Blockchain

Blockchain is a technology that is not so easy to explain. The consolation is that you don't have to understand it exactly to be able to use it. Read here how blockchain works and what you get out of it!

Let's start with an example: Let's say you buy inline skates on the classifieds portal willhaben.at. The private seller promises to send you the skates as soon as she has the money. This takes time and you have to trust her, even though you don't know the woman at all. Very often this works well, but it could also go like this. The woman gets your money but doesn't send the skates. Until you (maybe) see your money again, you have to work really hard.

Direct, immediate transactions are possible with blockchain technology. As in the example above, you order the skates on an online platform. The provider finds proof in the system that you have deposited the necessary money for this purchase. As soon as you have received the skates, the takeover confirmation is entered into the system and the transfer of your money to the provider is automatically triggered. Organizations in between - such as banks or other payment processing institutions - become unnecessary. In some cases, even intermediaries become unnecessary. This makes such transactions cheaper and more secure at the same time.

Blockchain is a decentralized database. This means that the data of different people is not stored on central servers (of an online store, a bank, a state) as usual, but on many different computers. For example, on yours if you are part of a blockchain ecosystem. The data for each transaction (transfer, contract, purchase...) is stored in a data packet, the “block”. When a transaction is ready to be saved, a numerical code, a hash, is automatically generated. The data blocks are linked by the fact that each data block carries its own hash and that of the previous data packet. This creates a chain of data blocks, a blockchain (“chain” is the English word for chain).

If you change something in a data block, the hash automatically changes and no longer matches the hash of the next data block. And this is discovered. This is because copies of the blocks and their hashes are stored on a large number of computers and sound the alarm if something is wrong. This makes it almost impossible to manipulate data in a blockchain. The data is encrypted. This ensures that no unauthorized person can view the data.

Of course, there is more than one catch with blockchain. The biggest one is probably energy consumption: due to the many copies on many computers, the technology consumes a lot of storage space and a lot of computing power. And that costs enormous amounts of electricity.

Many people have heard of the term blockchain, usually in connection with cryptocurrencies such as bitcoins. But as you have seen above, the technology can do more than just mine cryptocurrency. It is also important for digital identities.