Back in 2008, when Lehman Brothers failed the world, and recession hit mankind at its worst, people not only lost their jobs, but also their trust. Trust in banks, in government organizations and even in big companies who sold products or services claiming to be the best in the market.
When Lehman Brothers put the world into the modern great depression, a user named Satoshi Nakamoto came up with an open source project of conducting transactions without involving third parties like middlemen or banks. It was a peer to peer system using blockchain algorithm to conduct transactions. Blockchain is the soul and heart of bitcoin, and the mechanism of bitcoin cannot be understood without understanding what blockchain algorithm is, and how it works.
Consider buying a house, for example – you’re looking into a pool of opportunities in the real estate market, but how do you verify whether the price of the house is justified or not? You go to the ledgers. The ledgers contain the information of its previous owners, the renovations done, the market price of land and all sorts of sales and purchases made in the past which determine how much the house should ideally cost. After going through the ledgers and history of its previous ownership, you decide to buy it, but mostly using a middleman or a broker. Someone who guarantees trust between two parties, and someone who is usually known to both of them.
Now, consider removing that third party, it becomes really difficult to trust whether the house is actually worth the price or not. The broker makes you believe that he’s getting you the best deal possible, but would you still trust him?
Coming to the ledgers, there is a substantial amount of chance they could be tampered with. The previous ownership records could be forged, and the price of the house could be racked up unnecessarily, even without renovations. Anything is possible today, so how do you trust? How do you know whether the ledgers are true?
Even with the world becoming digitally and technologically oriented, there was a huge, open market in the financial world where technology has yet to penetrate. Satoshi Nakamoto saw this opportunity and created a blockchain algorithm that works as a ledger to record each and every transaction happening anywhere in the world, and the currency that the ledger supports is bitcoin. But how do you believe if it is trustworthy or not? It can also be tampered with, undoubtedly! Hacking is not impossible, after all.
The functioning of the blockchain algorithm is complex, but to simplify it, let us consider two people who want to trade – say, Bob and Alice. Bob pays $100 to Alice, and Alice records it in a ledger called blockchain. Now there are two other people – say Adam and Sally. Sally pays Adam $50 and that also gets recorded in the blockchain ledger, as a second entry. Now, the interesting thing about blockchain is that with every entry, there comes a hash key, which is 256 bit in case of bitcoin. (Bitcoin uses Secure Hash Algorithm (SHA) 256 to secure its data.) Now, when a second entry is made on top of first entry in the blockchain, the key that the second entry uses not only contains information that Sally paid Adam $50 but also contains information from the key of previous entry.
This goes on, and on, with all the entries and all the keys, which is why changing even one entry becomes almost impossible, as it totally depends upon all the previous entries, right from the first one. And even if you manage to change it somehow, there exist millions and billions of copies of that ledger with every individual who is transacting on that platform, so it is easily recognized who did it, and moreover, if there is even one ledger which has even one different entry from all the other ones, the algorithm automatically replaces it with a copy of the true one, which is a reason nobody would attempt to do such a thing in the first place.
This entire transaction system is not only 100% transparent, but also very much secure. Which is the reason that, from an open source project, Bitcoin has now become a megatrend in the world, and chances are, will soon enter the NYSE (New York Stock Exchange) and Wall Street as well. Because, if it doesn’t, Wall Street will break in coming years, as bitcoin is already $8000 per coin! This is the mechanism of blockchain, on how it works.
The blockchain algorithm is so popular that many industries and businesses are already adapting it to lure in more customers. And people are also naturally more inclined to trust a system that guarantees 100% transparency, over a traditional and obsolete system where the chance of hacks and compromises are higher.
According to a popular blog, if a business does not upgrade to modern standards, it will soon be competing with a blockchain version of itself! So, blockchain is not something that’s only limited to transactions, but even something as small as a fruit market. With the blockchain algorithm everywhere in the world, soon a man will be able to trace every single ingredient used in every one of his products, right from the time the product was put into manufacturing.
The world is changing, and with that said, it is understood and expected that technologies like blockchain, artificial intelligence, etc have a lot of future potential, of not only providing high-paying jobs to people, but to even create a world which can only be imagined by the generations above us. There is a lot happening in the world right now, and blockchain is just a fraction of the technological advancement and enhancement taking place to make this world faster, more secure and highly automated so that we can live our lives in peace and with relaxation.
It will be great to see how blockchain can change the world in the future…