Blockchain technology allows value exchange without needing trust or central authority.
In our current banking system, only we know our transactions and account balances. However, on the blockchain, transactional information is available to the public.
The blockchain system is built so that no trust is required. Security is created using complex mathematical functions and coding.
To make transactions on the blockchain, you’ll need a wallet. A wallet is an application used for the storage and exchanging of bitcoins, the balance is only available to the owner.
How does Blockchain Technology work
For simplicity, we will be using the bitcoin system as an example.
Bitcoin transactions are sent to a network of powerful computers known as nodes.
This global network of nodes competes to confirm the transaction using computer algorithms. This is referred to as bitcoin mining.
The sale is added to a block on the distributed ledger once it has been verified. Then the transaction will be confirmed by the network.
The bitcoin network organises transactions into blocks, which each contain a certain number of transactions and a link to the previous block. This is what causes one block to follow the next. As a result, blocks are grouped into a time-related chain that lends the system its name: blockchain.
- When customers use decentralised currency, they are protected from bankruptcies and high bank fees.
- Payments are borderless, enabling easy and low-cost international payments.
- Decentralised currencies are not affected by inflation or deflation.
- To use a decentralised currency, you must have a wallet. This is why decentralised currencies are appealing to unbanked countries.
- Since decentralised currencies are not bound by geographically based exchange rates, anything bought won’t devalue due to fees like tariffs.
- Users can search an entire ledger of wallets to see how they are used. This kind of openness can provide users with detailed information on the manufacturing and distribution processes of products they purchase.
- A blockchain needs a significant amount of computational power and storage space, leading to higher marginal costs.
- Despite the growing popularity of blockchains, there aren’t enough experienced blockchain developers and cryptography specialists. Blockchain development needs a diverse set of abilities. Furthermore, developers should have an in-depth understanding of many technologies, computer languages, and tools.
- The lack of customer service. There is no support desk to call or anybody to sue if something goes wrong.
Blockchain technology & privacy
Getting privacy with Bitcoin and other blockchains is hard, and complete anonymity is impossible.
Public and private keys create privacy in the blockchain. These keys are used to identify a person in a transaction without revealing their identity. Additionally, it is mathematically impossible for a user to guess another user’s private key from their public key. This increases security and protects users from hackers.
Public key cryptography is the foundation for securely communicating with anybody whose public key you can access. With public keys, you can encrypt messages sent to other users on the system. Integrity is guaranteed because the decryption process involves checking that the received message matches the sent message. This assures that the message has not been altered.
A private key is similar to a password. It is a string of letters and numbers that allows you to access and control your cryptocurrency. You can manage your cryptocurrency from anywhere in the world with wifi as long as you have access to your private key. In order to keep your money safe, no one else should have access to this information.
The best way to keep your keys safe is to use a virtual wallet. For beginners, CoinBase is highly recommended.