Blockchain: What is it and how it works?

Blockchain, also known as Distributed Ledger Technology (DLT), uses decentralization and cryptographic hashing to make the history of any digital asset unalterable and transparent.

A Google Doc is a simple analogy for understanding blockchain technology. When we make a document and share it with a group of people, it is distributed rather than copied or transferred.

This creates a decentralized distribution chain in which everyone has simultaneous access to the document. No one is locked out while waiting for changes from another party, and all changes to the document are recorded in real time, making changes completely transparent.

Of course, blockchain is more complicated than a Google Doc, but the analogy is appropriate because it highlights three key concepts in the technology:

• A blockchain is a database that stores encrypted blocks of data and then connects them to form a chronological single source of truth for the data.
• Instead of being copied or transferred, digital assets are distributed, resulting in an immutable record of an asset.
• The asset is decentralized, allowing the public full real-time access and transparency.
• A transparent ledger of changes protects the document's integrity, fostering trust in the asset.
• Blockchain's inherent security features and public ledger make it an ideal technology for nearly every industry.

Blockchain is an especially promising and revolutionary technology because it reduces risk, eliminates fraud, and increases transparency in a scalable manner for a wide range of applications.

How does Blockchain work?

The most well-known application of blockchain is in cryptocurrencies. Cryptocurrencies are digital currencies that can be used to purchase goods and services, such as Bitcoin, Ethereum, or Litecoin.

Crypto, like a digital form of cash, can be used to purchase anything from your lunch to your next home. Unlike cash, cryptocurrency employs blockchain to serve as both a public ledger and an enhanced cryptographic security system, ensuring that online transactions are always recorded and secure.

To date, there are approximately 6,700 cryptocurrencies in the world, with a total market cap of around $1.6 trillion, with Bitcoin accounting for the vast majority of the value. These tokens have grown in popularity in recent years, with one Bitcoin equaling $60,000.

There are, of course, many valid arguments against blockchain-based digital currencies. To begin with, cryptocurrency is not a highly regulated market. Many governments were quick to embrace cryptocurrency, but few have enacted strict crypto-related legislation.

Furthermore, due to the aforementioned speculators, cryptocurrency is extremely volatile. Bitcoin was valued at around $450 per token in 2016. It then increased to around $16,000 per token in 2018, dropped to around $3,100, and has since risen to more than $60,000. Because of the lack of stability, some people have become extremely wealthy, while the majority have lost thousands of dollars.