Understanding Blockchain: A Comprehensive Guide for Everyone - Chapter 1
From Basics to Advanced Applications
An introduction
You’re at a party, eavesdropping on a little conversation that’s kicking off next to you when someone bursts out, “I still don’t know what the heck this whole blockchain thing is!” You gulp down your drink, gently clear your throat, and slip into the conversation like the hero of the day, “Hey, I couldn’t help hearing you and it so happens that I had the same question and curiosity at some point. So, for me the first thing about blockchain is…”
And this is exactly the moment you’d pat yourself secretly on the back for taking the time to read our guide. However, the usefulness of this guide extends far beyond making you the star of a party conversation. It’s designed to simplify blockchain technology, breaking down complex terminologies into easily understandable pieces of information. No matter your familiarity with tech, this guide will equip you with the fundamental understanding of blockchain and future technology and the benefits it can bring to your life. Ready to dive in?
Chapter 1: The Basics of Decentralized Technology
What is Blockchain?
In the realm of technology, blockchain stands as one of the most intriguing and revolutionary concepts to emerge since the creation of the internet. It’s a term you’ve probably heard thrown around a lot, especially in relation to cryptocurrencies like Bitcoin. But what is it, really? And why should you care?
In its simplest form, blockchain is a type of database. Unlike traditional databases, however, a blockchain database isn’t stored in one central location. Instead, it’s distributed across a vast network of computers, each holding a copy of the entire database. Blockchain’s superior security is a direct result of its decentralized nature: in other words, decentralization is the core aspect of blockchain technology. So, why is this decentralization such a big deal? To understand this, let’s take a step back and think about how traditional databases work. Usually, they’re managed by a central authority. This could be a government, a bank, or a tech giant like Google.
But with great power comes great responsibility, and in this case, great vulnerability. These centralized databases can be hacked, corrupted, or manipulated. For cyber pirates they’re like a treasure chest of information waiting to be plundered.
On the other hand, blockchain is like a treasure map torn into pieces, with each piece held by a different person. To get the treasure (or in this case, manipulate the data), a hacker would need to get all the pieces from all the people simultaneously. Sounds almost impossible, right? That’s the magic of decentralization.
So, in the blockchain, decentralization refers to the transfer of supervision and decision-making from a centralized organization (individual, corporation, or group) to the distributed network. This means that no single party has complete control over the entire network. Instead, control is spread among many different participants, who each have a say in the consensus process.
The Power of Decentralization — Transparency and Security
If there’s a quote that best illustrates how decentralization can disrupt traditional business models, just like blockchain is doing for data management then it’s probably this one: “The world’s largest taxi firm, Uber, owns no cars. The world’s most popular media company, Facebook, creates no content. The world’s most valuable retailer, Alibaba, carries no stock. And the world’s largest accommodation provider, Airbnb, owns no property”. (Hamish McRae 2015)
One of the key benefits of decentralization is the immutable nature of decentralized blockchains. Once data is recorded on the blockchain, it is permanent and irreversible. This makes it an incredibly reliable source of proof and truth, as there’s no way for anyone to go back and alter previous transactions.
Decentralization ensures that the entire blockchain network is evenly spread among various nodes for optimum utilization of resources. This not only maintains the integrity of the system but also improves transaction speed, making blockchain a highly efficient system.
Another major advantage of decentralization is its potential for improving transparency and trust in B2B transactions. Since every transaction made on a blockchain is visible to everyone within the network it makes it incredibly difficult for anyone to cheat the system.
By now we understand that the introduction of decentralization is the underlying premise that spurred the creation of blockchain technology and, ultimately, the first cryptocurrency. And while blockchain technology was initially designed to support cryptocurrencies like Bitcoin, the tech community has found other potential uses for this technology, ranging from supply chain management to voting systems, which we will delve into in our future chapters.
Distributed Ledger Technology (DLT)
When talking about decentralization there’s another concept that goes hand in hand with it — Distributed Ledger Technology (DLT). Basically, DLT is a digital system for recording transactions of assets. It’s decentralized in nature, meaning that the transaction data is stored across multiple places, devices or people, instead of being centralized in one location like a traditional ledger.
DLT embodies the principle of decentralization by distributing the control and storage of data across a network. The blockchain technology, which underlies cryptocurrencies like Bitcoin, is a form of DLT.
In practical terms, businesses and software vendors are exploring how they can use DLT to streamline operations and reduce costs. By having a shared, reliable record of transactions, companies can avoid the time and expense involved in reconciling different ledgers and databases. DLT is finding applications in various sectors, including financial services, healthcare, and mobile payments.
While DLT and blockchain won’t completely replace traditional databases just yet, they offer new possibilities for moving and storing data, especially in environments where trust, transparency and security are paramount. They represent a significant shift in how we think about and handle digital information.
Understanding Centralized Systems: In a traditional centralized system, as depicted in Diagram 1, all transactions and records are stored in a single, central location — often referred to as a ‘clearing house’. This has been the standard for data storage for many years, providing a seemingly secure environment. However, as cyber threats have evolved, these centralized points have increasingly become targets for hackers.
The DLT Difference: DLT radically changes this approach. As shown in Diagram 2, instead of one central point, DLT stores transactional records across multiple nodes or computers within a network. Each of these nodes holds an encrypted copy of the entire ledger, making it much more resistant to cyber attacks. To successfully hack the system, one would need to compromise every single node — a feat nearly impossible.
To wrap up our first chapter, it’s probably much clearer now why blockchain technology is more than just a buzzword — it’s a catalyst for a massive shift in how we handle data and transactions. It’s a glimpse into a future where transparency, security, and decentralization are the pillars of digital interaction in our society. However, blockchain technology is not a simple silver bullet solution to all our digital woes. It comes with its own challenges and complexities that platforms like SourceLess are now addressing, particularly around scalability and privacy. But we’ll save that discussion for another chapter.
Quick revision of what we’ve learned so far in our first chapter:
- Blockchain is a decentralized database spread across a network of computers.
- Decentralization enhances security by reducing the risk of hacking or manipulation.
- Blockchain technology was birthed for cryptocurrencies like Bitcoin but has potential uses in other sectors.
- Blockchain promotes transparency as every transaction is visible to all network participants.
- However, blockchain also faces challenges, particularly around scalability and privacy. Companies like SourceLess address these issues.
- Despite these challenges, blockchain is a disruptive force that will reshape data handling and transactions.
Stay tuned for the next chapter in our SourceLess series with insights and in-depth exploration of blockchain’s transformative technology.
