What is Blockchain? | ATM

Blockchain technology is the technology that underpins cryptocurrency, allowing it to exist as a secure method of moving and validating transactions and information. In this sense, you might think of blockchain as similar to Microsoft Windows – a software platform – on which a variety of other software (such as cryptocurrency) is developed.

Here’s what blockchain technology is, how it works, and why it’s so popular.

How the blockchain works

A blockchain is a type of database that tracks and secures data in blocks and then chains them together chronologically. Think of a blockchain as a continuous receipt of transactions or data that is validated and stored and can be viewed later. Blockchain technology can underlie many different applications, such as cryptocurrency, smart contracts, information tracking, and almost any other digital process that may require observation.

In the case of cryptocurrency, computers validate the movement of money from person to person over time, leaving a permanent record that can be accessed later, such as a long receipt of every transaction ever made. When Bitcoin was officially released in 2009, it brought the benefits of blockchain technology to popular consciousness.

Blockchain technology is often decentralized, meaning that the ability to write to the database is given to a network of computers, as is the case with many cryptocurrencies. This distributed ledger, as it is often called, tracks data by using the redundant power of networked computers to validate the data. Each computer has access to this public ledger, and new transactions are added to the receipt or ledger once verified by computers on the network.

Thanks to this validation process and the cryptography used, the blockchain is very secure and creates an almost irreversible record. This level of security helped cryptocurrency becomes an asset that people can buy and sell.

How does a blockchain differ from a normal database?

A blockchain database stores data in blocks, and when a block is full of data, it is connected or “chained” to the previous block. The chain continues indefinitely, with successive blocks of information adding to previous blocks, as long as the computers managing the database continue to manage it. And since the blockchain accumulates data over time, it is a history of that data in the order in which it was irreversibly recorded in the blockchain.

In contrast, a typical database may simply be a table, albeit a very large one, that organizes data based on specific attributes. A typical database does not necessarily have a history, and previously recorded data may be altered in the database. But like a blockchain, a typical database can limit who can access, store, and retrieve information from it.

How transparent is blockchain?

Blockchain is all about tracking the movement of information and, therefore, by its very design, is meant to be highly transparent, at least if you are able to access the blockchain database that stores the information. To ensure transparency, however, a secure database that is resistant to hacker attacks is needed. Blockchain technology stores information securely and must also record any changes made to a given blockchain, so that there is a record of the changes.

Blockchain allows a public ledger to be viewed “without permission” by computers (or “nodes”) on the network. By joining the network, you (or anyone with access) will be able to see the information that has been recorded, although the data may offer anonymity or semi-anonymity. Therefore users can examine all transactions in a given blockchain over time.

Public blockchains versus private blockchains

While public blockchains allow anyone to access the database, private blockchains can limit access to specific people or groups, perhaps those within an organization that uses a blockchain.

For example, Bitcoin’s distributed ledger is publicly auditable, even if you can’t directly see who is making a transaction. You can trace cryptocurrency transactions back over time and see where the money moved and to which accounts. (This is one way in which legal authorities they can trace the cryptocurrency to those they suspect of having defrauded the tax authorities.)

However, other blockchains may remain private or “permissioned,” meaning that users must be authorized to enter data or make transactions through the blockchain. In these blockchains, users can remain completely anonymous and transparency is limited by those who control the database.

So, while blockchain may allow for transparency in its design, there are also questions about who has the ability to see a blockchain, who or what is being observed, and who is observing. The answers to these questions – and the transparency of blockchain – depend on politics and power.

Why is blockchain technology so popular?

Blockchain has become popular because it can be used in various applications, particularly in cryptocurrencies, and can offer several advantages:

• Decentralization. A blockchain database can be decentralized and validated by networked computers that are allowed to access it. This decentralization allows computers to correct the database if conflicting information enters the blockchain.
• Irreversibility. A decentralized blockchain validates information and produces an almost irreversible record of transactions, for example in Bitcoin. Once the bitcoins are moved and the transaction is validated, it is permanently recorded.
• Safety. Blockchain offers security in various ways. For example, its irreversibility leads to the security of transactions. And if the information is altered, the blockchain identifies that it has been altered.
• Precision. The redundancy of a distributed network means that transactions are validated repeatedly, helping to maintain high accuracy in the database.
• Transparency. Blockchain allows, for example, transactions in a cryptocurrency to be displayed in a public ledger, even if the accounts holding a particular currency remain anonymous or semi-anonymous.
• Without trust. Because of the way it validates information, a blockchain can be operated without the two parties to a transaction knowing each other or validating the transaction.
• Robustness. Blockchain can enable many different processes and technologies.

Blockchain can also be used for smart contracts, contracts that are automatically validated and executed when the terms of the contract are met, which is one of the main features of the Ethereum cryptocurrency.

Can you invest in blockchain?

It is not possible to invest directly in the blockchain, since it is only a decentralized database. However, you can invest in companies and other organizations that use blockchain technology.

One of the most obvious places is cryptocurrency, which has become a hot market. You’ll want to fully understand what you’re buying and where the profit opportunities are. If you’re looking to go this route, check it out best brokers and exchanges for cryptocurrency trading.

You also have the option to invest in companies that use blockchain in their business. Here are some the best blockchain ETFstheir major holdings and how much they charge.

Bottom line

Blockchain enables the creation and development of cryptocurrencies, but has the potential to offer much more in terms of the ability to track and verify a whole range of data. It could then become a vital part of new applications that track, manage and control data, physical objects, legal agreements, payments, royalties and much more.

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