Block chain is a technology that makes it possible for people and business to make quick payments on a secure network without a watchdog. All transactions that are made on the block chain are kept on record and cannot be altered at a later stage. It is difficult to define block chain as it is ever evolving and emerging. Financial services industries have supported block chain and about 40 of the largest companies have begun trying it out. However, people are still deciding how they can best utilise and gain from block chain technology.
How does block chain work?
Block chain as the name suggests, is a chain of blocks which represent information that is held together in a particular order. Many people even liken it to a ledger because it is basically how majority block chains operate. Each block of information represents a new transaction, buying and selling BTC bitcoin. Simply put, a block chain is a record of all transactions.
Block chain is instant
Block chain is super-fast and this is another reason people have latched onto its concept so well. The transactions that are made on the block chain are processed and confirmed much quicker than with other systems. Every transaction is being processed by special computers in milliseconds. This is because it is decentralised and does not rely on any government or organisation to control or manipulate it in any way.
Block chain is decentralised
Block chain functions with no central authority governing it and it allows people and companies to add and confirm their transactions. When paying with block chain based currency, the transaction is just between you and the person you are paying it to. This means that there is no middleman in your transaction.
If, for example, one copy of the block chain ledger is altered in any way, it will have to be verified first before it is even added to its own ledgers. It is much faster than traditional payment methods because it doesn’t need to wait on a slow moving, overcrowded source for verification. Everything happens simultaneously. Each person is able to change the ledger and record new blocks of information however the entire chain will be analysed by everyone to ensure that it is truthful. Everyone therefore, has their own copy of the ledger, but no-one is permitted to make a change without it being agreed on by everyone involved, much like a democracy.
Block chain – 3 parts
To better understand block chain, it can be broken down into three parts:
- A network of computers/contributors
- A network protocol
- A consent mechanism
The block chain may be public or private, depending on the permissions of the block chain. Each computer is known as a node and forms one part of the network of its participants. A network protocol is a rule book that basically determines how the computers interact with each other. Since each computer has its own copy of the ledger, it is protected against mistakes and fraud. The mechanism for consent is the process which transactions are verified by the block chain network. There must be agreement on the current and precise block chain.
Block chain requires three things
- People or companies
- A relationship between these individuals
- A rulebook
The 4 Advantages of Block chain
Block chain technology has four big advantages:
Transparency – everyone in a block chain network can access the ledger and its rule book therefore no-one is kept in the dark. You can see who owned, paid or gave what to whom.
Security: everyone has a copy of the ledger therefore it is used when updating the new version. No person or company dominates the system, therefore you could say that everyone is in charge.
Instantaneous transactions: Block chain transactions can be validated quickly and easily therefore they are almost instant.
Decentralised: having a middleman tends to slow down any business or individual but block chain has no middle man and everyone has a say in how it operates.
What about double spending?
The double spend problem is solved as one of the major plus sides to block chain is that even though it is essentially digital money, all transactions are made public therefore it becomes obvious and glaring when money is being used multiple times.
The use of block chain can possibly hasten transactions while also minimising costs involved with third-party banks and lowers the risk of fraud. That means more speed, affordability, and security for everyone who uses block chain.