What is the blockchain, and how does it work?

You may have heard the term "blockchain" frequently used recently, particularly in the financial world. Developers created blockchain technology to support cryptocurrency transactions. However, blockchain technology can potentially transform many industries, including transportation, medicine, art, and finance.

What is a blockchain?

A blockchain is a digital form of recordkeeping -- essentially a digital ledger. Blockchains are peer-to-peer networks and have the logic to securely agree on transactions in a distributed way. A blockchain allows individuals to transact business with each other without going through an intermediary such as a traditional bank.

The blockchain is maintained by a network of computers known as nodes. Nodes verify and store data within the ledger. The blockchain’s validation method allows all recorded data to be secure and verifiable. Some blockchains, however, will allow an attacker to essentially write a counter chain. Other nodes will receive the counter chain in a double spend/51 percent attack.

In general, the nodes help keep the data secure. Each node has its own record of all the data on the blockchain, fully time-stamped. If someone hacks into one node on the network, they still can't alter the information on other nodes.

The blockchain organizes data into "blocks." Each block can hold a limited amount of information. As more information is added, more blocks are created, forming a chain. The blocks also help to protect the information. Each block has a set of numbers, known as a cryptographic hash, that protects the block's place on the chain. Each participant on the blockchain has their own unique key that acts as their own personal digital signature. If, for some reason, a record is altered, the signature becomes invalid and the peer network knows that something has occurred.

How does the blockchain work?

Almost all cryptocurrencies operate on a blockchain. Each blockchain uses a slightly different methodology to validate that a transaction has been added to the block. Here is one example of how a blockchain works, using Bitcoin, the first cryptocurrency.

Someone sells, Bitcoin.
The transaction is transmitted to the nodes.
The nodes compete to confirm the transaction using computer algorithms to solve a mathematical equation. The first miner to complete the equation confirms the block and receives Bitcoin as a reward.
After the transaction is confirmed, it is added to a block on the ledger.
The majority of the nodes on the network must confirm the transaction.
The block is permanently added to the chain, given a cryptographic hash, and the transaction is processed.

When was blockchain technology invented?

Scientists conceived blockchain technology more than 30 years ago, although the concept was implemented more recently. Stuart Haber and W Scott Stornetta first described the concept in an academic paper in 1991. A computer scientist, Nick Szabo, began work on a decentralized currency that he called "bit gold" in 1998. Two years later, Stefan Konst published a theory of cryptographically secured chains.

The big breakthrough occurred when a group of developers who took the name Satoshi Nakamoto published a white paper. The paper "Bitcoin: A Peer-to-Peer Electronic Cash System" appeared in 2008. The following year, the developers implemented the first blockchain for Bitcoin transactions.

In 2014, developers separated the blockchain from the Bitcoin currency, realizing that it would have broader uses. Blockchain 2.0, which refers to applications beyond currency, was created.

Ethereum was the first blockchain 2.0. The Ethereum blockchain system introduces computer programs into the blocks, which have become known as smart contracts. Smart contracts execute automatically when certain conditions are met. Conditions might include the release of funds or the issuance of a ticket. Once the conditions are met, the blockchain is automatically updated, the transaction is made permanent, and only the parties involved can see the transaction.

Blockchains are now being used for various transactions, including NFT trading and selling personal and real property.

How is blockchain technology changing the world?

Blockchain technology is already changing the financial world and has the possibility to transform other industries as well.

Lending

Blockchain lending has boomed over the past two years, according to the Reuters news service. Blockchain lending, often done on DeFi (decentralized finance) platforms, allows borrowers and lenders to bypass traditional intermediaries by using smart contracts. Because they bypass intermediaries, transactions are completed quickly.

Blockchain technology will dramatically improve commercial and economic possibilities in areas or countries that are underserved by financial institutions.

Sales

Blockchain technology is also being used to complete sales of various goods. NFTs, or non-fungible tokens, are cryptographic tokens that represent real-world objects, including art, video, and music. Digital real estate in the metaverse (a virtual world) is also being sold using blockchain technology. In fact, without blockchain technology, the metaverse, which is considered the next generation of the Web, would be unable to exist. Blockchain will authenticate the ownership of goods across virtual worlds in the metaverse.

Supply chains

IBM is experimenting with the use of blockchain technology to track and manage product supply chains. The Harvard Business Review says blockchain technology can make deliveries more cost-efficient, enhance trackability, improve coordination, and improve access to finances.

Health care

Developers are working on blockchain applications for the healthcare industry. Deloitte is working on developing a blockchain-based health care information exchange that it believes would improve patient outcomes.

Other applications

Developers are also working on applying blockchain technology to other situations, such as voting. Blockchain applications are also being used to improve efficiencies in the insurance, transportation, aerospace, hospitality, construction, energy management, and charity industries.

Putting the blockchain to work for you

Anterdit can provide consulting services to help you further understand how blockchain technology can benefit you and your business.

One way many businesses can use the blockchain is for the sale of NFTs. Anterdit provides a white label blockchain marketplace that allows you to create NFT releases and manage release schedules, add assets and creators, and mint assets. The versatile platform is quick, eco-friendly, and cost-effective. It integrates seamlessly with your brand to create an excellent user experience for your customers.

You can create a marketplace to sell many items, including artwork, collectibles, sports paraphernalia, tickets, and utility tokens. You can monetize music or media archives to add revenue streams. You can use the marketplace to drive customer loyalty, expand your audience, or create engaging campaigns to bring your consumer experience into the metaverse.

Let us show you how our white-label solution can benefit you. Sign up for a demo today.

Sources

CB Insights: Banking is only the beginning: 65 big industries blockchain could transform

Deloitte: Blockchain: Opportunities for health care

Harvard Business Review: Building a Transparent Supply Chain

ICAEW: History of Blockchain

NerdWallet: What is Blockchain? Blockchain Technology, Explained