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What is Blockchain

What is Blockchain & How Does Blockchain Technology Work?

In this article, we will be looking at what is blockchain, what its purposes are, and how the blockchain works.

Blockchain is revolutionizing the world, but most of the world’s population is still baffled by the concept. Quite simply, blockchain is a method of storing information, much like a Google Excel Sheet. As we have cells in a Google sheet containing information, information on the blockchain is stored inside blocks.

What is Blockchain?

Blockchain is an innovative technology that allows individuals and businesses to safely store and transfer data without the need for a central authority. By using a decentralized network of computers to store and record data, blockchain is revolutionizing the way we store, access, and transfer information.

Blockchain technology works by creating a digital ledger of all transactions that is stored across a network of computers. This ledger is immutable, meaning it cannot be changed or tampered with, and is protected using advanced cryptography. The data stored on the blockchain is highly secure and can be accessed by anyone with the right permissions.

With its decentralized nature and heightened security, blockchain is set to revolutionize the way we store, access, and use data in the digital world.

3 Main Components of a Block

There are 3 main components of a block:

  • Data: The data contains information about the transaction. This includes the transaction time, sender’s and receiver’s wallet addresses, and amount.
  • Hash of the block: As we have a unique address for each cell in a Google sheet, e.g., A11 or B45, the hash is a unique fingerprint assigned to each block on the blockchain. As information is added to a block, its hash keeps updating. Once a block is finalized, the hash of that block is also finalized. Two blocks on a blockchain cannot have the same hash.
  • Hash of the previous block: Each block contains not only its own hash but also the hash of its previous block. As changes are made to a specific block, the succeeding blocks will be automatically updated. This makes it practically impossible to tamper with any data on the blockchain.

How Does the Blockchain work?

Although it is a peer to peer network without intermediaries, all transactions on the blockchain must be validated before they are completed. 

Once a transaction is initiated on a blockchain, it must be verified by a validator node. These validators ensure that the transaction details are accurate and that the sender has enough money in his wallet. Once this node validates the transaction, it will be agreed upon by the entire network before it is added to the blockchain. 

If the validator has approved a fake or incorrect transaction, the network will reject it, and the transaction will not be added to the blockchain. This ensures that transactions on the blockchain are accurate and correct.

Features of Blockchain Technology

The three main features of blockchain technology are:

  1. Immutability: Once data has been added to the blockchain, it cannot be edited. 

If the data entered is incorrect, it will need to be highlighted in a separate transaction. This immutable nature of blockchain ensures that once added, data cannot be tampered with.

  1. Decentralized & Secure: On the network, no single node can add or edit to the blockchain. It will need the consensus of all validator nodes. 

Since there are thousands of nodes on a blockchain, this makes it practically impossible for hackers to break into a system built on the blockchain. Decentralization keeps your data or money secure and distributes power across thousands of validator nodes.

  1. Transparency: Even if we are not a validator node, we can view all transactions happening on a public blockchain on its blockchain explorer. A blockchain explorer is accessible to anyone and ensures that information is presented transparently.

Since it is a transparent, secure, and decentralized method of organizing information, blockchain’s use cases are not restricted to finance. Today blockchain is being used across different business sectors by top companies like Walmart, Shell, JP Morgan, British Airways and even the Government of Dubai.

What are the Types of Blockchain Networks?

There are three main types of blockchain network: public, private, and consortium networks. 

Public blockchains are open to anyone and are usually the most secure type of network. Public networks are fully decentralized, meaning anyone can read, write, or become part of the network. Examples of public blockchain networks include Bitcoin and the Ethereum blockchain. 

Private blockchain networks are closed networks that are only accessible by a select group of individuals. A private blockchain network is typically used for internal applications and offers enhanced security and privacy. 

Consortium blockchains are a hybrid between public and private blockchains. These networks are partially decentralized, meaning only a certain group of individuals can read or write data. Consortium blockchains are popular among organizations that need to manage sensitive data but still require the transparency of a public blockchain. 

History of Blockchain Technology

The history of blockchain technology dates back to the early 1990s when computer scientist Stuart Haber and physicist W. Scott Stornetta first proposed the concept of a cryptographically secured chain of blocks. In 2008, the first version of Bitcoin, the world’s first decentralized cryptocurrency, was created by Satoshi Nakamoto.

Since then, blockchain technology has come a long way. It has been adopted by a range of industries, from finance to healthcare and supply chain management. Blockchain technology is being used to create more secure and efficient systems of recording and verifying information.

Blockchain technology has also led to the emergence of smart contracts. Smart contracts are automated agreements between two or more parties that can be verified and executed without manual intervention. This has enabled faster, more efficient, and more secure transactions.

Blockchain technology continues to evolve today and is used to create more secure and decentralized networks. With its potential to revolutionize the way we do business, blockchain technology will surely have a major impact on our society for years to come.

Advantages and Disadvantages of Blockchain

Advantages of blockchain technology include increased security, faster and more efficient transactions, and increased transparency. Blockchain technology is also decentralized, meaning that no single entity controls the data, adding another layer of security. This makes it difficult for hackers to access data on the network, as all the data is distributed across multiple nodes.

Disadvantages of blockchain technology include scalability and energy consumption. Because blockchain networks are decentralized, they require a large amount of computing power, which can result in high energy consumption and slower transaction times.

Additionally, blockchain networks are still relatively new and are not yet widely adopted, making it difficult for companies to integrate them into their existing systems.

Is Blockchain Secure?

Since blockchain technology is built on a distributed network, it is virtually impossible for hackers to compromise the system. All data is stored on individual nodes and is updated in chronological order. This makes it almost impossible to tamper with any information on the blockchain.

Also, since validators are required to approve a transaction before it is added to the blockchain, hackers would need to find and attack a majority of nodes in order to disrupt the system. This is why blockchain technology is seen as one of the most secure methods of data storage. 

Conclusion

Blockchain technology is a revolutionary tool changing how data is stored and exchanged. Blockchain networks provide a secure and reliable way to store and verify data by utilising a decentralised network of nodes.

Transactions on a blockchain network are fast, efficient, and secure and can be used to facilitate a wide range of applications. Blockchain technology has the potential to revolutionize many industries, from finance to healthcare and supply chain management. As the technology continues to evolve, its potential uses will only become more varied and widespread.

FAQs

What is Blockchain in Simple Words?

In simple terms, blockchain technology is a digital ledger of all cryptocurrency transactions. It is essentially a secure database that allows for transparent, tamper-proof management of finances. Additionally, it also facilitates secure online transactions without the need for third-party verification. Furthermore, it can be used to create decentralized applications (DApps) that can run on a peer-to-peer network.

How many blockchains are there?

There are currently over 1,500 blockchains in operation. However, this number is expected to grow exponentially as more companies begin exploring the possibilities of blockchain technology.

What’s the Difference Between a Private Blockchain and a Public Blockchain?

A private blockchain is a closed network that allows only authorized participants access to the data. A public blockchain, on the other hand, is open to everyone and allows for transparent, tamper-proof management of finances.

Does Blockchain Technology Require Any Special Software?

No, blockchain technology does not require any special software. However, to use it, you will need a cryptocurrency wallet and an online browser that supports HTML5 & JavaScript.

What is Blockchain Example?

One of the most popular examples of blockchain technology is the Ethereum platform. Ethereum is a public blockchain that allows a blockchain developer to develop blockchain applications and DApps.

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