It is now possible to easily complete transactions without having to deal with online wallets, banks and third-party application thanks to Blockchain.
Imagine four friends, Jack, Ted, Sam and Phil meeting up for drinks. After they are done, Jack pays the bill and all decide to split the expense amongst each other. On the next day, when Phil sends his share to Jack via online money transfer, it goes through. But when Ted and Sam send theirs, the transactions fail.
There could be many reasons for this failure, from Technical issues, one of their accounts being hacked, the transfer limits being exceeded and of course, to high transfer charges. To solve these problems, the concept of cryptocurrencies was introduced. Cryptocurrencies are a form of digital or virtual currency that runs on Blockchain technology.
Thanks to Blockchain technology, cryptocurrencies are immune to counterfeiting, do not require a central authority and are protected by strong and complex encryption algorithms.
Let’s go back to our four friends and have Ted, Sam and Phil send 2 Bitcoins (the most common cryptocurrency) to Jack as their contribution to a night of drinks. Let us assume that Ted, Sam and Phil each have 3 Bitcoins in reserve while Jack has 5. When Phil sends 2 Bitcoins to Jack, a block is created with the transaction details permanently inscribed in it.
This block also holds the number of Bitcoins each friend owns. So following this example, the transaction details between Phil, Ted, Sam and Jack are recorded on similar blocks as well as the amount of Bitcoin each person has in reserve. These blocks are linked together since they take reference from each other based on the number of Bitcoins each user holds. This chain of linked blocks is called a ledger and is shared among all the friends, acting as a public distributed ledger. This is the basis of Blockchain.
So, what happens when Phil, having 1 Bitcoin, tries sending 2 more Bitcoins to Jack? It will not go through because all his friends have a copy of the ledger and they see he has only one Bitcoin. His friends will flag his transaction as invalid. A hacker cannot alter the data in a Blockchain because each user has a copy of the data, and also because of the encryption.
All this is made possible using Blockchain technology. We can now describe Blockchain as:
a) A collection of records,
b) Linked to each other,
c) Strongly resistant to alteration
d) And protected using cryptography.
Very simple and easy, what do you think?
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