- Guest Post by Jeremy Biberdorf
We all know how fast Bitcoin blew up in the past year. It went from an unknown term to a form of currency that is accepted in many places across the world, all in thanks to the development of cryptocurrency and the blockchain.
In short, a blockchain is a combination of blocks of data. Everyone can see the records of the data which means that you can prove every transaction and there are no disagreements over a transaction being valid or not. Before the creation of the blockchain, keeping track of transactional records was a job for the bank, and it was done in private. Today though, that job is now in the hands of the public.
Since we know that the blockchain is a chain of blocks of data that are the transactions, other types of transactions, like ownership records could follow the same idea. Typically, you would find ownership records in paper ledgers which is something that can get tampered with. Moving to the blockchain to keep track of ownership records brings it to the computer, meaning no physical documentation could be damaged or changed.
As an example, one block contains three states in the US (New York, Los Angeles, Chicago). The second block is for India (Delhi, Mumbai, Bangalore). Each block has a hash – a set of characters that comes from the information in the block. In our example, the first block’s hash would be NYLAC, and the second block’s hash would be DMB. In the chain, each block contains the hash of the previous block. So, block two would have the previous hash NYLAC, along with the current hash DMB. If someone tried to tamper with the records, the hash wouldn’t match and ultimately break the chain.
A use case of a blockchain and a way to further understand it is to invest in it. Projects use blockchain for more than keeping track of transactions. You can “digitize” valuable items in the real world as a way of storing them on the blockchain. How? Through coins.
A digital token represents a real-world asset. When that asset is bought or sold by someone, the coin must also be transferred. Selling an asset without the digital token would be hard. So, you could then invest in the coin of an item and follow along with it.
Have you ever had an agreement in which someone was to pay after conditions were met, and they never paid? When you order something online, before you get your package in the mail, you must make a payment first. All of these are “contracts” with two or more parties.
Computer systems set up programs to consistently complete transactions and instructions with everyone involved. You can set up a private blockchain network in which you and the other party would sign a smart contract.
The code would lay out the instructions (for example, you must pay a set dollar amount to your landlord on the first of every month), and execute them on the agreed time. Then, there is no debate as to whether or not the agreement was correct or if payment was made.
Digital Storage Distribution
If you’re using cloud-based storage systems like Dropbox or Apple’s Cloud, this use case is for you. You cannot guarantee that no one is spying in on your stored documents. If needed, governments can order for the data to be disclosed.
If you store data on a blockchain though, it is decentralised. This means that there is not one set server that keeps track of all the data. Instead, everything you store is on different computers within the network and is highly encrypted.
A bonus to storing on the blockchain – you can rent out storage space you are not using. Think of it as an Airbnb for your online storage space. If someone needs extra space and you have an excess amount, rent it out for a small fee and earn money on the side.
To get a better understanding of the blockchain and how cryptocurrency came to be, read through top personal finance blogs !
About the writer: Jeremy Biberdorf is the owner & founder of the popular investing blog modestmoney.com. Check out his site for latest investing news and tips Follow ModestMoney on Twitter and connect with Jeremy Biberdorf on Facebook.