A smart contract is a digital protocol that ensures that a contract is automatically executed when the agreed conditions are met. Smart contracts allow you to process transactions without requiring a third party to verify or enforce the agreement. Agreements are traceable and irreversible.
Since the rise of personal computers and then the Internet, innovative resources have been developing steadily. One day, when it combined correctly, all these techs have led to the creation of a revolutionary technology such as blockchain:
During the 90s, various works on decentralized solutions for electronic payments appeared. As a result, the technology allowed transferring funds without the need to be dependent on any central supervisory or regulatory body. In 1991, the first work on secure blockchain appeared. The mechanisms described there were developing until Wei Dai described a decentralized solution for electronic payments based on public-key cryptography in 1998.
Meanwhile, someone under the pseudonym of Satoshi Nakamoto publishes a whitepaper that defines a new era of digital currency:
The work was based on the use of blockchain for recording transactions on a peer-to-peer network.
Bitcoin became the first digital currency that has managed to overcome double-spending. The words “block” and “chain” used separately in Satoshi’s original article, but in the end, the term caught on as a single word – just the way we know it now.
How does blockchain work?
Blockchain is a digital transmission system based on distributing information through a variety of independent nodes (user computers). The nodes register and verify specified data anonymously, excluding intermediaries and preventing attacks. The basis of the technology is mutual consensus – all the nodes have to share the same information, which has to be accepted as reliable. Data transmission is grouped into blocks that get generated with a particular timestamp. Each block is associated with the previous one. Overall, the whole thing looks like a company ledger that shows income and expenses.
Why do we need blockchain?
Let’s take the example of a money transfer. If you are to send some traditional currency to someone, you have to do this through financial intermediaries – a bank or services like PayPal. These intermediaries confirm one’s identity and add a record with data to their archives. Both the banks and services use the data they collect – to have a complete collection of one’s transactions, fulfill their marketing KPIs or develop a better product. Blockchain technology eliminates the intermediaries, so you become almost entirely faceless in front of corporations and the government.
Is blockchain secure?
Distributing transaction data on numerous computers provides the necessary security, shielding the users from manipulation and fraud. A change in one of the records would not help, as changes should be made in all the copies.
Registered operations, for example, transfers made in bitcoins, are unchangeable. Once a transaction added to the block, it can’t be erased.
- Speed. The absence of central authorities or intermediaries makes information available to all the network participants. Simplification of the data transfer process entails higher speed in the management of any information.
- Lower cost. It is cheap, not only because it reduces the overload process by eliminating intermediaries, but also because it makes it possible to optimize processes and communication. Thanks to the blockchain technology, direct communication between systems and devices allow making the execution of operations more optimized.
- Transparency. A significant advantage of blockchain technology is its transparency. It offers a clear picture of transaction origins and allows checking the data in the ledger.
- Security and confidence. The blockchain creates a trusted environment in which data exchange carried out through encrypted operations, which allows ensuring the safety of all the network participants. Also, decentralization ensures immutability.
Blockchain Application Example
- Bitcoin: the most well-known cryptocurrency.
- Ethereum: the ledger that is widely known for the concept of smart contracts (programs running on the Ethereum Virtual Machine – EVM), adding functionality to transferring cryptocurrencies.
- Hyperledger: the Business Blockchain platform promoted by the Linux Foundation.
Blockchains represent the most important technological steps of recent times.
Thanks to the development of devices and software, it is now possible to link transactions, processing, and device intelligence with a system operating around the world. Although there are still problems in adaptability, security, law, intellectual property, management, and privacy, all of them will gradually be solved. The blockchain is undoubtedly one of the fastest-growing and developing digital technologies nowadays.
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