What is the blockchain and how does it work?
Most people look at the blockchain and see a fancy ledger. And in a way, that is what blockchain is all about. Information is given to a network that records it. But, this ledger is not under the control of one single person. That means that the community is responsible as to how the information is amended and updated. So overall, it can be argued that blockchain is no different than Wikipedia or any other information storage.
Under the hood
Upon closer inspection, the blockchain is far more complex and fascinating than Dropbox or Wikipedia. In standard client-server networks any information stored in placed on a centralized server. This server holds the master copy from which all the information is compared, changed, and cured.
However, in the blockchain there is no single master copy. Every node has a master copy that is continuously being updated and edited. That means that every node in the network reaches the same conclusion at the same time without the need of a central-server overseeing every necessary change into the system. Ergo, all nodes in the blockchain are master nodes.
Blockchain today owns its success on an old technology. To be more specific, cryptography, protocol incentivization, and the internet. The mixture of these three technologies is what made the blockchain so useful. And the genius that combined these three ideas was Satoshi Nakamoto.
Nakamoto is also the mysterious programmer behind Bitcoin. The Japanese man gave the word an elegant, simple, and efficient decentralized network that has revolutionized the financial world and world economies.
Trust in the digital realm
Trust is such a hard thing to gauge. People can say they are trustworthy, but how can you attest that is true? In the digital realm, words become mute, and trust is defined by two simple concepts: authentication and authorization.
- Authentication: In a nutshell, authentication means proving identity. That means verifying to the blockchain that you are who you say you are. To do complete an authentication people are given private keys. A key is a powerful tool that demonstrates ownership while preventing anyone from sharing more personal information with another stranger.
- Authorization: This one is about providing users permission to do something. In other words, letting users do whatever they are trying to accomplish. Authorization ranges from having enough money to complete a transaction to broadcasting the correct type of operation.
The usage of authorization and authentication in this way cuts the cost incurred in ESCROWS systems or centralized trust systems (i.e. banks). Blockchain is considered the backbone of digital transactions. Thanks to it, everyone from financial institutions to national governments continues to look into blockchain today.
In conclusion, blockchain is a system that combined three separate ideas into one brilliant network. The blockchain network does not rely on a central server, and it was designed to bring openness, accountability, trust, and efficiency into the financial world.