What’s a Blockchain?
Blockchain is essentially a distributed information processing technology, which mainly solves the problem of data storage. From a specific application perspective, a blockchain is a shared database, or a shared ledger. In the database or ledger, all the stored data or information has the characteristics of decentralization, openness, transparency, and unforgeability or non-tampering.
Generally speaking, the entire blockchain system is mainly composed of data layer, network layer, consensus layer, incentive layer, contract layer and application layer. At present, blockchain types mainly include public chain, private chain, alliance chain (license chain) and so on. Blockchain technology has tremendous application value in fields such as finance, IoTs, logistics, public services and digital copyright, involving institutions such as international exchange, equity registration, etc.
How does a Blockchain Work?
We have learned the basic concept that blockchain is a distributed shared ledger that can ensure the security and credibility of stored data or information. So how exactly does this ledger work?
To simply put it, we imagine a real-life scenario in which residents of a community wish to donate money to the areas hit hard by the epidemic. To ensure the success of the donation, residents have to address the following problems. First: 1. With so many residents, how would you know whether a resident has made a donation or not? 2. How to verify whether a donation is valid? 3. If the committee is selected to keep a record of the donations, what if a member of the committee embezzles the donation funds?
As a result, the residents of the community decided to use blockchain technology to solve the above problems: First of all, all residents can participate in the bookkeeping of community donations and keep a copy of the complete ledger. Second, any donation will be kept on the book and the donation record will be also be synchronized with the copy of the ledger in real time, which is visible to all. However, encryption will be added protecting sensitive details of donations, such as residents' bank accounts, to protect the privacy of the donators. Third, to ensure the authenticity of the data, the residents agreed that the records certified by more than half of the residents in the community are valid. Therefore, if a person attempts to make unfulfilled donations by tampering with the donation ledger, it means he needs to persuade more than half of the residents of the community to commit perjury, which is basically impossible due to high costs.
Advantages of Blockchain Technology
We can still leverage the above case to illustrate the advantages of blockchain technology.
1. Decentralization. Residents' donations will not be kept by a single resident, nor by a single organization, such as the residents’ committee. All residents in the community have the right to participate in the bookkeeping, which effectively ensure the decentralization of the ledger data, avoiding the risks rising from data control by a single person or organization.
2. Openness and transparency. The record on donations is visible to all residents of the community, clearly and transparently.
3. Non-tampering. The donation record can‘t be tampered with unless it’s verified by more than half of the residents of the community.
4. Independency. It operates based on the standards and protocols which all residents agree to and does not rely on any other third party.
Relationship between Blockchain and Bitcoin
Blockchain is the underlying technology foundation of Bitcoin, and Bitcoin is the first real world application of blockchain. It should be noted that all cryptocurrencies represented by Bitcoin are the real-world applications of blockchain technology, but it does not mean all blockchains are used for creating digital currency.