What led to the idea of creating a distributed, immutable and orderly linked database in the first place? The answer is Money.
The current monetary system of the world for retaining and managing records of transactions is through central authorities – we rely on banks and the government to retain and manage monetary records. With the blockchain, people can achieve managing financial records themselves because it guarantees uniformity for everyone. Every transaction that occurs on a particular monetary system can be monitored and recorded on a ledger by participants on the network. Because everyone is in sync with the network and has a record of every transaction, the worry or chances for fraud and incorrect entry in managing transactions is eliminated. This brings about the question: How is money created and distributed on the blockchain? That’s a different discussion entirely and we’ll get to it as we progress in the series but the simple answer is using cryptocurrencies as legal tender.
Moving away from the ledger side of things, the second motivation (or it’s realised application after the initial motivation) for the blockchain technology is in the the execution of legal contract in the form of computer code. Let’s take the scenario of a legal contract involving two parties: Two parties come together and sign contract under certain conditions that bind both of them. They both rely on each other’s good faith or trust and the justice system so that the agreement is not broken.
The risk involved in the above scenario is the “trust” or believe that the parties involved will carry out their side of the agreement swiftly without any conflict whatsoever. By using the blockchain, that risk can be eliminated. On it, the involved parties need not worry about trusting each as trust is handed to the blockchain. The agreement can be written as computer code and initialised with enough funds as agreed upon by the involved parties. The code is then executed and certain actions are triggered when due as stated on the contract. Once written, the code can’t be modified or deleted by neither party. Participants of the blockchain network all get and keep a record of this transaction between the involved parties. Contracts written as code are popularly known as smart contract
To reiterate for a better understanding of this section, the blockchain is a distributed, immutable and secured ledger of transactions as blocks of data that are cryptographically linked (forming a chain) together using a hashing function (programmatic function for converting an arbitrary size of data to form unique values).
The blockchain isn’t managed by an entity nor is it stored in a central place. it’s a mesh of multiple computers (also known as nodes or peers) connected to form a distributed system. The nodes compete to validate data entries for a reward. Once validated, the data becomes immutable. That is to say, data can only be created and viewed, not updated or deleted by a user. All nodes connected get an up-to-date record of data that reflects recent changes in the ledger. Members of the network can view the ledger at a designated website. The trustworthiness of the blockchain makes it a secure Information Technology system for enabling effective cost-saving transactions.
Next, we’ll look at part 2 of blockchain as Distributed Information Technology!
If you’re new, you can catch up on the previous parts in the series that led here.
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