Have you ever wondered about the mechanisms behind modern-day digital innovations? Perhaps, the forces behind cryptocurrency transactions, NFTs, and smart contracts. Well, all these features listed are possible due to the Blockchain. Blockchain accounts for the decentralization and security of modern-day digital technologies. Let’s take a deep dive into the world of Blockchain and explore how it works.
What is Blockchain technology?
Blockchain technology refers to a ledger responsible for recording transactions and sharing databases across various systems. Let’s take this definition down a notch. What do we mean by ledger? You can think of a ledger as a system that allows transactions to be visible publicly across many users. This means it is a way of verifying transactions. Verification is not uncommon in the real world. This is why its importance cannot be overemphasized with Blockchain technology. Just like a birth certificate verifies you were born, the Blockchain verifies that a transaction took place.
When was Blockchain invented?
Blockchain was invented and brought into the limelight in 2008. This timeline is also synced with the creation of Bitcoin. Its popularization is owed to Satoshi Nakamoto. Satoshi is also the pseudonymous founder of Bitcoin. We use the term “pseudonymous” because no one knows their true identity.
We can see the creation of Blockchain and Bitcoin in the same timeframe because they work hand-in-hand. Blockchain is the technology responsible for developing Bitcoin. It allows the storage and recording of Bitcoin transactions. It also allows people called Bitcoin miners to verify transactions.
Keep in mind that its popularization did not just spring from 2008. It took decades of work to finalize the Blockchain’s creation. In 1979, the first concept to introduce Blockchain was birthed. Ralph Merkle invented Merkle Tree which incorporated digital signatures. David Chum also had a helping hand in creating digital cash in 1989. Stuart Haber and W. Scott developed a system that prevents manipulation and ensures privacy on the network in 1991. An upgrade was set by the duo in the subsequent year integrating Merkle trees into their development.
Other developments such as P2P and Proof of Work (PoW) which were later introduced, aided in the innovation of Blockchain. Fast forward to 2008, Blockchain was officially introduced on the whitepaper released by Satoshi Nakamoto.
How does Blockchain work?
Decentralization is the driving force of Blockchain. Decentralization is a term that entails the blockchain lacks central authority. This might lead you to wonder: How does blockchain work without any powerful forces calling the shots? Well, everyone calls the shots on the blockchain. This is why Blockchain is referred to as a distributed ledger. Users can see transactions and their performance in real-time. Hence, it is difficult to manipulate. There are also a group of people known as miners responsible for verifying transactions.
Bitcoin mining is a way of bringing new Bitcoin into circulation. This process is followed by the incorporation of powerful computers to solve problems known as the Hash puzzle. Different computers compete to solve this puzzle. The miner of the computer that guesses the puzzle correctly then gets rewarded with Bitcoin. This is followed by a process where transactions are put in a chain of blocks.
As the name implies, the Blockchain consists of a chain of blocks. Each block contains a series of transactions. As transactions are checked and verified by the miners, they are added to a block. After a block is completed, another block is created. This will then lead to the chain of blocks known as the Blockchain.
Can Blockchain be hacked?
We have described decentralization to be the end-all and be-all of the Blockchain. It is the feature that helps to alleviate manipulation on the Blockchain. This has raised questions on if the Blockchain’s security is by any chance breakable. The short answer is yes, it can indeed be hacked. Its unhackable title has slowly gotten diminished since hackers made their way into the network’s vulnerabilities.
Here are some ways the blockchain can be hacked:
- Majority attack: The majority attack is also known as the 51% attack. This occurs when a miner or group of miners gain 51% of the control of mining operations on the Blockchain. A common result of this is double-spending. Double-spending is a threat that occurs on digital networks which allows another cryptocurrency transaction after the original one has been performed. This can be caused by a phenomenon known as the crypto fork. A fork involves the splitting of the Blockchain into an original version and an alternate version. The alternate version may not include certain transactions and will be disguised as the original version of the Blockchain.
- Phishing attacks: These attacks require the victim to click on a malicious link. The link will then redirect them to a site that would need their personal information for their crypto wallets. If these details are inputted by a user, then the hacker will gain access to their wallets. Phishing attacks usually come in form of e-mails. Hackers could also disguise themselves as an acquaintance or friend of the victim to get them to click on the link.
- Sybil attacks: Sybil attacks refers to attacks that overpower a network caused by the creation of multiple nodes by a hacker. One might ask: How does this affect the Blockchain? Let’s get conversant with the voting process on the Blockchain. Voting is performed on the blockchain by different miners to take decisions on the network. Now, if there is a hacker with different accounts, they can disguise themselves as different people and have multiple votes as their own.
Can you invest in Blockchain?
You cannot invest in it directly, but you can invest in the assets associated with it. We have witnessed the digital market soar through unimaginable roofs over the years. And even with that, we are still at the early stages of the adoption of cryptocurrency. So investing in assets on the Blockchain might just be a good idea.
Here are some assets you can invest in:
- Stocks: You can buy stocks from credible companies that use Blockchain technology. Such companies are mostly fintech companies that integrate the technology into modern-day finance.
- NFTs: NFT stands for non-fungible token. They serve as a mark of ownership for assets in the digital world. NFT can be transacted across the blockchain network. Creators can list their NFTs for sale where people can purchase them. They can also be flipped and sold for an even higher price than it was originally bought.
- Metaverse: The Metaverse is a digital world where real-world operations take place. Such operations include developing buildings, growing communities, springing life to avatars, and playing games to earn money.
- Cryptocurrency exchange: You can as well trade cryptocurrency to earn money. There are crypto exchange platforms where you can buy and sell cryptocurrency. Different trading strategies are also available to guide you through your journey.
Is Blockchain the future?
Blockchain has undoubtedly revolutionized modern-day transaction operations. Considering the current surge in usage, many wonder if it is here to stay. This is often a topic of discussion because highly influential business magnates like Warren Buffet have described cryptocurrency as a fad that will likely die down in the future.
Many of these claims are continuously debunked as time flies. We are witnessing gradual adoption in the crypto sector in recent times. Companies are not willing to back down on this technology either as they incorporate it into their businesses. This is why fintech is at its peak more than ever. Companies are looking to include cryptocurrency as a means of payment, slowly aiding the digital currency on its way to mass adoption.
Let’s take a look at the ways blockchain will revolutionize the future:
- Smart contracts: Smart contracts eliminate the inconvenience that comes with regular contracts. Oftentimes, third parties are needed for regular contracts. With smart contracts, just two parties can agree with the help of the Blockchain. The smart contract works with codes that will be executed when the conditions of a contract are met. Suppose there was a target amount of $2000 to be donated on the smart contract. Once you reach your target, the money can be automatically transferred to you. This is indeed a propelling force to drive the future of contracts and agreements.
- Companies’ records: Companies can finally sway from the conventional ways of storing records. Now, they can securely store data and records on the blockchain.
- Voting: Blockchain prevents a great deal of electoral malpractice due to its tight security. It is gradually being implemented in voting and is set to transform it completely in the future.
Blockchain technology is a gem for the digital world at large. As people and companies integrate it into their everyday lives, it leaves more room for growth. But ensure to conduct adequate research on the technology before diving deep into its investment opportunities.
Diana is the CTO of Vestinda.
She’s an engineer with extensive experience in the payments space, passionate about mathematics and artificial intelligence.