As part of our new series Tech Explained, we bring you up to speed with the concept of blockchain.
A lot has been written about the use of blockchain in crypto-currency transactions. To find out how blockchain works, and why is it so talked-about, we first need to consider how a traditional transaction works. In most transactions, a trusted middleman, such as a bank, holds all of the data related to the transaction. This could include the amount of the transaction, contact information, type of payment, bank balance of the buyer, etc. This data serves as a guarantee for the transaction. A blockchain replaces this centralised middleman. It can be thought of as a digital ledger. In fact, blockchain is often referred to as distributed ledger technology.
Instead of a bank, every transaction in a blockchain is verified by a network of computers. So, before a Bitcoin can be transferred from one person to another, the transaction is first represented as a digital “block”. This block is then broadcast to every computer in the network. The entire network must then verify that the transaction is valid. Once this has been done, the block is added to the chain of transactions. This chain is a permanent record of all of the transactions in the network, and it is downloaded automatically to every computer in the network. After the block is verified and added to the chain, the Bitcoin is transferred to the new owner.
Once they have been added to the chain, the blocks of data cannot be changed, copied or deleted. This makes blockchain very secure. In addition, because the data related to the transaction is not being processed or stored by a central authority, users can maintain their privacy and keep their identity secret. On joining the network, each connected computer receives a copy of the blockchain, which contains records of every transaction ever executed.
Due to its secure, distributed nature, blockchain technology has been proposed as a replacement for many of the accounting and payment processes used in the financial industry. The technology can be used for almost any type of transaction involving value. This gives blockchain tech an almost limitless number of potential uses. Innovative uses already covered by Springwise have included a jobs platform for freelancers and as a way to verify votes in Sierra Leone elections.
13th June 2018