“What is blockchain technology?”
The blockchain technology represents a milestone for the decentralised Web 3.0, and it was ﬁrst described in 2008 – under the pseudonym Satoshi Nakamoto – in the Bitcoin white paper.
One of the first blockchain-based applications was the cryptocurrency Bitcoin. Cryptocurrencies originated in the wake of the ﬁnancial crisis in 2008, where a lot of people lost conﬁdence in banks and the ﬁnancial system. Nowadays, thousands of different cryptocurrencies are in circulation.
These digital or virtual currencies are decentralised and not influenced by the banking industry – and they can be used as a payment method, just like cash or credit cards. Cryptocurrencies can be stored online, in app-like software wallets, or offline, in hardware wallets. Every cryptocurrency wallet has two keys that are mathematically related: the public key and the private key. The public key is similar to an e-mail address or account number, and it identiﬁes your account on the network. The public key is used to receive funds. The private key represents the password to the wallet. The private key is used to sign transactions and prove you own the corresponding public key.
The technology behind these wallets is based on the blockchain. This decentralised system bypasses the middleman, which is usually a bank, and transactions are made without any central authority. You can compare the blockchain to a digital ledger that manages data – in the case of cryptocurrencies, this digital database handles transactions and account balances. All members of the blockchain network own a continuously updated and synchronised copy of this database.
This system builds on cryptographic encryption techniques and stores data within the current block, which is inseparably linked to the previous block. This creates a chain, a blockchain, where it is impossible to change records. To ensure the information in the blockchain is correct, the technology relies on a consensus algorithm. In the case of Bitcoin and other cryptocurrencies, achieving agreement on this data value is done through so-called mining. This is not gold or gemstone mining – instead, the blockchain technology uses computing power from all around the world to validate the data of the new blocks. The user who mine, the miners, receive so-called block rewards, which are newly generated bitcoins.
With this global computing power and the decentralised structure, the blockchain network is fast, transparent and foolproof. Because the blockchain data cannot be changed, it is nearly impossible to hack the system, which makes the technology attractive for many industries and services, including Internet of Things, smart contracts and supply chains.
What started over a decade ago has become a building block of technological transformation, and it is safe to say that blockchain is there to stay.