The concept of Blockchain has already become the focus of global fintech talks. But what is Blockchain?
Traditionally speaking, there is always a database behind any system regardless of its size with the database being a massive ledger. For example, Taobao’s database is like a massive ledger that records the account balance between user A and user B. If user A pays one Yuan to user B, then Taobao adds one Yuan to user B’s account and deducts one Yuan from user A’s account. Naturally, we can relate the update of a database to bookkeeping.
We often like to think that the person who is responsible for managing the system is the person responsible for managing the database, that no one else can be involve, and that our users from the Taobao example are unable to take part in the bookkeeping process.
However, Blockchain can disrupt the traditional system, and allow every user to take part in the system.
Blockchain is like a massive ledger that involves every user in the bookkeeping process. At a certain period in time, the system will select the fastest and most qualified user to update the account. The user then records the change on a block, as if writing on a piece of paper, and then distributing the copies to all the users in the system as backup. This is repeated in the next phase thus allowing all nodes in the system to have a copy of the most updated ledger.
Since every block of data is cryptographically chained together, we call it Blockchain or distributed ledger technology.
Blockchain allows everyone to take part in bookkeeping. There is no specific bookkeeper, and any node destroyed in the system will not affect its operation; everyone’s account is thus more stable. The system defines the ledger with most similar data as the real ledger while the ledger with least similarity as the fake ledger; everyone’s account is thus more secure. This makes it difficult for blockchain with enough nodes to be attacked or tempered. These nodes are distributed at every corner of the Internet. You would not be able to tamper anything unless you’re god and can control majority of the computers in the world. Therefore, the blockchain is considered to be the safest method for database management. Bookkeeping will be more efficient for everyone since there is no centralized intermediary, which means operations are automated and settings are pre-established, lowering cost and improving efficiency significantly, with verifications on each record and transparency throughout the ledger.
Bitcoin is only one use case for payment transfer using the blockchain technology. Blockchain can be used on other industries such as health care, supply chain, Internet of Things, Identity, social media, and artificial intelligence. The Economist has referred Blockchain as the trusted machine, pointing out that the technology would be profound and impactful to the financial industry or even the social structure globally.
To summarize, blockchain technology maintains a database of daily records in a reliable matter using cryptography in a multi-party environment without the need of a trusted intermediary. Now do you understand blockchain?