Cryptocurrency has become an increasingly hot issue in technology circles. The term “cryptocurrency” describes a kind of “representational asset” that exists in digital form but does not exist in a material sense. Cryptocurrency does, however, represent something of value that can be transacted, traded, recorded and referenced.
The development of cryptocurrencies led to the design of a new technology to handle the swift transactions of the currency values, through a system called “blockchain.” Blockchain turns the idea of a centralized ledger of transactions on its head, making it the first reliable digital record-keeping technology of its kind held across a network of users.
Understanding Blockchain Technology
Blockchain technology functions as a sort of digital accounting ledger that keeps an incorruptible record of financial transactions and any other commodity of value. It works as a database that is continuously updated and reconciled, like a spreadsheet that is not stored in a single location.
Instead, it exists as a network, held by millions of computers simultaneously, with no centralized version. The blocks of information it contains are identical across the entire network. It cannot be controlled by any single entity. It is not vulnerable to any single point of failure. Transactions can be made efficiently and in a verifiable way, in a permanent record. Blockchain was originally designed for bitcoin, the digital currency, but the designer soon understood it could be used for many other purposes.
The History of Blockchain
Blockchain technology was developed by an individual, or group of individuals, known under the pseudonym of Satoshi Nakamoto. At first, blockchain only handled individual “tokens’ of valued assets that simulated the idea of cash. Later, blockchain was developed to be able to handle more complex transactions, called “smart contracts,” which can represent financial instruments such as loans and bonds. This development made the system more useful for financial institutions, which are now investigating the use of blockchain in their operations.
Other blockchain improvements are in the development pipeline, such as “proof of stake,” which will eliminate the data centers that currently mine and control blockchain, and “blockchain scaling,” which accelerates the process of widespread recording of transactions. These improvements represent only the past 10 years of development in this innovative technology, and new methods of using the system are likely to continue to be devised.
The Future of Blockchain
Although blockchain is currently only used in certain circles of the economy, it is sure to become a technology that transforms the way today’s data is recorded and stored. This revolutionary system will overcome the current problem of hacking and insecure data, as well as provide a method of verification that is superior in every respect.
Even now, large national accounting firms are investigating the uses of blockchain technology for their operations. As the system becomes more widely known, it is sure to be used in a wide range of areas in the economy.
Blockchain’s Rising Importance
Technology continues to provide improvements that change the way people live every day. Many of these new systems were only known in limited circles in their early days. So it is with blockchain, which is currently in its ascendancy, with a wide range of potential uses promising to make radical changes in the way individuals and businesses use their money, store their records and transmit information.
The system’s security and decentralization is likely to make it the preferred method of record transmittal and storage in the future, making current systems look like technological dinosaurs by comparison.