A blockchain is the technological foundation of bitcoin and other various cryptocurrencies. It acts as a decentralized digital ledger that tracks all public and private transactions that occur on a network, which can be either peer-to-peer or distributed. The integrity of a blockchain is dependent on the cryptography that is used to validate and “chain” all the transactions together. This makes tampering without detection almost impossible.
Benefits of a Blockchain
A blockchain provides a number of useful elements and benefits.
- Digital signatures. This type of signature verifies the ownership of a private key and ensures that messages are secure, came from the correct person and have not been subject to tampering.
- Signed transaction blocks. These preserve the transaction sequence, allow access control and provide an audit trail through hashing, which is a unique digital fingerprint.
- Shared and distributed ledgers. These keep the transactions honest while reducing or eliminating the need for centralization.
Cryptocurrency and blockchain is the basis for smart contracts. An example of this is a rental car company that can block customers from using cars that have not been returned on schedule. In a more expanded scenario, the same company could automate all of their business, which would greatly reduce costs.
There are various interpretations of a blockchain. In some cases, the chain itself is used to improve a process, such as securities trading, and cryptocurrency does not play a role. Banks have utilized blockchain technology to reduce the need for human validation in transactions, which will eventually make the industry more efficient.
The Importance of the Blockchain
Shared digital ledgers are a way of validating large numbers of transactions without having to rely on human intervention. This also eliminates the need for a paper trail that could take weeks or months to complete. Even with more complex transactions that require some human involvement, the mathematical validation of a blockchain speeds up the process. Banks and other industries will lower their base expenses and increase efficiency going into the future.
As the world continues to become more digitized, the blockchain technology will be used more frequently to reduce cost and manual labor while providing speed and security for transactions. The trend toward blockchains is also indicative of market decentralization where people will trade directly with one another rather than through large companies or other organizations.