ard accountability as both everyone and no one controls it. Blockchain information necessitates collaboration, meaning that it has no hierarchy.
Imagine blockchain technology as a democratic approach to validating, managing, and circulating the abundance of information we produce daily.
Consensus mechanisms allow a P2P network to work harmoniously without anyone having to trust or even know one other. It operates on a consensus mechanism which has a set of rules to moderate the adding of blocks, assess the validity of blocks, and form conclusions about what is and is not true based on an algorithm.
The collective accountability of the consensus mechanism is what makes blockchain information trustworthy and virtually unalterable. Only in the case of a 51% attack on blockchain could an attacker modify transaction information. As these networks continue to grow, this amount of ownership is increasingly unlikely.
Proof of Work (PoW)
One of the blockchain’s consensus mechanisms is Proof of Work (PoW). The primary goal of the Proof of Work is to make it harder to create invalid blocks. The PoW is hard to produce, but simple to verify. This type of equation makes it easy to check whether the information is valid. To create a new block, miners complete a PoW which includes all of that block’s data. The first miner to solve the problem receives a reward.
In essence, PoW controls the speed at which miners can create blocks. For example, miners can only create a Bitcoin block every 10 minutes. This controlled speed also protects the blockchain from hackers. It ensures that each transaction connects to the previous one and the next.
Proof of Stake (PoS)
Proof of Stake is another means to validate transactions and come to a consensus. PoS and PoW have the same objective but function differently.
By comparison, PoS awards the creation of the new block depending on wealth, meaning stake. Miners in a PoS system are “forgers.” Rather than winning a block reward, forgers receive transaction fees once they’ve completed their task. Different blockchains and functions implement different consensus mechanisms.
To put it simply: a smart contract is a digital contract. But unlike your average contract, smart contracts exist on a blockchain and have a preset list of terms and conditions that regulate a specific transaction. These conditions are immutable, meaning you cannot change or violate once you agree to them. They’re also distributed, meaning all involved parties share access and control.
Since all parties can see the smart contract, all parties know when someone attempts an invalid action. And the collective won’t validate that action, so it never appears on the blockchain. Smart contracts can automate bank deposits, insurance claims, employment contracts, legal contracts, copyrights, mortgage loans, and more.
Many smart contracts are already in place. For example, a broker or a lawyer wouldn’t need to be involved in verifying agreements. In other words, a digital record sometimes already has a digital signature.
Blockchain technology by no means ends there, but to understand the blockchain fully, you must first understand how it applies to you and your life.
Real World Blockchain Applications
A common misunderstanding is that blockchain is just one system for verifying transactions or holding, trading or spending cryptocurrency.
However, blockchain is a jumping off point. This technology foundation opens up the possibilities to build new social and economic models in our world. People, companies and organizations, bots, computers, and algorithms will be able to exchange information and transact in real time—independently of politics and conflict.
How to Use Blockchain
Take a moment and think about your life. Consider what types of transactions you make each day, week, month, and year. Think about how you currently store your data. Your medical records, financial information, legal documents, and even personal identity information.
Take note of your answers to the above questions and answer this final question: who owns and controls this 