While cryptocurrencies grabbed all the headlines last year for their outsized returns, their underlying blockchain is the real potential disrupter.
So how does blockchain work? The picture below lays out a six-step process of how a transaction is executed via blockchain technology.
- Two parties want to transact with each other
- The transaction is recorded in the blockchain ledger as a block of encrypted data
- The block of data is then put out into the network for others to see
- Independent third parties that are tapped into the system try to validate the transaction
- Once validated, the transaction is added to the blockchain, where it cannot be moved, changed or tampered with
- Transaction is complete
A key attribute of using blockchain is that once a transaction has been validated, it cannot be moved, changed or tampered with. This is due to the distributed nature of the information, as there is no centralized place to find specific transactions since they are hosted on numerous machines globally. To try and tamper with a recorded transaction would take changing that record on every computer connected to the network, a monumental feat.
Initially, blockchain was thought to help the financial industry, but the possibilities seem to be endless with use cases ranging from storing personal information to validating contracts and transacting in anything of value. It will be interesting to see how this technology shapes our lives in the years to come.
