This has been the most burning question since Blockchain had made its first mainstream appearance and it is not surprising, considering how Bitcoin has dominated the recent headlines. So the answer to this might come as a surprise to you: “No, Blockchain is not just about Bitcoin. It goes way beyond that”.
But then what led to this misconception?
Since Bitcoin was the first application of Blockchain, people often unintentionally use “Bitcoin” to mean Blockchain.
To resolve this misconception let’s understand “Bitcoin” and “Blockchain” separately.
What is Bitcoin?
Bitcoin’s pseudonymous creator Satoshi Nakamoto (since he essentially disappeared after releasing the Bitcoin whitepaper) proposed Bitcoin in 2008 and he referred to it as “a new electronic finance system that is completely peer-to-peer, with no third-party intervention.” Bitcoins are not printed, like dollars, but they’re produced by computers all around the world using free software.
The origin of “Bitcoin” was based on the idea to produce a means of exchange that would be independent of any central authority and could be transferred electronically in a secure and verifiable way. Bitcoin can be used to pay for things electronically if both parties are willing to do so.
Now that we are familiar with Bitcoin, let’s now move on to the entity which led to all the skepticism… shall we?
So, What is Blockchain?
Blockchain technology was first defined in 1991 by Stuart Haber and W. Scott Stornetta, who wanted to implement a system where document timestamps could not be meddled with. We can define the Blockchain (formally) as a distributed, decentralized, public ledger. Sounds heavy? Well, the good news is, Blockchain is actually easier to understand than that definition sounds.
If we try to understand from scratch, Blockchain is literally just a chain of blocks, but not in the conventional sense of those words. If we explain these words in the context of Blockchain, we are actually talking about digital information – the “block” stored in a public database – the “chain”.
These blocks in the Blockchain have three segments:
- Information about the transaction
- Information about who is participating in the transaction
- A unique code called “hash” that tells the blocks apart.
Blockchain is not just about Bitcoin, but it is the backbone technology of Bitcoin. Let’s see how?
The process is pretty organized. Bitcoin holders transfer bitcoins via Blockchain network. Every bitcoin transaction is tracked on the “Blockchain” (also referred as a giant ledger). Each “block” in the Blockchain is built up of a data structure based on encrypted Merkle Trees (or hash tree) wherein every leaf node is labeled with the hash of a data block. This is particularly useful for detecting fraud files. If any file in a chain is fraudulent, the Blockchain prevents it from damaging the rest of the ledger.
Let’s draft a simple example of a Bitcoin transaction on the basis of this explanation to get a clearer picture of the process.
Consider a Bitcoin transaction where Mary has to transfer 5 Bitcoins to her friend June in the Blockchain network.
Now, this transaction is broadcast to the network and the special nodes called the “Miners” take up this transaction from the pool of unconfirmed transactions, validate it and then add it to their block.
Here, suppose Jamie and Paul are miners. They will group all the verified transaction in a block and start competing to solve a complex mathematical puzzle called Proof-of-Work.
If Jamie solves the puzzle first, he broadcasts the block to the entire network. The other miners validate the block and every node with one mind agrees to the current state of the ledger and updates the record independently. Thus, Mary and June get a verification message that the transaction is completed.
The transaction thus becomes a part of the Blockchain. And the miner who solves the problem first (Jamie in this case), is rewarded with a Block reward i.e newly created Bitcoins.
And just like that, the digital money is transferred from one person to another without the intervention of any third party.
So that explains why is Blockchain the backbone of Bitcoin.
Now, let’s have a look at the potential real-world applications of Blockchain to validate how this technology is beyond Bitcoin.
- The Food Industry – Shopping chains like Walmart are teaming up with IBM to assimilate Blockchain in their food management system. The major reason for this incorporation is “Traceability”. With Traceability, people can exactly know where is their food coming from so that if any chaos occurs the culprit can be traced immediately.
- Cyber Security – There are
3 main features of Blockchain that can help prevent cybersecurity attacks.
- Trustless System
- Voting – Companies like “Follow My Vote” use the Blockchain technology to bring voting to the 21st century. Their goal is to make the election process as transparent as possible.
- Land Registry -To prevent frauds, Andhra Pradesh and Telangana governments have partnered with a Swedish company “ChromaWay” to put their land registry on the Blockchain.
With many more practical applications like these being implemented and explored, Blockchain has become a buzzword on the tongue of every investor.
Many industries are flocking to Blockchain as it stands to make business operations more efficient, secure and has the ability to improve business processes between companies by radically lowering the “cost of trust”.
In a nutshell, we can say that Blockchain is the technology of the future and it has many potential applications other than just cryptocurrency and it can affect way more sectors than just finance.