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The potential of blockchain technology could be compared to the potential of the internet itself. It’s a game-changer that goes beyond cryptocurrency. Blockchain has been discussed enough in the past decade that the word has become familiar for many, but without fully understanding what it means. Because of its most common context, it’s often thought to be synonymous with cryptocurrency, like Bitcoin. But when we take a closer look at the question of “What is blockchain?” we see that there is so much more to this technology, particularly in its potential uses for the future.

What Is Blockchain Technology?

Blockchain explained in its most basic terms would be as a decentralized public record of events, or an open database of records verified by data distributed throughout a network. But really, what does all of that mean? What is a blockchain?In many ways, the most important thing to understand is that this is considered to be a path to better data security.You may hear it referred to as “Distributed Ledger Technology”, or DLT. Blockchain can be explained as a way to securely record digital information and keep it openly distributed, while maintaining its security. This sounds like opposing ideas. If the information is distributed freely, can’t it be hacked and easily changed?

How Digital Security Works With Blockchain

The “blocks” are pieces of data. One megabyte of data is contained in one block. Because the data is text, this block size will actually contain a lot of information. These blocks are distributed throughout a great deal of computers in a network. In the case of Bitcoin, the software allows private users to prove the integrity of their devices through a proof of work system and then join the network. This means the information inside the blocks is recorded in all of these places across the network. Each block is marked with a hash. A hash is a cryptographic code.

These hashes are assigned in an order. The order of the hash codes puts the blocks into a recognizable chain.So now we know that the first block should be A, the second block should be B, and the third block should be C.If a hacker were to successfully change data on a single block, that block would be assigned a new code. Now, the block that should be labeled B is labeled H. This makes it obvious the block has been tampered with. While a hacker could potentially attempt to hack the following blocks in the chain, they would have to continue to every block as each one they tampered with would be marked. Because of this system, data stored using this technology is considered more secure.

What Is Blockchain Used For

Today, this technology is most well known for its use in cryptocurrency, like Bitcoin. Many people consider it to be a safer way to handle currency than we currently have. In our current system with printed currency, the money is verified by a third party trust organization. This verification process is handled by a bank or government. The third party trust organization is responsible for protecting people, and the economy at large, from fraud. Bitcoin doesn’t require a third party organization because the transactions are verified by the large community of computers keeping public records. When people say that blockchain is a “decentralized” technology, this is what they mean. There is no singular central source to say what is and isn’t fraud. There is a whole network maintaining the security of this data.

How Blockchain Records Transactions

When this technology is used to secure transactions with cryptocurrency, a sequence of events happens. First, a transaction happens using a Bitcoin (or other cryptocurrency) account. The network of computers verify the data you submitted so the transaction occurs successfully.The data used in the transaction is recorded in the block. This includes information like the digital signature of your Bitcoin account, the digital signature of the store where you made the purchase, and the amount of money spent.Then the block containing this transaction, and thousands of others, is given the hash code and added to the chain of blocks.

Doesn’t That Mean Your Private Information Is Made Public?

This technology is all about transparency, so yes, the data is made public across the network. However, the recorded data in a transaction is selected with privacy in mind. Your Bitcoin account would include your username, or a digital signature. This is the information that will be recorded in the block. For this reason, many people prefer the security of cryptocurrency specifically because their digital signature isn’t necessarily connected to their identity in the real world, unless they choose to make that information public somehow. So, for example, if a public figure used cryptocurrency, they could make secure financial transactions associated with a username not connected to their very public life.

The Advantages of Distributed Ledger Technology

For one thing, blockchain can save companies and individuals money. By making third party trust organizations obsolete, cryptocurrency becomes a more affordable way to maintain the financial system. Potentially, this technology can be used as an affordable means of data security in a variety of ways, many of which we have yet to put into application.

This technology reduces the need for a lot of record keeping, which streamlines the type of information we need to store. This simplifies things for bookkeeping and makes data more accessible. The security of data contained in a blockchain is often considered its biggest advantage.Transparency is a large advantage in today’s world, where people care more about the privacy and security of their data and the values of the companies they choose to do business with.

By having a trusted system for data greater transparency is achieved, making data and therefore companies more trustworthy. The ability to perform more anonymous transactions is a large advantage for adopters of Bitcoin. In truth, many of the biggest advantages for blockchain have yet to be discovered. How will people use this tech in the future? Only time will tell. As it becomes more accepted and trusted as a resource, blockchain technology has the potential to change IT in ways we can only currently make guesses about.