What is Blockchain Technology? Here's a simplified explanation!
Updated: Dec 30, 2021
The word may seem a tad bit complicated for someone who has never heard of it, but it is definitely the future and you'll need to understand it sooner or later. For those of you who want to learn about it, this is for you.
Blockchain Technology. Pretty sure you’ve been hearing it more often now than ever. It is probably one of the most talked-about, yet least understood thing of all time.
As blockchain technology evolves and becomes more common, it will be super beneficial for you to learn about it in order to be prepared for the future. The easiest way to explain Blockchain is probably using an analogy (cause who doesn’t love a good analogy). We’re going to use the Google Docs analogy formulated by William Mougayar.
For starters, think about Microsoft Word. Working on it meant a lot of back-and-forth communication. When someone worked on a document, the recipient had to wait for the author to return the file before making any changes. Only the person working on the document could see the comments, notes, and other changes made to it.
Cue Google Docs. When we make one and share it with a group of people, it is distributed rather than copied or transferred. This creates a decentralized distribution chain in which everyone has simultaneous access to the document. No one is locked out while waiting for changes from another party, and all changes to the document are recorded in real-time, making it completely transparent.
And that, in a nutshell, is how blockchain works. To be extremely specific, it is a structure that stores public transactional records, also known as blocks, in several databases, referred to as the "chain," in a network connected by peer-to-peer nodes. Anyone can perform transactions without the requirement of a central clearing authority (such as banks). Here are a few features of blockchain technology that you should absolutely know:
Improved security - Blockchain prevents fraud and unauthorized activity by creating a record that cannot be altered and is encrypted end-to-end. Privacy concerns can be addressed by anonymizing personal data and using permissions to restrict access.
Increased efficiency and speed - Transactions can be completed faster and more efficiently by streamlining these processes with blockchain. Documentation and transaction details can be stored on the blockchain, eliminating the need to exchange paper.
Reduced Costs - Organizations can save money by eliminating the need for third-party vendors by utilizing blockchain. There is no need to pay for vendor costs because there is no centralized player.
Traceability - The exchange of goods is recorded using blockchain, so you can get an audit trail to learn where a specific asset came from.
Now don’t get confused with blockchain and cryptocurrency. Cryptocurrency and blockchain are not the same. Blockchain is a system or a technology, while cryptocurrency is an application running on it. Let's take the case of Bitcoin. Most people believe that Blockchain and Bitcoin can be used interchangeably, but this is not the case. Blockchain technology is capable of supporting a wide range of applications in a variety of industries, including finance, supply chain, manufacturing, and so on, but Bitcoin is a currency that relies on Blockchain technology to be secure.
Cryptocurrencies are merely digital currencies (or tokens) that can be used to purchase goods and services. Crypto, like a digital form of cash, can be used to purchase anything. It employs encryption techniques to control the creation of monetary units and to verify fund transfers. Bitcoin, Solana coin, Shiba Inu coin, and Dogecoin are just some of the many crypto coins out there, but more on that later!
Blockchain and its applications, such as cryptocurrencies and NFTs, will be the next big thing that all creators and entrepreneurs should jump in on. A good way to start would be to learn these fundamental concepts. The Web 3.0 era is coming your way, so hop on before anybody else!