies like Bitcoin possible. And although it’s definitely a buzzword these days, few people actually know how blockchain works.
In this quick guide to blockchain technology, we’ll demystify this technological innovation and explain how it works and how it could be useful for much more than investing in crypto assets.
First off, let’s give a clear definition of what a blockchain is.
A blockchain is a series of connected digital ledgers distributed to and maintained by a network of computers (aka nodes). The ledgers contain vital information about transactions, and blockchain technology uses cryptography (think: codes) to keep the information secure.
Information stored on a blockchain cannot be edited, deleted, or destroyed.
Every time a transaction occurs on a blockchain, it’s verified and time-stamped by the network of nodes, and a record of it is added to the chain of information.
Another term for this process is Distributed Ledger Technology (DLT).
Because blockchain technology is decentralized, there’s no third party such as a bank or government needed to handle transactions.
Computer scientists have been discussing the concept of blockchain technology for 40 years. However, the theory was put into practice in 2008 by the pseudonymous Satoshi Makamoto in his academic paper “Bitcoin: A Peer-to-Peer Electronic Cash System.”Although blockchain technology was first applied to Bitcoin, thousands of cryptocurrencies and non-fungible tokens (NFTs) now depend on DLT.
How Does Blockchain Work?
I know, it’s complicated.
Let’s walk through a theoretical blockchain transaction to give you a better idea of how blockchain or DLT works.
- You buy some Bitcoin through a cryptocurrency platform like Coinbase.
- The transaction information is transmitted to a network of thousands of nodes, or computers, located around the globe.
- The node network starts “mining,” or using computer algorithms to verify the transaction.
- Once the transaction is confirmed, details of the transaction are added to a block of information on the chain.
Are Blockchain Transactions Secure?
Blockchain transactions are relatively secure.
Now, blockchain technology isn’t 100% safe from hackers. However, because it’s decentralized, it’s not easy to hack into a blockchain.
That’s because, in order to alter the chain of information, a hacker would need to break into more than half of the nodes with the same distributed ledger. And there can be thousands of them!
The larger the blockchain network, the safer the data. That makes major players like Bitcoin and Ethereum safer than “private” blockchain networks.
Of course, if you’re investing in any kind of cryptocurrency, make sure not to give away your wallet key credentials to anyone. There are loads of phishing scams out there — be smart and aware!
Alternative Uses for Blockchain
OK, so we know that most cryptocurrencies and NFTs use blockchain technology.
But there are other uses for DLT as well.
Any organization or company that needs to store large amounts of data can benefit from using blockchain. Walmart (WMT), Pfizer (PFE), and IBM (IBM) already use blockchains to manage transactions and inventories.
Healthcare providers can also use blockchain technology to securely store patients’ medical records. Because the records will be protected by encryption, there’s no way to alter them once they’ve been verified.
There’s also huge potential in using blockchain for keeping track of property records and legal contracts. In fact, the verification that DLT transactions involve could help eliminate the need for costly attorney, mediator, or notary services.
Blockchain could also be used to create a more secure voting system, in which it’s practically impossible to tamper with ballots.
Blockchain Pros and Cons
- Blockchain transactions are secure and private
- Decentralization makes it nearly impossible to tamper with blocks of data
- Blockchain technology efficiently eliminates the need for a third party in transactions
- Blockchain eliminates human error in record-keeping
- Mining blockchain data can be expensive and energy-intensive
- Blockchain tech can be slow — it takes 10 minutes to add a block to the Bitcoin blockchain
- There’s uncertainty about whether blockchain transactions will be regulated
The Bottom Line
Blockchain technology has the power to revolutionize not only how we handle money and transactions, but also how we store sensitive data.
Of course, the most popular use of blockchain today is with cryptocurrencies. A lot of people have made big money on crypto trades, making it one of the hottest trading niches.
If you’d like to get started trading cryptocurrencies — or would like a helping hand — I recommend signing up for a free membership to Titan Alerts. You’ll receive daily trading intel and education from our team of experts.