What is blockchain?

Blockchain is a database that is stored on nods in a computer network. Like a database, a blockchain stores information electronically in a digital format. Blockchains are known for the important role they play in cryptocurrency technology. Blockchains are used in cryptocurrencies to store the transaction information of that cryptocurrency. The new technology that lies in the blockchain is that it ensures the security and integrity of the recorded information, without the need for an external factor.

One of the key differences between a blockchain and a regular database is in the way data is organized. Blockchain aggregates data in groups. Each group of these data is called a block. Blocks contain a certain amount of storage space, and when they are full, they are closed and linked to previous blocks stored in the blockchain. Finally, a chain of blocks containing data is formed, which is called blockchain.

A database usually organizes existing data into separate tables, while blockchain, as the name suggests, aggregates data into groups (blocks). This data structure represents an irreversible timeline. Once a block is filled, it is completely immutable and continues to exist as a member of this chain. Each block in the blockchain is tagged by the time it was added to the chain.

The purpose of blockchain is to record and distribute digital information. For this reason, blockchain is the foundation of immutable ledgers, or records of transactions that cannot be changed. For this reason, blockchain is also known as distributed ledger technology.

Before blockchain technology was used by Bitcoin in 2009, it was used in 1991. Since then, with the emergence of cryptocurrencies, decentralized finance DeFi, non-fungible tokens (NFT) and smart contracts, blockchain technology has been used more and more.

Imagine a company has a server with 10,000 computers, which uses them to store the information of all its users. This company has a large warehouse, where all the computers are located. Therefore, the control of all these systems and the information contained in them is at the disposal of this company. Of course, this system can be vulnerable. What will happen if the power goes out in this building? What if the internet connection is lost? What happens in case of an accident such as a fire? What if one person can infiltrate this entire system? In any case, this data is always in danger of being lost.

Blockchain allows information to be distributed among different parts of the network in different places. This not only expands the network, but also increases the security of the stored data. If someone tries to change or tamper with the recorded data from one node of the network, the other nodes of the network will not allow it to do so. So, for example, if a user intends to tamper with the information recorded in the Bitcoin blockchain, all other parts of the network will be aware of this action and prevent it. This system helps to increase transparency and honesty in the network. Therefore, no single point of the network can change the information recorded in the blockchain.

So, the information recorded by cryptocurrencies is immutable. This information can contain transaction information of a cryptocurrency or other information such as legal contracts, a company's inventory statistics, etc.

Blockchain technology was first introduced by Stuart Harber and W. Scott Stornetta in 1991. These two people were researchers who wanted to create a system where information would be stored in a way that would be safe from being tampered. But the first comprehensive use of this technology occurred two decades later in 2009, with the emergence of the Bitcoin cryptocurrency.

The Bitcoin protocol is based on blockchain technology. The creator of Bitcoin, Satoshi Nakamato, introduced the Bitcoin cryptocurrency in an article, calling the technology "a new, peer-to-peer, intermediary-free electronic payment system."

The key thing to understand is that Bitcoin uses the blockchain as a means of transparently recording data. But blockchain can be used to keep any information immutable. As mentioned above, this information can be in the form of transactions, votes cast in a poll, company inventory statistics, etc.

Currently, tens of thousands of projects are looking to use blockchain and the new capabilities it offers. For example, the use of blockchain technology to conduct democratic voting also plays a significant role. The immutable nature of the blockchain ensures that manipulation and disruption of the voting process is completely eliminated. For example, a voting system can work in such a way that each citizen's vote is recorded as a token. Each candidate will then have a unique wallet address, and voters who intend to vote for that candidate will send their token to their unique wallet address. The transparent and traceable nature of the blockchain completely eliminates the need for human labor to count votes, as well as tampering with voting results.

As mentioned earlier, the Bitcoin blockchain stores financial transactions. Today, there are over 10,000 other cryptocurrencies that operate using blockchain technology. But blockchain technology is also very useful for storing other types of data.

Companies that have used this technology to store their data include Walmart, Pfizer, AIG, Siemens and Unilever. For example, IBM uses blockchain technology to track its goods from origin to consumer.

This is one example of the use of blockchain in industry. But there are other uses that we will mention below.

Probably no other industry has benefited from blockchain technology as much as banking. Financial institutions operate only during business hours, which are usually five days a week. This means that if you want to settle a check at 6pm on Friday, you will have to wait until Monday morning for the money to be deposited into your account. Even if you do this during business hours, this transaction can take one to three days to be approved and deposited into your bank account. But on the other hand, blockchain never sleeps.

By using blockchain technology in banks, all banking procedures can be done in just 10 minutes. This time is exactly equal to the time required to add a block to the blockchain. This can be done at any time, including weekends or non-working hours of the day.

Blockchain technology is the platform for cryptocurrencies such as Bitcoin. The US dollar is controlled by the US Federal Reserve. With such regulatory centers (such as the Federal Reserve), all user information is under the control of these central or government agencies. In this case, if the bank goes bankrupt or if the user lives in a country with an unstable economy, the value of his assets may be constantly at risk. In 2008, many banks went bankrupt. These were the first factors that caused a cryptocurrency like Bitcoin to be created and developed.

By distributing information across a network of computers, blockchains allow Bitcoin and other cryptocurrencies to operate without the need for a central organization. This not only reduces the risk, but also reduces the costs involved in processing transactions. Cryptocurrencies can also be used to protect the value of assets in countries with unstable economies.

Healthcare providers can use blockchain technology to store their patients' information with high security. Once medical information is generated and recorded, it can be placed inside the blockchain, ensuring its security. This personal medical information can be encrypted and placed on the blockchain using a special password. In this case, this information can only be accessible by people who have this password.

A smart contract is a computer code that can be operated using blockchain technology. Smart contracts work under a number of conditions, which are agreed upon by users. When these conditions are met, the terms of the contract are automatically enforced.

For example, imagine a tenant wants to rent an apartment using a smart contract. The landlord also allows the tenant to enter the apartment if he pays the mortgage. Now, the tenant and the landlord participate in a smart contract, in which, in exchange for the payment of the apartment mortgage, the password to enter the apartment is provided to the tenant by the landlord. If the Landlord does not provide the access code to the Tenant by the specified date, then the amount paid will be returned to the Tenant. This will reduce additional costs due to the presence of intermediaries or lawyers.

There is almost no limit to the use of blockchain to store information in various industries. One of the advantages of blockchain is providing a secure environment and lower costs. The use cases of blockchain can go beyond what is mentioned in this article, but the technology also has disadvantages, which are mentioned in the table below.

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Written by: Mohsen Mohseni (Aron Groups).