What is a blockchain

The blockchain is a decentralized data structure and the basis for many digital currencies. In order to emphasize this decentralization more often, the "Distributed Ledger Technology" is often referred to, especially in the financial sector. This technology is distinguished by its decentralization, invariability and transparency.

"Be your own bank" is a phrase of the bitcoin and blockchain scene. But why would you want to be your own bank? For many political idealists, a problem with the current banking system is that control of money - and thus a considerable part of property - is in the hands of powerful organizations. The problem is not that these centralized structures are "evil". The question, however, is whether such a centralized system is secure and trustworthy in the long term. Can a centralized system guarantee that nothing is changed on the main books? How does it protect against an accident (such as a cyber attack)? How can it ensure that only authorized persons have access to sensitive data?

Such dangers and uncertainties could be reduced, if not eliminated, with a decentralized solution.

Blockchain for beginners

The blockchain is the backbone of Bitcoin and most other digital currencies. It is ultimately an open-to-view general ledger of all transactions. This main book is not stored centrally, but is stored on many different computers, the so-called nodes, and updated. The decentralized repository and a process called mining (does not have to occur with every blockchain) ensure that a blockchain does not need to be managed by any central authority.

The blockchain can be represented as a chain of blocks in which transaction data are linked. The transactions are grouped into blocks, checked for validity, and attached to the previous chain of blocks in a process called Proof of Work.

The proof-of-work approach is very energy-intensive, so that the electricity and hardware costs would make a fraud attempt, among other aspects, meaningless. In the proof-of-work approach, computing tasks must be solved, which can only be solved by frequent testing, which ensures that sufficient work is invested in the calculation and hedging of the transactions.

There are also other methods, e.g. The Proof-of-Stake approach, where the computing capacities are not decisive, but the shares (tokens or coins) at the respective crypto level.

In the meantime, there are application possibilities for the blockchain, which go far beyond the function of a financial transaction book. For example, So-called SmartContracts (contracts embedded in program code) on a blockchain, which can be used to handle a variety of management and process applications. The execution of these smartcontracts can be tracked in real-time - as a logical further development of the open-source idea an open execution is possible with the blockchain.

For example, sensitive data (e.g., health data) or ownership (e.g., land ownership) can be organized and controlled through a blockchain. Accordingly, many countries and companies are researching this technology. The primary concerns are security, transparency and efficiency. The possibility to automate processes via a secure infrastructure and to prevent the risk of data manipulation is very attractive for many institutions and companies. Finally, any entry ever made in a blockchain directory can be traced forever and not deleted or altered.

It must always be taken into account that there is not the "one blockchain". A blockchain can be very differently designed. A blockchain used in the administration of a government agency is designed differently from, for example, the most familiar blockchain, the bitcoin blockchain, which is mostly oriented.

Where does the blockchain come from?

The history of the blockchain is strongly associated with the history of Bitcoin. In 2008, somebody, under the pseudonym Satoshi Nakamoto, published the White Paper Bitcoin: a Peer to Peer eletronic cash system, which presented a concept for a decentrally organized money system. With a decentralized management of the transactions, trust did not need to be placed in a central instance (in the concrete example of a bank and central bank).

Finally, in the Blockchain an idea can be seen, which stands in a row with the Internet and BitTorrent. Both ideas are, by their very nature, decentralized; In principle, no central server is required.

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