Blockchain technology: what it is

Blockchain Technology

Blockchain has become a known technology with the frenzy about the growth of cryptocurrencies’ rates. But it got obvious quite soon that this notion needs to be viewed more broadly. Leaving out all the technical details, operating principle of the blockchain technology is quite simple.

This technology operation can be compared with a ledger kept by each participant of the system. This ledger reflects every event, and the operating principle of the technology can be applied not only for displaying the financial operations with cryptocurrencies but also for any other purposes, e.g. keeping voting results, maintaining registers and so on.

The main feature of this technology is that the ledger is accessed by all the participants of the system and is constantly renewing, but the links to old pages are saved. So, should any user intend any tampering, the system shall immediately use thousands of other records of the same information and any discrepancies will be revealed. Thanks to this fairly simple but reliable operating principle the blockchain technology is justly considered a genuine breakthrough by many.

How does the technology work?

The basic blockchain system can be displayed as an ever increasing block sequence. The blocks are distributed between the participants of the system over the network that many users use for interchange. Each block is provided with a time stamp that can be identified like an individual fingerprint. The blocks are organized in chains according to a certain scheme.

Upon generation, a hash is calculated for each data block. Hash value is recorded in the next block. When the next block is generated, the data are hashed as well and the result is recorded in the next cell. Thus, a blockchain protected from any changes of blocks is created. Hence the name consisting of two meaningful parts: block + chain. Any attempt of translocation of the blocks in the chain of sequence will be rejected by the system.

For preventing any attempts to make changes in the operating principle of the technology, the system has several protection modes. For example, Proof of Work, Proof-of-Activity, Proof-of-Burn, Proof-of-Capacity or Proof-of-Stake. The devised scheme gives no chance for spoofing to any participant. The system has no central node, so it is impossible to disrupt by destroying the center. The operating principle of the system is absolutely transparent for its every participant.

Advantages of the use of blockchain technologies

The main advantages of the technology that allow using it in many different areas:

  • openness
  • safety
  • high level of security

For this reason, it will be of maximum efficiency for the systems that need guaranteed protection from fraud.

Within a short period of time, blockchain has managed to cover a distance from low-rated innovation in the digital world to an effective instrument that is getting used actively both by government and commercial organizations. This gives confidence that the technology will keep on developing and strengthening its presence.

Possible application fields

The field of application of blockchain technologies is not limited to cryptocurrencies operations. Today a growing number of traditional financial and other structures apply the operating principles of this technology in their activity. Also, another way of using the system is getting pace: drawing up smart contracts. This involves the abolishment of many features characteristic for the process of the legal registration of contracts. For example, some electronic notariates are already using blockchain actively for legalizing contracts, and in some areas they just dispense with the notary’s services.

The sphere of intellectual property and personal data safety, where blockchain operating principles are also implemented is worth noting individually. Tailored services emerge that help creative professionals confirm their authorship this way. Also, platforms for creating digital IDs based on blockchain technologies are developing. They can probably replace the usual passports or other IDs in the nearest future. Summing it up, we can say that there is a huge number of the spheres of application of this innovative technology. Its principles may prove to be effective in widely different areas: economics, finances, state institutions, business, etc.

Today, some sort of breaking in the technologies in the most important areas of social life is taking place, and it may well be that the principles of blockchain might soon be observed in all spheres of life. Even now, many banks are trying to introduce technologies for easing the banking.  

Specifics of introducing blockchain

Running processes reorganization

For introducing blockchain system in any of the areas it is necessary to reorganize a lot of processes. Any well-established process affects many participants. Effective implementation of the system might take a complete change of structure, operating scheme, replacement of elements and participants.

Legal framework renewal

New technologies are usually developing fast. If a new system demonstrates its efficiency, it is developing rapidly. It happens due to demand shaping, thousands of new development teams and associations appearing, conferences run. Legal frameworks, due to their traditional slowness, tend to trail behind.

And in the areas with strict government control new approaches cannot be employed without legislation. To make the extensive use of the technology possible it will be necessary to make changes in certain branches of legislation.

Energy production growth

Maintaining systems built on blockchain requires huge energy consumption which also presents certain difficulties. Of course, it refers primarily to cryptocurrencies that operate basing on blockchain. Some experts think that in the coming years energy consumption necessary for normal system functioning will probabaly be compared with the level of energy consumption of some European state.