Why is Blockchain Technology Important? The Essential Guide
Get up to speed on blockchain technology without technical jargon! Find out why it’s such an important innovation and its potential applications in this accessible guide. Blockchain technology is revolutionizing how companies and individuals do business by providing a secure and transparent platform for global transactions. In this guide, you’ll learn what blockchain technology is, why it’s essential, and some potential applications.
While Web3 is gradually rolling out, the new generation of the internet uses blockchain technology, cryptocurrencies, and NFTs at its core, and as a form of ownership. Blockchain is the base technology powering cryptocurrencies and other digital assets. The importance of blockchain cannot be over-emphasized as its application extends past cryptocurrency and virtual property to other aspects of our lives.
Blockchain technology allows the electronic exchange of assets. It records the details of a transaction transparently without giving any opportunity or ability to alter those records later. A blockchain is simply a chain of blocks with each block representing data of transactions recorded on a distributed ledger. The transactions performed on a blockchain can be tracked by anyone since a chain is an unbroken sequence of blocks.
One reason why blockchain technology is important is that it gives room for more accurate and transparent transactions since they can be tracked. This could be said to be its greatest feature. It enables people to carry out transactions without an intermediary. Let us give a little definition of what blockchain technology is.
What is a Blockchain?
Blockchain in simple terms is a distributed digital ledger. Data are stored and shared across a network of computers in such a way that they cannot be modified or misused by any single user. Each node updates and verifies the data every time a transaction is conducted, making it an incredibly secure platform for all kinds of transactions.
There are many potential applications of blockchain technology, but some of the most important uses include:
- secure payments
- digital identities, and document management
- eliminates the need for third-party authentication and control
- makes fraud more difficult to commit
- reduces costs associated with financial services
- provides tamper-proof contracts
- streamlines administrative tasks
- gives users a greater say in how their data is held and used
The possibilities blockchain presents are virtually limitless. It’s no wonder that so many industries – from finance to healthcare – are exploring how it can be leveraged to benefit them.
Learn more about what is blockchain technology from our previous post.
How Does Blockchain Technology Work?
The concept of blockchain was first proposed in 1991, but its first widespread application only came with Bitcoin in 2009. Since that time, the use of blockchain has expanded with the creation of smart contracts, Decentralized Finance applications, NFTs, and more cryptocurrencies.
Blockchain works by using a distributed digital ledger to track transactions. It is a system that stores and records data across a series of nodes, all of which have access to the same information. Every node verifies the data every time a transaction is conducted, ensuring that it remains unaltered and secure. This prevents malicious users from making changes or misusing the data.
Basic Steps in Blockchain Transaction
The general blockchain transaction no matter which industry it is being used goes through similar steps. Let us take a look below:
- Transaction record
- Trade confirmation
- Verification and addition to a block
- Block added to a chain
1. Transaction record: The record of each transaction is taken. These records contain signatures from each party involved in the transaction and other relevant details.
2. Trade confirmation: The computers in the network looks at the trade and confirm that they are real transactions. This process occurs among different nodes of the network.
3. Verification and addition to a block: Once the transactions have been verified as real, they are then added to a block. A code called “hash” is contained in each block. This hash is unique to each block and it helps keep track of transactions on the blockchain.
4. Block added to a chain: Once the block is completed, it is now added to a chain. A block can contain more than one transaction.
What Are the Benefits of Blockchain Technology and why is it important?
Blockchain technology offers a number of potential benefits. These include:
- improved accuracy
- increased security
- increased speed and cost savings
- enhance transparency
Because the data is stored in a distributed ledger, it’s almost impossible to tamper with it, meaning that transactions are secure and verifiable.
Blockchain technology is important because it provides more transparency in transactions by ensuring that all participants have access to the same data.
Additionally, blockchain technology can be used to create smart contracts that automatically execute based on predefined criteria. This can reduce overhead costs and increase security. Smart contract codes are self-executed and run once the pre-arranged conditions have been met.
Finally, blockchain eliminates the need for a middleman in financial transactions, which can save businesses money by reducing fees and processing times. With these benefits in mind, it’s easy to see why companies are rapidly embracing blockchain as a part of their operations.
Challenges with Implementing Blockchain Systems
Blockchain technology, like any new technology, has some high initial setup costs and demands a high level of expertise. Additionally, there are privacy and scalability issues that must be addressed. Privacy can be a challenge since the system stores all transaction data in an open ledger. Therefore, they may need to be redesigned or optimized to meet specific downsides.
Other Areas where Blockchain Technology Can Be Applied
While blockchain technology has been most widely adopted in the finance industry, its applications are broad and extend far beyond this sector. Due to its distributed ledger technology, it can be used in any environment that requires secure peer-to-peer transactions. It can offer increased speed, cost savings, and better accuracy than currently available solutions. Additionally, it could revolutionize supply chain management including logistic delivery tracking.
Aside from the finance industry, blockchain technology can be used in other industries:
- Healthcare and sciences
- Media and entertainment
Top Blockchain platforms to consider
There are over one thousand blockchains available globally, but we have listed the top 5 below:
- IBM blockchain
- Hyperledger Fabric
- Hyperledger Sawtooth
Blockchain technology is a trend right now. According to a post on devops.com, the blockchain industry has a compound annual growth rate of over 69% between 2019 to 2025.
The application of blockchain technology has gone beyond cryptocurrency and it is important to stay updated and go with the trend. There are four main types of blockchain networks – Public blockchain, Private blockchain, Hybrid blockchain, and Consortium blockchain.
If you are an individual or an organization that falls under the industry category listed above, you should totally consider building your products on the blockchain.