What is blockchain technology, and how it works?

If you want to trade cryptocurrencies, you don’t need to know the specifics of blockchain technology and how it works scientifically. For example, you can use the internet daily without knowing the protocols behind cryptocurrencies.

But you have come to the right place if you want a simple and easy-to-understand explanation about blockchain technology.

Blockchain is a relatively new technology that transfers confidence between parties operating in the cryptocurrency market. In this way, we can verify transactions and data. This new technology enables faster and safer global transactions.

Blockchain has become known as a natural result of the spread of cryptography, but it is essential to know that its use is not limited to just one industry. In the future, we will hear a lot about blockchain technology in building projects and businesses.

Explanation of blockchain technology

Bitcoin is an entirely virtual currency, which means that Bitcoin can be exchanged between computers in a global peer-to-peer (P2P) network. You might be familiar with P2P if you have previously used BitTorrent to share files directly with friends or other people around the world. The main difference here is that we do not make any copies of Bitcoin.

Bitcoin is a series of data that cannot be multiplied because it is an entry in a public registry (a group of financial accounts) called a blockchain. When a transaction is recorded, it remains on the blockchain forever.

In the real world, not everyone tracks all transactions. The vast majority change their bitcoins, while some keep blockchain technology up to date.

Bitcoin mining

Let’s say you want to send your friend € 10,000, who currently lives in London.

In the current banking system (where a fractional reserve banking system is used), you should know that:

  • Transactions can take a few days.
  • You will have to pay the bank and other expenses.
  • You can only make international transfers during the strictly specified official hours.
  • The euro will be converted into sterling at the exchange rate preferred by the bank.

As you can see, this money transfer system is very ineffective and is only suitable for banks.

Whereas with the help of blockchain technology, this process is simplified!

The original Bitcoin blockchain is an open-source technology that offers an alternative to traditional currency conversion. The middleman is replaced by a system of collective verification that provides a high degree of traceability, security, and speed.

We can send our cryptocurrencies directly to our friends through blockchain without the strict imitation of the banks.

The conversion rate and fees depend on the cryptocurrency in use. But even with minimal costs, the transaction will be speedy. We send cryptocurrencies from our wallet to someone else’s wallet.

Why should I know about blockchain technology?

Blockchain technology is more significant than the financial sector itself. It can be used for all multi-level transactions. The supply chain is an essential example in which a blockchain can influence contract management and signing and control a product’s asset.

Blockchain can also be used for voting platforms or for managing medical and identity records. Practical examples of blockchain applications are expected to grow in the future. It is clear that the global financial institutions are under heavy pressure to demonstrate compliance with the regulations, and many of these institutions are pursuing blockchain and are seriously considering it.

We hope this article helped answer some of your questions about blockchain technology and how it can be used.

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د. مرهف العطاسي

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