In the past few years, you must have seen topics such as blockchain and cryptocurrency trend on the internet a lot. It is believed that these two terms are poised to revolutionise information technology and banking as we know them.
Also referred to as Distributed Ledger Technology (DLT), blockchain is a system which helps in recording information. The information is recorded in such a way that it makes it difficult for anyone to hack or cheat the system. The technology makes the system transparent and unchangeable.
The system is basically a digital ledger of transactions that is distributed with the entire network of computer systems and servers on the blockchain. Every block in the chain contains information of transactions made and every new transaction’s information is added to each participant’s ledger. In this way, the database is managed by multiple participants and is decentralised (there is no central agency managing the system). The system uses an immutable cryptographic signature called a hash to record every transaction and helps in linking every new block created to the previous block.
This makes it difficult to hack the system as even if one block was tampered with, participants will come to know that someone is trying to hack the system. To successfully hack the system, the hacker will have to tamper with all the blocks which will be impossible.
Bitcoin and other digital currencies such as Ethereum use blockchain technology to function. As more and more people start using these digital currencies, the number of blocks will also grow, making the whole system more secure. The system is more efficient and has no transaction cost making the system cheaper too.
Stuart Haber and W Scott Stornetta, in 1991, described a cryptographically secured chain of blocks for the first time. In 1998, computer scientist Nick Szabo started working on a decentralised digital currency. The technology became big in 2008 when a developer with the pseudonym of Satoshi Nakamoto (No one knows yet who this person is. Some speculate the pseudonym represents a group of people) released a white paper establishing the model. After releasing the white paper and launching the initial code, Nakamoto created bitcoin to be a form of cash which can be sent peer-to-peer without the need of a central agency or a bank as is the case for physical cash.