Blockchain made simple. Blockchain is simply a distributed ledger technology to store and track data. But we have paper ledgers and computerized databases, so why blockchain? Let's look at the basics, starting with the block.
Each block stores three key pieces of information. Data, the block hash, and the hash of the previous block. The data stored on the block can be financial, supply chain, property transactions, medical records, or any other information we need to store and track.
The block hash is a cryptographic value of numbers and letters that identifies a block. It's unique, like a fingerprint. If the data changes inside the block, this will cause the hash to change. Hashes are useful to detect changes in blocks. If the hash changes, it's no longer the same block.
To understand how blocks create a blockchain, Let's look at an example. Here we have a chain of three blocks. Notice how block three points back to two and two points back to one.
The previous hash creates the chain in the blockchain. Note, block one is unique. There is no previous hash.
This block is called the genesis block. Let's say you tamper with the data inside the second block. The hash would change as well.
Block Block 2 would no longer link to block 3. In addition to the security provided by the block hash, a blockchain is shared across a large distributed network of computers, meaning everyone has the same copy of the blockchain. Most databases are stored in a centralized location, which increases the risk of the data being tampered with if the central location is breached. A distributed network provides an extra layer of security by eliminating the centralized storage of data.
Another way that blockchain provides trust and security is by requiring agreement within the network to verify a transaction, meaning before adding a new block, a majority of the group must agree to add the new block. In summary, blockchain uses a hash system to store and track data, creating a chain. Everyone in the network has a copy of the blockchain. And a majority of the network must agree before a new block is added. Let's look at a real-world example.
If Hannah is purchasing a home from David, there are numerous intermediaries needed to complete the transaction, like inspectors, local governments, real estate agents, and banks, many dependent on paper documentation. With blockchain, we can engage in peer-to-peer transactions. All property information can be stored on the blockchain, our personal identity protected, and completing the sale using real-time payment settlement. Individuals aren't the only ones to benefit from blockchain technology.
Companies storing and transacting sensitive customer data and centralized systems are more prone to security threats, costing companies a hefty amount of both money and time. In a recent survey by Deloitte, when organizations were asked about the relevance of blockchain, 55% of respondents said it was critical and in their top Top 5 Strategic Priorities Blockchain spans well beyond just financial systems. Blockchain fundamentals have the potential to underpin many of the current systems we use today, providing improved transparency, eliminating the need for paper records, manual ledger updates, and third-party intermediaries. So whether you're an individual seeking safe, decentralized peer-to-peer transactions, or an organization looking to protect and store data.
The innovation provided by blockchain provides us with an entirely new way to interact with one another in the future. Hey FS Insight viewers, thanks for checking out our YouTube channel. And for market research including both financial and crypto updates delivered to your inbox, check out fsinsight.com.
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