Buy our security tokens and earn a share of future revenues and profits.Learn more

First things first. If you wish to trade cryptocurrencies, you don’t need any knowledge whatsoever on what a blockchain technology actually is. For example, chances are that you use the internet daily without knowing the protocols running behind the scenes.

But you definitely came to the right place if you’re looking for a simple, down-to-earth explanation. 

The blockchain is a relatively new technology that transfers trust from third parties into our own hands. Because of this, we can effectively take control of our funds and become our own bank. This new technology allows for faster and safer global transactions, which in turn only fosters globalization.

TABLE OF CONTENT

Blockchain has become widely known as a result of crypto-popularity, but it’s important to know that the use is not limited to just one industry. In the future, we will surely hear a lot more about the blockchain and successful ICO projects that are building a blockchain business.

Watch the following explanatory video or jump straight into the main section of the article!

 

A Really Simplified Explanation of the Bitcoin’s Blockchain Technology

Bitcoin is a fully digital currency, which means that bitcoin can be exchanged between computers in a worldwide peer-to-peer (P2P) network. You might be familiar with P2P if you’ve ever used BitTorrent to exchange files directly with your friends or other people around the world. The main difference here is that we’re not making any copies of bitcoin.  

A bitcoin is a string of data that cannot be duplicated because it is an entry on a public ledger (a collection of financial accounts), called the blockchain. When a transaction is recorded, it remains on the blockchain forever.  

 

The Monopoly Analogy

Let’s imagine a scenario where 4 people play a game of Monopoly (it’s a board game if you’ve been living under a rock). There’s no money on the table and no one really trusts each other, so everyone takes a piece of paper and starts writing down every transaction that happens in the game.

So let’s play this game for one round while imagining that everyone has 5 bitcoins (BTC) at the start. We have players A, B, C and D. We can look at the table below as one block of data (transactions). The transactions that happen in the round are:

 

Turn (transaction description)

Player A

(BTC)

Player B

(BTC)

Player C

(BTC)

Player D

(BTC)

0) initial balance

5

5

5

5

1) A sends 0.1 BTC to C

4.9

5

5.1

5

2) B sends 2.1 BTC to A

7

2.9

5.1

5

3) C sends 0.2 BTC to B

7

3.1

4.9

5

4) D sends 0.9 BTC to A

7.9

3.1

4.9

4.1

At the end of the round, everyone compares their results. If the majority agrees (3 players in our case), the “block of results/transactions” gets added to the blockchain. In our case, this would represent block #1 (or #0) as it was just the first round. Keep in mind that we can add more transactions to our block, but right now we’re only looking at the basic principles.

Anyway, the BTC balance from the last turn of the previous round would get added to the beginning of the next round, or block #2 in our case. At the end of the game, every player would have blocks and blocks of all the transactions from the game. You guessed it, they’d have a simplified version of the blockchain, and everyone could track every transaction all the way back to the beginning of the game.

In the real world, not everyone is keeping track of all the transactions. The large majority simply exchanges their bitcoin while some volunteers (miners) keep the blockchain up to date. This still amounts to thousands of people, so there is virtually no chance of manipulation.

What is bitcoin mining? Coming soon! 

blockchain technology

A Real-World Use Case Example

Let’s say that you want to send 10.000 euros to your friend Adam, who currently lives in London.

In the current banking system (where fractional-reserve banking is used), the process is as follows:

  1. You find out that you can make international transfers only in the strictly defined official hours.
  2. The next hurdle is that the transactions may take up to several days.
  3. Your euros will be converted into the GBP by the exchange rate that is in favor of the bank.
  4. You will have to pay the bank for other expenses.

As you can see, such a system of money transfer is extremely ineffective and in favor of the banks.

With the use of blockchain technology, this process is really simplified!

The original bitcoin blockchain is an open source technology that offers an alternative to the traditional transfer of currencies. The intermediary is replaced by a system with group verification which offers a high degree of traceability, safety, and speed.

In our case, we can send our cryptocurrencies to Adam directly through the blockchain, without the rigid imitations of banks.

The transfer speed and fees will depend on which cryptocurrency is used. But even with minimal costs, the transaction will be extremely fast. We simply send our crypto coins from our wallet to Adam’s wallet.  The nodes (or people) on the network confirm this transaction, ensuring the funds are displayed on Adam’s account.

What about security? If Adam decides to challenge our transaction for some reason, we have a history of transactions in the public ledger.

blockchain security

 

Why Should I Know About Blockchain Technology?

Blockchain technology can be bigger than the financial sector. It can be used for all multi-level transactions, where high traceability and visibility are required. The supply chain is an important example where the blockchain can leverage the management & signing of contracts and audit the origin of the product.

The blockchain technology could also be used for voting platforms or managing medical records and identity. Practical examples of the blockchain applications are only expected to grow in the future.

The blockchain can also be used privately, although that kind of defeats the original vision. But the option is there nonetheless. Financial institutions are extremely exposed to high pressure to demonstrate compliance with regulations, and many companies are pursuing Blockchain implementation.

Blockchain’s exponential growth will come from the convergence of public and private blockchains into an ecosystem where businesses, customers, and suppliers can work together in a safe, verifiable and virtual way.

We hope that this article helped answer some of your questions about what the blockchain technology is and what it can be used for. Have a great day!

P.S. If you are interested in viewing a real-time crypto market, visit our digital currencies! 

 

NOTE

The text is of informative nature and does not apply as a recommendation for an investment. It does not express a personal opinion of the author or service. Any investment or trading is risky, past returns are not a guarantee for future returns – risk only those assets that you can afford to lose.

What are your thoughts? Write your comment below!

If you are interested in purchasing cryptocurrencies, you can use Kriptomat. A regulated and licensed platform which is fast, safe and easy to use.

REGISTER HERE

Join the discussion on our social media: Telegram Chat | Twitter | Facebook | LinkedIn