What is Blockchain Technology?
Blockchain is a technology that allows information to be stored and exchanged on a peer-to-peer (P2P) basis. Structurally, blockchain data can be browsed, shared, and secured thanks to consensus-based algorithms. It is used in a decentralized manner and removes the need for mediators, or “trusted third parties”
In simple words, a Blockchain is a database. What is a database? A database is an organized collection of data. Or, you can say, a data structure that stores the data. Therefore, Blockchain is just a data structure that stores the data. As the name hints, there will be a chain of blocks.
Chain of Blocks
Below is the architecture diagram of a basic blockchain, which on a base level – is like a spreadsheet with rows and columns.
This basic blockchain has a linked list that is composed of blocks. Each block has the following properties.
- Previous Hash
The first block is a special block: the genesis block. The genesis block is the only block that has no previous blocks and does not contain data.
One spreadsheet is called a block. The whole family of blocks is the Blockchain. Blockchain is a distributed catalog, which simply means that a ledger is spread across the network among all peers (nodes) in the network. Every node has a copy of the Blockchain. Once a block reaches a certain number of approved transactions then a new block is formed.
The Blockchain updates itself every ten minutes. It does it automatically. No master or central computer instructs the computers to do this.
As soon as the spreadsheet or ledger or registry is updated, it can no longer be changed. Thus, it’s impossible to forge it. You can only add new entries to it. The registry is updated on all computers on the network at the same time.
A node is a device on a blockchain network, that is in essence the foundation of the technology, allowing it to function and survive. Nodes are distributed across a widespread network and carry out a variety of tasks.
A wallet is a string of numbers and letters, such as 18c177926650e5550973303c300e136f22673b74. This is an address that will appear in various blocks within the Blockchain as transactions take place. No visible records of who did what transaction with whom, only the number of a wallet. The address of each particular wallet is also a public key.
To carry out a transaction you need two things: a wallet, which is basically an address, and a private key. The private key is a string of random numbers, but unlike the address, the private key must be kept secret.
When someone decides to send coins to anyone else they must sign the message containing the transaction with their private key. The system of two keys is at the heart of encryption and cryptography, and its use long predates the existence of Blockchain. It was first proposed in the 1970s.
Once the message is sent it is broadcast to the Blockchain network. The network of nodes then works on the message to make sure that the transaction it contains is valid. If it confirms the validity, the transaction is placed in a block and after that, no information about it can be changed.
- A Blockchain is a type of diary or spreadsheet containing information about transactions.
- Each transaction generates a hash.
- A hash is a string of numbers and letters.
- Transactions are entered in the order in which they occurred. Order is very important.
- The hash depends not only on the transaction but the previous transaction’s hash.
- Even a small change in a transaction creates a completely new hash.
- The nodes check to make sure a transaction has not been changed by inspecting the hash.
- If a transaction is approved by a majority of the nodes then it is written into a block.
- Each block refers to the previous block and together make the Blockchain.
- A Blockchain is effective as it is spread over many computers, each of which has a copy of the Blockchain.
- These computers are called nodes.
- The Blockchain updates independently every 10 minutes.
Why do we need Blockchain?
Here, are some reasons why Blockchain technology has become so widely used.
Resilience: Blockchains are often replicated architecture. The chain is still operated by most nodes in the event of a massive attack against the system.
Time reduction: In the financial industry, blockchain can play a vital role by allowing the quicker settlement of trades as it does not need a lengthy process of verification, settlement, and clearance because a single version of agreed-upon data of the shared ledger is available between all stack holders.
Reliability: Blockchain certifies and verifies the identities of the interested parties. This removes double records, reduces rates, and accelerates transactions.
Unchangeable transactions: By registering transactions in chronological order, Blockchain certifies the inalterability, of all operations which means when any new block has been added to the chain of ledgers, it cannot be removed or modified.
Fraud prevention: The concepts of shared information and consensus prevent possible losses due to fraud or embezzlement. In logistics-based industries, blockchain as a monitoring mechanism act to reduce costs.
Security: Attacking a traditional database is the bringing down of a specific target. With the help of Distributed Ledger Technology, each party holds a copy of the original chain, so the system remains operative, even if a large number of other nodes crush.
Transparency: Changes to public blockchains are publicly viewable to everyone. This offers greater transparency, and all transactions are immutable.
Collaboration: Allows parties to transact directly with each other without the need for mediating third parties.
Decentralized: There are standard rules on how every node exchanges blockchain information. This method guarantees that all transactions are validated, and all valid transactions are added one by one.
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