What is blockchain?

Blockchain is a decentralised system, called a chain of blocks, which is used to store and transfer information. This is the short definition of blockchain technology. For people beginning their adventure with the world of cryptocurrencies and blockchain technology, this definition does not say much. In order to understand the essence of this technology, it is necessary to delve a little deeper into the subject and understand what are the characteristic features that make this technology considered revolutionary. What is blockchain and what is its significance for the future of finance (and even the entire economy), you will learn from this article.

What is blockchain?

Definition of Blockchain

Before we go on to explain what blockchain is used for and how it works in practice, let us first try to consider what the term means from a dry almost bookish definition. Blockchain, in Polish referred to as a chain of blocks, sometimes also as blockchain. It is an architecture for storing information in a way that ensures immutability of historical data. By definition, it is a decentralised and distributed register on a network infrastructure.

A block register may be a distributed database or a one-way event register. In such a register, new blocks can only be added at the end of the block structure.

Approaching the subject from a practical rather than a theoretical definition, we can say that blockchain is a digital ledger that acts as a register of transactions. Most often, the register concerns data in the form of financial transactions. The simplest examples are transactions involving cryptocurrencies, shares, stocks or electricity.

Characteristics of blockchain

The essence is based on the fact that each subsequent block stores an irreversible hash storing information from the previous block. In other words, the hash functions as a summary of the previous block.

One of the characteristic pieces of information next to the hash is the timestamp, which is the information about when a specific block was created. As a result, the hash and timestamp ensure that blocks are tightly coupled and it is impossible to tamper with the blockchain unnoticed.

It is worth noting that each block stores a certain amount of data (e.g. in the form of a certain number of financial transactions). When one block is full then another block is created which follows.

Decentralisation is a characteristic feature. No central database, one main server, computer or any other technical infrastructure is needed for the system to function properly. Stored data is stored only in consecutive blocks. This means that transactions are distributed on a peer-to-peer basis. This is very important as it means in practice that transactions are not monitored by a central intermediary (although they are public).

This makes blockchain considered a very good information medium, as it is a common and completely transparent access to uneditable data. The data is transparent and reliable for all users which promotes trust, security and development. More specifically, blockchain provides privacy, but this must not be confused with anonymity. Addresses are public, which means that, although personal details are not known, something like an 'account number on the blockchain' is public and everyone can see the transaction history.

Security

Speaking about blockchain network, one cannot pass by indifferently touching the subject of security. Securing the transaction register in blockchain technology uses advanced cryptographic algorithms which protect against data editing and unauthorised access. Breaking cryptography is possible in theory, but in practice you need a computer with huge computing power.

Interestingly, for entertainment and scientific purposes, it was calculated that a computer with the power of... half of all Internet users would be needed. Whatever such a calculation means, the conclusion is one - huge computing power is needed and there is no real threat of hacking into blockchain networks. Nevertheless, there are some rumours that the security problem may return when quantum computers become available. However, this is not something that is currently bothering security professionals. The problem arising from quantum computers is more a melody of the future.

From a security perspective, the characteristics of blockchain technology make it a solution that favours increased data security. Practice shows that it is much more difficult to falsify transactions. Firstly, it is not possible to modify transactions (once a transaction is posted, it stays that way), and secondly, the transaction history is transparent to everyone. This makes blockchain technology considered to be a safe and reliable method of storing information.

Characteristic benefits of blockchain technology

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