5 Key Concepts to Understand Blockchain

Blockchain is a Database

Blockchain is a new type of database; it distinguishes itself from a regular database because the information is shared by decentralized parties. Therefore, Blockchain doesn’t need an administrator and all transactions are recorded and confirmed in an anonymous way, no fees or third parties are involved. The big advantage is that no one can take down the system or corrupt it because no one owns it.

A New Way to Understand Ownership

Cryptocurrencies don’t exist physically. However, cryptocurrencies like Bitcoin work like money; they can be transferable and we can actually own them. The technology underlying this system is the blockchain. By creating a new record in the blockchain, users can transfer value in the form of data instead of giving away a physical coin.

The Records are Public

Anyone can access this database. In other words, anyone can verify that the information has been placed in the “block”. This doesn’t mean that anyone can access the information that block contains, since only users with a private key can access that specific information. Thanks to the encryption process, no third party can alter, damage or misuse the chain; users can only modify the information they own.

The System is Self-Regulated And Fully Secure

The system is self-regulated and entirely secure, it’s considered by many as the safest channel to execute financial transactions. The fact that third-parties are not included in the equation, protects the users and prevents them of getting scammed. The information through buyers and sellers is shared by means of “tamper-proof public ledgers”. It is intended that the equations are hard to crack, therefore the only way to validate these public ledgers is by having different agents validating data from different and powerful computers. The only way that data becomes valid is if different miners back it up on a global scale, making it impossible for anyone to tamper with it. All transactions are monitored and recorded carefully.

A World of Possibilities

The possibilities of this technology are limitless. In September 2015 the World Economic Forum published a report predicting that by 2025 10% of GDP will be stored in blockchains or blockchain-related  technology. Statements like this one has unsurprisingly attracted tech business companies such as IBM or Microsoft which have already announced services exclusively based on this technology. In the Financial Industry, major banks like Morgan Stanley or Bank of America have already declared their intentions to explore blockchains and its potential applied in finance. Removing the “human factor” out of the equation, all common transactions in any financial market can be carried out by computers in a faster and more accurate way.

Blockchain technology is behind the new industry of cryptocurrencies and is shaking many other industries at the same time. Within the legal sector blockchain facilitates the negotiation between parties when signing a contract, it helps to reduce costs and it’s completely safe, that’s why it is called Smart Contracts. Other possible areas of application of the blockchain technology are: the “cybersecuration”of political elections against fraud, the improvement of file sharing and file storage, identity management, or fueling the internet of things, etc. The potential of the blockchain technology has yet to be fully realized.

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