Learn about the fundamentals of blockchain technology and how it can improve the trust of records keeping and financial transactions.
In simple words, blockchain technology is a decentralized, distributed ledger that tracks the provenance of digital assets. The data on a blockchain can’t be changed by design, making it a real disruptor in industries like payments, cybersecurity, and healthcare. In this article, I will explain what it is and how it is used.
What Is Blockchain Technology?
Through decentralization and cryptographic hashing, Blockchain makes the history of any digital asset unalterable and transparent. A Google Doc is a useful comparison for understanding blockchain technology. Instead of being duplicated or moved, the document is disseminated when we generate a document and share it with a group of individuals. This creates a decentralized distribution chain where everyone can access the document at the same time. While another party adds changes to the document, no one is locked out, and all changes are monitored in real-time, making them entirely transparent. Blockchain is more difficult to understand than a Google Doc.
- A blockchain is mainly a database in the system that is responsible for holding encrypted data blocks and linking them together to build a chronological single-source of truth for the information.
- Instead of being duplicated or moved, digital assets are distributed, establishing an immutable asset record.
- The asset is decentralized, giving public access in real-time and transparency.
- The document’s integrity is preserved via a transparent record of changes, which builds trust in the asset.
- The inherent security features of Blockchain and its public ledger make it an ideal technology for practically every industry.
- Blockchain is an up-and-coming and revolutionary technology because it reduces risk, eliminates fraud, and provides scalable transparency for a wide range of applications.
Advantages of Blockchain Technology
It employs a digital signature technology to execute fraud-free transactions, making it difficult for other users to corrupt or edit an individual’s data without a unique digital signature.
Usually, transactions require the approval of regulatory bodies like a government or a bank; but, with Blockchain, transactions are completed through user consensus, resulting in smoother, safer, and faster transactions.
Ability to Automate
It’s programmable, and when the trigger’s parameters are matched, it can automatically generate a series of activities, events, and payments.
How Does It Work?
To understand how it works, we first need to understand the concept thoroughly. Blockchain consists of three critical concepts: blocks, nodes, and miners.
Every chain is made up of several blocks, each of which comprises three essential elements:
The information is contained in the block.
A nonce is a 32-bit whole number. When a block is constructed, a nonce is generated at random, generating a block header hash.
The hash is a 256-bit that is generally associated with the nonce. It needs to start with a lot of zeros (i.e., be extremely small).
When the initial block of a chain is produced, a nonce generates the cryptographic hash. The data in a block is considered signed and then it gets irreversibly connected to the nonce and hash unless it is mined.
Mining is the process where miners add new blocks to the chain. Every block on a blockchain has its own nonce and hash, but it also refers to the previous block’s hash in the chain, making block mining challenging, especially on large chains. Before the proper nonce-hash combination is discovered, around four billion possible nonce-hash combinations must be mined. Miners use specialized software to tackle the mathematical problem of generating an appropriate hash using a nonce. When a block is successfully mined, the change is acknowledged by all nodes in the network, and the miner is rewarded financially.
One of the most important aspects of blockchain technology is decentralization. A single computer or organization cannot own the chain. Instead of that, a distributed ledger is formed by the nodes that connect to the chain. A node is any electrical device that retains copies of the Blockchain and keeps the network running. Every node uniquely has its copy of the Blockchain, and for the chain to be updated, trusted, and confirmed, the network must algorithmically approve any newly mined block. Every action in the ledger can be quickly reviewed and examined since Blockchain is transparent. A unique identification number is assigned to each participant, which is used to track their transactions.
Bitcoin Blockchain System
Here’s how Blockchain, also known as distributed ledger technology, can be understood easily by using the Bitcoin blockchain system as an example:
Bitcoin transactions are entered and broadcast by a network of powerful computers known as nodes.
This global network of thousands of nodes competes to confirm the transaction using computer algorithms. This is Bitcoin mining. The miners compete and those who complete a new block first are rewarded with bitcoin for their efforts. These benefits are paid for through network fees, which are passed on to the buyer and seller. The charges may rise or fall depending on the number of transactions.
The sale is added to a block on the distributed ledger once it has been cryptographically confirmed. The majority must then approve the network deal, a process known as “proof of work.”
The transaction is complete when a cryptographic fingerprint known as a hash links the block to all prior blocks of bitcoin transactions.
The notion of blockchain technology was first mentioned in a dissertation published in 1982 that discussed “the architecture of a distributed computer system that may be formed, maintained, and trusted by mutually suspicious groups.” But it was Satoshi Nakamoto’s pseudonymous paper “Bitcoin: A Peer-to-Peer Electronic Cash System,” published in 2008, that put an academic idea into practice. Here at Kryptomind, Our talented developers paved their way in the Blockchain and mastered blockchain development, cross chains, DAOs, a blockchain infrastructure, and security implementation. You can get in touch and explore how we can transform ideas utilizing cutting-edge information technologies.