Blockchain explained simply.

Blockchain explained
Quick summary

Blockchain is a revolutionary new technology that has the potential to change our lives. But what is blockchain, how does it work and what do cryptocurrencies have to do with it? Let us take you on an exciting journey through the world of blockchain and discover the fascinating possibilities of this technology.

Blockchain technology has the potential to change our lives, just like the internet did over 30 years ago. Cryptocurrencies are just one of many blockchain applications.

Illustration of connected PCs
In short: blockchain technology

Blockchain makes transactions on the internet faster and more secure. Learn how this revolutionary technology works in four steps.

PCs with a central protocol
Digital

Just imagine a notepad where mutual agreements are recorded. For the planning and optimization of supply chains, data is captured in the blockchain. Producers, suppliers, transport providers, and resellers share information about products, origins, and delivery routes. This increases transparency and planning security.

Circle of computers sharing the same protocol
Decentralized

This notepad is copied to all participating computers and managed by them. All these computers are equally connected in a network and act as independent monitoring entities. There is no central authority. All changes are monitored and processed by all computers.

A circle of computers with a checkmark
Secure

New changes only become effective if a majority of the participating instances deem them correct. The change is then linked with the previous and subsequent changes. Each computer then receives a copy of the update.

Computers with matching protocols (consensus)
Transparent

This ensures that the information cannot be manipulated by a single party. It is permanently documented, immutable, and accessible to all.

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How the blockchain works

You can think of the blockchain as a kind of digital notebook. Every new transaction is recorded in it. It is public and everyone can view the recorded transactions. The notebook is constantly copied and sent to the participating computers. This prevents a single party from changing the notebook. Changes cannot be implemented directly, but can only be proposed. They are only implemented if the majority of the participating computers agree.

The history of all changes is also visible to everyone in the notebook. The fact that participating computers check the blockchain means that there is no need for a central body to oversee it. Because there are many individual computers and no central authority, the blockchain is decentralized.

Incidentally, the new entries in the notebook - or in the blockchain - are each summarized in a block. These are then added to the existing transactions in the notebook. You can now imagine the existing transactions as blocks strung together instead of a notebook. In other words, as a chain of blocks. Hence the name "blockchain" (chain).

Why blockchain is revolutionary

The blockchain solves a fundamental problem: namely the problem of "trust" in a digital world. With blockchain, information can be stored and transferred securely, transparently and quickly without the need for a central intermediary. This saves time and money - and reduces fraud and misuse.

Blockchain and cryptocurrencies

Let's illustrate this using the example of a money transfer. Imagine you buy a chair on eBay classifieds. Since the seller doesn't live just around the corner, you transfer the money to him as an electronic payment.

You need an intermediary for this transaction. A third party that you both trust. In our case, this is a bank. The bank documents and monitors your transfer and ensures that the payment reaches the seller and is debited to you correctly. The bank charges fees for the service. It operates centrally and can even go bankrupt in the worst case. In addition, centralized systems are generally easier to manipulate.

Alternatively, you can pay for the chair with a cryptocurrency such as Bitcoin (provided, of course, that the seller accepts this and has a wallet to receive the Bitcoin payment). In this case, you make the bank superfluous as a central intermediary. The role of intermediary is now taken over by the many participating computers in the network. This makes the same transaction more direct, faster, safer and cheaper.

It should be noted that cryptocurrencies - with the exception of - continue to fluctuate greatly in value and are therefore only suitable as a means of payment to a limited extent. The possible uses are also (still) limited in many countries. In addition, maintaining the blockchain - depending on the technology - still consumes a lot of energy in some cases. However, it can be assumed that these problems will be further reduced by the further spread of cryptocurrencies and technological progress.

How could blockchain change our everyday lives?

Cryptocurrencies such as Bitcoin are the best-known examples based on blockchain technology. But this is just one of many possible applications. Blockchain can be used in many different ways and could change our lives forever. Here are a few examples:

Elections: Blockchain can provide a secure and transparent system for online elections where votes are recorded securely and cannot be tampered with.

Supply chain management: Blockchain already makes it possible to trace the origin of products today. From the source to the end consumer. This improves transparency and prevents fraud, such as the sale of counterfeit products.

Land registry: Proof of ownership can be recorded in a blockchain-based land register. This means that expropriation of land is no longer possible. Although this is not an issue in Germany, there are certainly countries where trust in the state is less strong.

The revolutionary thing about blockchain is that it could make intermediaries as we know them today superfluous. From intermediary platforms such as Airbnb and transport services such as Uber to notaries and banks.

The future of blockchain

It can be assumed that blockchain will gain importance beyond the world of finance. Nobody knows exactly how the technology will develop and spread. But one thing is certain: with its ability to store data unalterably and process transactions without intermediaries, it has the potential to revolutionize many industries and processes. We are witnessing the beginning of a development whose potential is far from exhausted. Will it lead mankind into a better future?

This article does not constitute investment advice or a solicitation to buy or sell digital assets or other financial instruments or to enter into any other financial transaction. The main purpose of this article is to provide general information. No representations or warranties, express or implied, are made regarding the fairness, accuracy, completeness, or correctness of this article or the opinions contained therein. Therefore, it is advisable not to rely on the fairness, accuracy, completeness, or correctness of this article or the opinions contained herein. Some statements in this article may contain forward-looking expectations based on our current views and assumptions. These statements are subject to uncertainties and may lead to actual results, performance, or events differing from the statements made in this article.

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