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Understanding Blockchain Technology

Posted On: Feb 01, 2018



If you search for the definition of Blockchain technology on the internet, it will say:

“The Blockchain is an incorruptible digital ledger of economic transactions that can be programmed to record not just financial transactions but virtually everything of value.”

Now, I am sure most of us comprehend some of the words but not this combination of words in its entirety. Right? Great. A good way to understand something new is to draw an analogy to something we already know, am I right? To better understand Blockchain, we will first draw an analogy to google docs. This is a very rudimentary analogy but it sets you off in the right direction. The second analogy will be Wikipedia and then we will discuss the actual technology and its differences with the analogy.  

The traditional way of sharing files was sending a spreadsheet to the other person to check, verify and make changes. Correct? So, until you get back that sheet you cannot do further editing or changes and are locked out of it. Today’s databases also do the same thing. Banks lock out the access of the other bank momentarily while doing a money transfer. Google docs allow simultaneously access to both parties at all times and only a single version is seen by both parties. When this is shared among many people, then it is called shared ledger.



In Wikipedia, only a user with a permitted and authorized account can make changes to the Wikipedia pages and it is stored on a centralized server. When any user accesses the Wikipedia page, you will see the master copy. Control of the entire database remains centralized with Wikipedia administrators. Wikipedia has a client-server model built into the World Wide Web.

In Blockchain technology, many users can simultaneously write entries into a shared and distributed ledger and a community of users can control the ledger. Unlike a master copy in Wikipedia, blockchain has nodes (also called as administrators) in the network, each node updates the records independently and the record that has been verified by most users becomes the official record. The idea is groundbreaking because it eliminates the need for a trusted third party or a centralized party to facilitate digital relationships.

The Blockchain is not a new technology but it is a combination of 3 proven technologies that are applied in a unique way. They are the Internet, Private Key Cryptography and a Protocol Governing Incentivization.