Blockchain was designed to serve as a decentralized ledger for Bitcoin transactions within the Bitcoin network. A decentralized or distributed database/ledger is one in which the storage devices that house the ledgers are not connected to a single processor. By way of blocks, the blockchain stores an ever-growing list of transactions. To become a part of the blockchain, each block is time-stamped and then connected to the previous block.
People used to keep critical documents safe before computers by creating several copies and storing them in impenetrable steel safes, buried treasure chests, or bank vaults. You’d also translate each of these documents into a secret language that only you could comprehend as an extra layer of security. Even if someone broke into your bank vault and stole your belongings, they wouldn’t be able to decipher your cryptic communications, and you’d still have plenty of backups hidden elsewhere.
This concept is given a boost by blockchain. Imagine being able to make copies of all your files, encrypt them with special software, and save them in each other’s digital bank vaults (computers) all across the internet with a million buddies. Even if a hacker gains access to, steals, or destroys your computer, they will be unable to understand your data, and your network of friends will still have 999,999 backups of your files. In a nutshell, that is blockchain.
Special files, scrambled with encryption software so that only a few people can see them, are saved on regular computers and linked together via a network or the internet. The files are known as ledgers, and they keep track of your information in a precise fashion. The computers are known as nodes or blocks, and they are personal computers that share processing power, storage space, and bandwidth. And the network is known as a chain – a collection of interconnected blocks that allow computers to collaborate and share ledgers (hence the name, blockchain).
The societal impact of blockchain technology is already being felt, and this could be only the beginning. Through digital wallets, ATM rollouts, and the supply of loans and payment systems, cryptocurrency has already cast doubt on financial services. When you consider that there are over 2 billion individuals in the globe without a bank account today, such a transformation is unquestionably life-changing and can only be a good thing.
For underdeveloped countries, the transition to cryptocurrencies may be easier than the transition to conventional money and credit cards. In some ways, it resembles the evolution of cellular phones in developing countries. It was far easier to obtain large numbers of cell phones than it was to build a new infrastructure for landlines. Many individuals will certainly support decentralizing power away from governments and their control over people’s lives, and the social ramifications can be enormous.
Consider the recent rash of identity thefts that have made headlines. Giving people authority over their identification will almost probably prevent such incidents and allow people to give information with confidence. Greater transparency could increase the reputation and efficacy of charities working in developing nations with corrupt or manipulative governments, in addition to enabling the impoverished access to banking services. Increased trust in where the money goes and who benefits would almost certainly result in increased contributions and support for those in need in places of the world where aid is most needed. Surprisingly, and contrary to popular belief, blockchain can be used to create a trust-based financial system.
Taking it a step further, blockchain technology is well-positioned to eliminate the risk of vote manipulation as well as all of the other flaws in the existing system. Blockchain, believe it or not, has the potential to solve some of these issues. Naturally, new impediments and issues will arise as a result of new technology, but the cycle will continue, and those new problems will be dealt with with more complex solutions.
A decentralized ledger would offer all of the information needed to accurately record votes on an anonymous basis, as well as verify the accuracy and determine whether the voting process had been tampered with. With citizens being able to vote in the privacy of their own homes, there would be no fear of intimidation.
It is yet to be seen whether blockchain technology will become commonplace. While exaggerated expectations have made the end of central banks and their tasks as we know them more likely, an end to the centralized financial system may be a step too far for the time being. Time will define the future of blockchain, but one thing looks to be certain right now. Because the status quo is no longer an option, change is essential.