The blockchain is a decentralized database structure or a digital register that records transactions transparently. It serves as the basis of many digital currencies. The special characteristics of Blockchain technology are decentralization, immutability and transparency. In terms of decentralization, Blockchain is often referred to as Distributed Ledger Technology.
Blockchain for beginners
Blockchain is the backbone of Bitcoin and most other digital currencies. Ultimately, it is an openly accessible general ledger that transparently documents all transactions made. This general ledger is not stored centrally, but stored and updated on many different computers – the so-called nodes. The decentralized filing and the process of mining (note: the mining does not have to happen with every blockchain) make sure that a blockchain does not have to be managed by a central authority.
Figuratively, one can think of the blockchain as a chain of blocks in which transaction data are linked together. The transactions are merged into blocks, validated, and attached to the previous chain of blocks in a process called proof-of-work.In the proof-of-work approach, computational tasks must be solved, which can only be solved by frequent trial and error. This ensures that sufficient work is invested in calculating and hedging the transactions. The proof-of-work approach is extremely energy intensive, so the power and hardware costs would make a scam senseless.
In addition to the proof-of-work approach, there are other procedures, such as the proof-of-stake approach, in which not the computing capacity is crucial, but the shares (tokens or coins) to the respective cryptocurrency.
There are now applications for blockchain that go far beyond the function of a financial transaction book. For example, so-called smart contracts (contracts that are embedded in a program code) can be stored on a block chain with which a wide variety of administrative and process applications can be handled. The execution of these smart contracts can be tracked in real time – as a logical further development of the open-source concept, the blockchain thus makes an open execution possible.
In this way, sensitive data such as health data or ownership such as land ownership can be organized and controlled via a block chain. At the same time, every entry ever made in a blockchain directory can be traced forever and not deleted or changed. Accordingly, many states and companies are interested in researching this technology. The main motives are security, transparency and efficiency. The ability to automate processes through a secure infrastructure while eliminating the risk of data manipulation seems appealing to many institutions and organizations.
It must be remembered that there is not one blockchain. A blockchain can rather be designed very differently. A blockchain used in the administration of a public agency is designed differently than, for example, the most popular blockchain, the bitcoin blockchain, which is the basis of a large number of applications.