Nowadays it’d be tough to find someone who hasn’t heard about Bitcoin. Investors everywhere have gotten on board of the cryptocurrency and Bitcoin hasn’t disappointed, with its price skyrocketing over the last year to almost $20,000 in December. Investors who invested in Bitcoin early, like forex trader Jordan Lindsey, saw their investments pay off greatly.
Perhaps forgotten in the Bitcoin fervor though, is the technology that makes it all work: blockchain. While those involved with technology, like Jordan Lindsey, certainly know about the broad capabilities of the blockchain, perhaps the average person does not.
But understanding blockchain is a key to remaining competitive in a variety of different sectors. Any sector with data storage or a middleman could be seriously changed in the near future by blockchain. That’s what has seasoned currency investors, like Jordan Lindsey, turning their attention to the blockchain.
What is Blockchain Technology?
Blockchain technology is basically a digital public ledger capable of recording any transaction. Each time a transaction is initiated, a network of computers, known as nodes, verify the validity of that transaction using algorithms. A bunch of transactions together makes up one block which is then added to the chain.
Because this entire blockchain is available to everyone involved in the network, it is not controlled by a single entity. The data inside of it is protected by cryptography. In order to change or add anything to the blockchain, the majority of computers in the network must approve it. This makes anything on the blockchain very difficult to change. The distributed network of nodes means that no central server contains all of the important information, which makes it extremely difficult to hack.
What is Blockchain Technology in Simpler Terms?
To use a popular analogy, blockchain is similar to Google Docs. With a normal document, you can edit it thoroughly and then send it to someone else for them to see the changes. But with a Google document, everyone sharing the document can see the changes in real time. Blockchain works in a similar same way.
Imagine that you need to transfer funds from your bank account to the bank account of someone else. When you send the money, your bank would temporarily shut you out from that money while they process the transaction. Blockchain offers the potential to cut out the middleman (the bank) in this scenario, by allowing you to send the funds directly to someone else. The public digital ledger verified by nodes ensures the same things that the bank would, basically that you can’t double spend the money and that the money will get where it is supposed to.
To further understand the blockchain, it’ll help to listen to an expert on both cryptocurrency and currency like Jordan Lindsey. His YouTube channel provides plenty of timely, relevant insights on the blockchain and Bitcoin.
How Does Blockchain Decentralize the Monetary Process?
In the previous example, you saw how blockchain can replace a central authority like a bank. Blockchain can potentially serve this purpose in many different sectors. Because the blockchain is a public and distributed ledger there is no one entity that controls information or data. Instead, it’s stored publicly where everyone has access to it.
This is an extremely important aspect of blockchain because that has numerous benefits over the current system. The current financial system lends a lot of power to the central authority. Whoever the central authority is controls and has access to all sorts of sensitive information that belongs to the clients. Take a bank for example. Every time you want to send money somewhere, your bank knows exactly where you spent it and how much. Blockchain allows for people to have more privacy about their spendings.
Blockchain also makes it more difficult for hackers to access your information. In the past year, an Equifax data breach saw 143 million Americans become vulnerable to hackers. This is an example of a central server being hacked. Blockchain creates a data storage system where there is no central server to hack. The data is accessible to all but is cryptographically encoded to ensure anonymity.
What is a Smart Contract?
Let’s say you and I want to bet a $1000 that a flight will be on time or late. Right now, we have a few different options to enforce the bet. We could trust each other that we would pay the bet. But this only works with friends, not strangers.
Our second option is to create a contract to enforce the bet. This would work but if one of us decided to not abide by the contract, the other would have to pay legal fees to get the money. Not a viable option if the amount of money isn’t very large in the first place. The last option is to trust a third party to enforce the bet. We each turn our money over to them and trust that they will pay. But again, that third party could either steal the money or charge us a fee for their help.
Smart contracts are the innovative solution offered by the blockchain. A smart contract is a contract that is on the blockchain. These contracts can have built-in stipulations that will be enforced. The contract could check the data to see whether or not the flight was on time and automatically send the money to the winner in the drawn-up example above.
What Sectors Could the Blockchain Change?
Any sector with a middleman or data storage could be revolutionized by blockchain technology. Think about the costly fees associated with real estate. Each party needs to pay their realtor a percentage. With valuable homes, these numbers can be huge. Smart contracts offer the potential for buyer and seller to interact directly.
Blockchain offers an opportunity to improve the work of government officials as well. A government is required to store a large amount of data pertaining to all of its citizens. Blockchain could provide a streamlined data storage solution that simplifies many government services.
What Will the Future Hold?
The truth is, we are only scratching the surface of what blockchain technology can do. Investors like Jordan Lindsey (who we’ve written about here) see the almost limitless possibilities of blockchain the same way they saw the possibilities of the internet back in the 90s.
While Bitcoin is the poster child and the most exciting blockchain application to date, it is by no means its only application. In the future, smart contracts and blockchain data storage may become the new standard. Continuing to educate yourself on the possibilities of blockchain will keep you at the forefront of a technological revolution.