Blockchain technology is a combination of an algorithm that performs calculations and a distributed database that stores those calculations in what is known as blockchain. This database continuously updates its digital records (for instance, of Bitcoin transactions) and does so on multiple computers simultaneously.
The database is fully decentralized, meaning there is no single entity that controls it. Anyone from anywhere can view the entire history of the database at any time.
Each set of records in the database is referred to as a “block,” and anything that is recorded in the database is preserved there forever. Because of the immutability of the database, once a record has been entered, it’s impossible to manipulate or alter that record.
To put this in perspective, we’ll explain blockchain by comparing Google Docs with Microsoft Word:
Let’s say you and a co-worker are collaborating on a document. A decade ago, your only option would be to send your co-worker a Microsoft Word document and ask him to make his revisions. He would make his revisions, save the document, and send it back to you. It was a tedious and inefficient method.
Google Docs fixes this problem by allowing multiple people to view and edit documents at the same time. Most databases still operate like Microsoft Word, where only one person can make changes at a time and everyone else is locked out. Blockchain provides a solution in the same way that Google Docs does by allowing anyone to see updates in real time.
Bitcoin, a digital currency, uses blockchain technology. But blockchain also powers other digital currencies and has many other practical use cases outside of financial services.
The main thing to remember is that while Bitcoin is a currency, blockchain is the underlying infrastructure on which the currency exists. If Bitcoin is a Lamborghini, the blockchain is the Autobahn it rides on. It’s also important to note that Bitcoin is just one use for blockchain technology, just as email is one use of Internet technology.
Just as the Internet allows users to make video calls, visit websites, and play video games, blockchain has numerous uses other than Bitcoin, including supply chain management, healthcare tracking, and government documentation.
There’s no denying that blockchain is well past the hype phase. Industries such as healthcare, education, government, and real estate are discovering the potential and countless possibilities of blockchain technology.