What is Blockchain in simple words

Considering the question of what a blockchain is, this technology is usually associated with cryptocurrency. But in fact, the concept of blockchain is much broader.

Let’s look at where this technology can be applied and what are its advantages.

The History of blockchain technology

The idea of blockchain technology was published back in the early 1990s in the work of S. Haber and V. Starnet, where a way to solve the problem of cryptographic protection of document transmission was proposed.

The practical implementation of the method appeared in 2008 . Its author was Satoshi Nakamoto, after whom the one hundred millionth part of the bitcoin cryptocurrency unit was named. There is no reliable information about Nakamoto’s identity. Some believe that this is a pseudonym, which hides not one person, but a group of people.

Blockchain can be defined as a ptp (peer-to-peer) type distribution system, which is a decentralized network. There are no administrators in such a network. Or we can assume that each user is a network administrator at the same time.

Blockchain, therefore, is also defined as a distortion-resistant sequence of registry entries in a distributed network.

Why do we need a blockchain

Since the data in the blockchain is not stored in one place, but distributed among all network participants, in order to crack it, at least half of the nodes must be disabled. Now it can be done, but the process will either be very long or very expensive.

This means that the identification system in the blockchain excludes access by third parties. This way of protecting information can make significant changes in many areas of life. Some examples will be discussed later.

How the Blockchain Works

A blockchain-type computer network is used to conduct direct transactions (data exchange) between users. Each blockchain transaction is verified and added to the registry as a block.
Chains of such blocks form the technology in question.

Each user has two keys generated: public and private. The first one is used to identify the user, it is an analogue of his name. The second one is used to sign the transaction.


For cryptocurrency, the public key is the wallet number, the private key is the signature for operations with cryptocurrency: withdrawals, purchases, sales.

The public key consists of a random set of letters and numbers. Each user of a computer network can generate any number of keys.

Types of blockchain

There are three main types of blockchain:

  • public (open). Such networks are usually very large. Their use underlies the trading of bitcoins and other types of cryptocurrencies. Any user can confirm the transaction;
  • private (closed). It differs from the open one in that users have different access rights. Well suited for corporate networks;
  • sidechain is an add-on that allows you to transfer digital assets not only to users of this blockchain, but also to other blockchains.
  • Which type of blockchain is better to use depends on the purpose of functioning of a particular network.

Which type of blockchain is better to use depends on the purpose of functioning of a particular network.

Advantages and disadvantages

The main advantage of blockchain technology is its security. Currently, it is almost impossible to hack the blockchain. Some experts believe that in the future such a possibility may become real after the advent of quantum computers. But the blockchain may also change by that time.

The disadvantages of the technology are also associated with its high security. If you lose the private key, it is impossible to restore it. There are periodic reports on the Internet about millionaires who have become poor due to the fact that they have lost or forgotten the key.

Where blockchain technology is used

So far, the blockchain has received the greatest use in the field of cryptocurrencies. But already today we can talk about its prospects for conducting other operations.

The Tax Department of the state of Florida in the USA announced the beginning of cooperation with BitPay to enable citizens to pay various fees, including taxes, in cryptocurrency.

In Georgia, with the help of an Internet network operating on blockchain technology, you can find and get an extract on real estate objects.

Blockchain in elections provides a solution to the problem of carousels. The technology has already been applied in the US state of Virginia. It is not only effective, but also convenient, because it allows you to vote from anywhere in the world without registration of absentee ballots and other papers.

When forming financial statements of funds, blockchain helps to remove suspicions of misuse of money.

Legal regulation

Legal regulation of the use of blockchain and, especially, cryptocurrencies, is currently practically absent. No state has officially recognized bitcoin as a means of payment, although some fragments of laws have been adopted in some countries, for example, in Malaysia. Also, governments are gradually making it possible to pay taxes using cryptocurrency.

In 2015, the European Central Bank recognized that it was premature to introduce legislative regulation of bitcoin.

In 2016, a court in the state of Florida (USA) ruled that bitcoins are property, not money. The US tax authorities also consider cryptocurrency as property.

From the point of view of banks in Finland and Slovenia, bitcoin is not a financial instrument. And in some countries, for example, in China, there is a ban on the use of cryptocurrencies.

Published: 6 October, 2021

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