We’re currently living in a blockchain bubble, where the mere mention of cryptocurrency sends people into a frenzy. But for some, exactly what these terms refer to remains a mystery. In this infographic we break down step by step how blockchain technology works with the biggest digital currency of them all, Bitcoin. The good news is that it’s easier than you think.
Blockchain is an ingenious invention created by a person or group of people under the pseudonym, Satoshi Nakamoto. This technology created the backbone of a new type of internet that allows digital information to be distributed, but not copied. With a blockchain, many people can write entries into a record of information, and a community of users can control how it’s amended and updated. No one person controls the information.
Think of it as a type of distributed ledger for maintaining a permanent and tamper-proof record of transactional data and agreements, one that is shared across a network of computers and thousands of people. The ledger develops into a long list of transactions that have taken place since the start of the network, and grows bigger and bigger.
It was originally devised for the digital currency, Bitcoin, but the tech community is now finding other interesting potential uses for this innovative piece of technology. Contrary to popular belief, blockchain is not new, but it is rather unique.
Bitcoin exploded onto the scene in the past year and has been nicknamed “digital gold for a reason. To date, the leading cryptocurrency is worth $14,208.70, having surged in price over the last ten years. In 2009, Bitcoin wasn’t traded on any exchanges and was worth $0 in its first year of existence. You can now buy electronics, pay for holidays, donate to a charity, pay bills and of course gamble online with Bitcoin. 5Dimes, Bit Starz, Vegas Casino and CloudBet are all examples of online casinos which accept this booming digital currency.
Blockchain can also be used to make other types of digital currency like Ethereum, Ripple, Litecoin, Monero, Dash and more. It could also be used for land tenure and property rights amongst other things. Government records can be lost or even manipulated, therefore blockchain can function as a neutral broker to help determine the rightful owner of the land.
Advantages of Blockchain
There are several benefits to using blockchain, security being one of them. It’s almost impossible to corrupt a blockchain because information is shared and continually reconciled by millions of computers. It consists of blocks and transactions, with each block comprising of batches of “hashed and encrypted transactions. Each block contains the hash of the block before it, which links the two and forms the chain. This process validates each block, all the way back to the original, which is an integral part of the database’s security.
Everyone in the network will be able to see that the transaction has taken place but only the users involved in the transaction will have access to the details. In other words, they are in control of all their information and transactions. All this makes it is easy to catch any fraudulent behaviour. In the case that one block goes down, it’s not a problem because the rest of them all hold a copy of the ledger.
The main reason people are drawn to blockchain technology is that it eliminates third party intermediaries such as banks. Also, transaction times and fees are significantly reduced. Finally, all transactions are immutable, meaning they cannot be altered or erased.
That said, this kind of technology is not without fault. The biggest disadvantage lies within the nature of blockchain, as the process will always be slower than centralised databases. Also, these databases process transactions once or twice, whereas in a blockchain they must be processed independently by every node or block in the network. That means a lot more work has to be done to achieve the same end result.
Being a digital ledger, it relies on several servers, computers and people. In other words, it won’t function without the internet and in places where there is civil unrest and a poor energy infrastructure. There are still some governments which struggle to equip their staff with basic IT equipment, let alone blockchain technology.
There are a couple of other potential drawbacks and risks to overcome. Trust is an issue with public blockchains – who is responsible should a problem arise? In the case of private blockchains, other questions crop up, like whether organisations are capable or willing to invest in the infrastructure for IT chargeback. This refers to an accounting strategy that would apply the costs of IT services, such as database transactions, to the business unit in which they are used.
For a lot of people, the good outweighs the bad, and they’ve welcomed the blockchain with open arms. If you’re also looking to hop on the Bitcoin train, buying and selling the cryptocurrency couldn’t be easier. We’ll show you block by block how it’s done in our infographic below.