Everyone talks about it when it comes to crypto currencies, but do you know what a blockchain is exactly? In this post I try to explain the topic of blockchain, the advantages and disadvantages of this technology and its daily use.
The problem of trust
The basic idea of developing a technology like Blockchain certainly began with the questions: Who can I trust? How can trust be established without the need for a central authority? Who should certify a transaction from A to B? How can consensus be generated?
That’s exactly what this technology is all about. Create a new currency unit (I take Bitcoin as an example here in this post) and send 1 Bitcoin (BTC) from your account to person B, who confirms now that person A 1 has sent BTC to person B?
Central instances – banks
That’s how we know it so far: The bank is in charge. She confirms my transactions and serves as a confidential third party. It also checks the sender’s current balance to see if they have the money in their account to execute this transaction.
The bank confirms in this example:
- Person A has the required credit for the transaction
- The transaction has been completed -> money is now with person B
- Exactly this transaction was executed only once
No more central authority
With the Blockchain exactly this basis of trust of a bank is omitted. So I can execute a transaction without the need for banks. The principle is very simple: Instead of a central bank confirming the transaction, all participants of the entire Bitcoin network now confirm my transaction. The system is therefore decentralised.
The more participants confirm the transaction, the more likely it really happened.
Example of a transaction in the Bitcoin network
Person A wants to send person B 0.5 Bitcoin. Person A needs the public key (can be compared with the account number) of person B. This key can look like this:
This transaction from person A to person B is now stored in a so-called block in the bitcoin network. A block therefore contains many such transactions:
is referenced to the previous block to create an endless chain of blocks. This row of blocks is then called a blockchain.
Every transaction made so far is fully visible and can be checked at: https://blockchain.info/
As you can see, Blockchain technology is a sophisticated technique for building consensus on an activity without the use of a central instance and with its transparency virtually unassailable for manipulation.
- Decentralized and therefore much less vulnerable than a single central instance
- 24h available
- Low transaction costs worldwide
- User controlled network
- Speed of a transaction (e.g. 10-60 minutes for Bitcoin)
- Data throughput for large data volumes
- energy use