What is the Technology behind Cryptocurrencies? Blockchain Explained in 500 Words or Less
Bitcoin, the first cryptocurrency, came into existence because of the technology called blockchain. Tech insiders believe that it is the next big disruptive technology, just like the internet was 25 years ago. They also claim that it will reshape the traditional financial landscape in the coming years.
What is Blockchain Technology?
Blockchain, the distributed ledger technology, is a time-stamped, immutable series of record of data that is managed by several computers across the world, not just by one supercomputer. And, each block of data is secured using a cryptographic reference to the preceding block.
In 2008, the technology was invented to create Bitcoin, the original digital currency, by a group of people or person known by the pseudonym Satoshi Nakamoto. When the bitcoins were first introduced in 2009, the blockchain technology did not immediately catch the attention of the tech industry. However, it did not take too long for it to fire the imagination of the industry. Now, the technology that forms the basis of cryptocurrencies is seen as a breakthrough invention, with immense potential.
Technology Underpinning Cryptocurrencies
Blockchain is the technology underlying virtual currencies. It is the technology that makes the cryptocurrencies’ peer-to-peer transaction process secure, fast, and free of regulatory control. Moreover, it ensures that the transactions can be verified by both the involved parties, as the record of the transaction is kept in a decentralized, public ledger.
One of the key features of blockchains is that the data can never be erased or changed, although anybody can enter it in the ledger, and at any time. This makes the cryptocurrencies exchange process transparent. Moreover, the ledger has the record of every transaction – from the beginning; no one can deny that a digital asset was not transferred.
Blockchain also eliminates the need for trust in the cryptocurrency exchange process. Trust is the foundation on which the conventional trading and payment methods operate, but blockchains work on the principle of “trustlessness.” The distributed ledger technology ensures that the integrity of the cryptocurrency system is maintained and the data is not manipulated. There is no middle authority to oversee “trust” when a cryptocurrency transaction takes place.
Adoption of Blockchain by Other Industries
Today, the cryptocurrency industry no longer has the exclusive rights on the blockchain. A lot of other industries have realized its potential. Financial services, health industry, supply chains, governments either have already adopted blockchain or are eager to adopt it.
They want to leverage the technology to transform their traditional methods of doing business; thus make their processes more efficient, transparent, secure, and fast. For example, by implementing the blockchain technology, financial institutions can achieve the benefits of greater transparency and greater efficiency. They will be able to record their transactions in a decentralized, distributed document that everyone on the network can access. There is no need for error-prone paperwork. Moreover, blockchain technology also ensures that no information on the document is altered without the permission of everyone on the network, making the data more accurate and consistent.
