One of the most fascinating inventions of our time that caught the imagination of technologists and economists simultaneously was the Bitcoin. But now the financial world, central banks, financial institutions and also governments are in deep love with the technology brought by bitcoin – ‘the blockchain’ technology.
What is Blockchain and how Blochchian works under Bitcoin?
The person who tries to solve a computationally difficult puzzle to win the bitcoin is called ‘bitcoin miner’. When a miner joints the bitcoin network, he gets a copy of the blockchain – downloaded automatically. This blockchain is a shared public ledger in the form of a database that contains information about all Bitcoin transactions so far executed. (A ledger is a record of all financial transactions in a systematic manner).
The mission of the bitcoin miner is to solve the software generated cryptographic puzzle. If he became successful, he will add a block into the blockchain besides winning the bitcoin. But solving the puzzle require a highly powerful computer system with a high bandwidth network connection. New blocks will be added with new successful miners solving the puzzle and winning bitcoin. Remember every block contains the same information about the whole transactions in the network and is updated frequently with each new transaction.
What is more important about blockchain is that it is a distributed network. This means that all data are updated with all members with each development. Each block contains the whole previous transaction records in digital format. Each block is chained with the next block; so it is called blockchain. If a new block comes, it will be updated in every block very quickly.
Now, our hero is not the bitcoin; but the blockchain- the technology behind bitcoin. Blockchain is sequential transaction databases. As a distributed network, blokchain contains complete information about the addresses and their balances (of the networked people) right from the starting of the blockchain and distributes it among all the members.
Recent studies declare that the blockchain technology will be backbone of future payment systems. Following are the advantages of blockchain if we use it for digital payments.
- Security: Blockchain ledger is distributed across thousands of computers and this means that hacking is almost impossible.
- Transparency: The sender and the recipient of every transaction are recorded and all transactions are publicly available for inspection. The blockchain shows how money flows around the financial system, and into which markets.
- As a shared ledger, blockchain tracks and keep information about who owns a financial, physical ore electronic asset (as in the case of bitcoin).
- Privacy: Users are anonymous and can move money around instantly and securely.
If blockchain technology is used for payments, no manual or centralized administration is needed to run it. Digital records can be kept and updated after every transaction without any central authority. Here, the benefit for banks is that they can save money for transaction costs.
How the world sees blockchain’s future?
“What if I told you that bitcoin was just the opening act … with the blockchain ready to take center stage,” Goldman Sachs said in a note in December 2015. It said that the technology could “change everything.”
The UK government’s chief scientific adviser has brought a report about blockchain, observing that the technology will increase efficiency in the distribution of taypayers’ money such as grants. About the introduction of blockchain technology, the British Minister Hancock said ““The government cannot bury its head in the sand and ignore new technologies as they emerge.”