Blockchain technology is the foundation of the attractiveness and usefulness of Bitcoin and other cryptocurrencies. As its name suggests, a blockchain is a collection of interconnected blocks, also known as an online ledger. Each block contains a set of transactions that have been independently verified by each member of the network. Every new block must be validated by each node before being confirmed, which makes falsifying transaction history nearly impossible. The contents of the online ledger must be agreed upon by the entire network, with each node being a computer that stores a copy of the ledger.

The purpose of blockchain is to enable the recording and distribution of digital data without the possibility of modification. In this sense, blockchain serves as the foundation for immutable ledgers, or transaction records, that cannot be altered, deleted, or destroyed. For this reason, blockchains are also referred to as distributed ledger technology (DLT).

Origin and Principles of Blockchain Operation

The concept of the blockchain was first introduced as a research project in 1991, prior to its first widely known application in Bitcoin in 2009. With the creation of numerous cryptocurrencies, decentralized finance applications (DeFi), non-fungible tokens (NFTs), and smart contracts, the use of blockchain expanded rapidly in the years that followed.

Decentralization is one of the most fundamental concepts of blockchain technology. The chain cannot be owned by a single computer or entity. Instead, nodes connected to the chain form a distributed ledger. Any type of electronic device that stores copies of the blockchain and keeps the network running is referred to as a node. Each node has its own copy of the blockchain, and for the chain to be updated, trusted, and validated, the network must algorithmically approve every newly mined block. Every action recorded in the ledger can be easily verified and examined, as blockchains are transparent. Each participant is assigned a unique alphanumeric identification number that is used to track their transactions.

Use of Blockchain Technology

According to experts, blockchain technology can be beneficial for a wide range of industries and activities, including supply chain management, online voting, and crowdfunding. JPMorgan Chase & Co (JPM) and other financial institutions are experimenting with blockchain technology in order to reduce transaction costs by simplifying payment processing.

Advantages and Disadvantages of Blockchain

Advantages:

• High-quality data

• Provides durability and a high level of security

• Offers strong integrity and transparency

• Long-term reliability

• Simplified ecosystem

• Improved traceability

Disadvantages:

• Complex signature verification process (which may also be an advantage)

• Uncertain regulations

• High energy consumption

• Privacy concerns and lack of control for businesses