Life depends on evolution, natural selection, and change. It
gives meaning to our lives and to the world; it helps us stay up to date,
adjust and adapt. And this mindset led us to Blockchain-based cryptocurrencies.
But what is blockchain? How does it work? Let's get to know everything about the
crypto ledge system.
When you make payments online, you provide your credit card
information. And if you don't have a credit card, you can opt for a bank
transfer. With the rise of cryptocurrencies, these methods are aging.
What if I told you that you can do the transactions and many
other works without giving out your personal information? And you can do it all
without governments, banks, or third parties. Isn't it amazing? The answer to
"how" is a blockchain!
It's like a database where you save blocks of information
connected together. That's why we call it Blockchain. Things are changing fast
and you can even do Android cryptocurrency mining on your phones today.
Keep reading if you want to understand the concept of Blockchain
in detail.
Two mathematicians, Stuart Haber and W. Scott Stornetta,
first brought Blockchain technology to light in 1991. Initially, the goal was
to implement an untameable system with timestamps.
Then, in 1990, Nick Szabo proposed using Blockchain to
secure a digital payment system called "Bit Gold". But no one ever
did, until Satoshi Nakamoto claimed to have invented the first Blockchain and
Bitcoin.
So what is Blockchain?
Simply put, a Blockchain is a distributed database shared
between nodes in a computer network. It saves information in digital format.
Most people have heard of Blockchain after they started researching Bitcoin.
“A blockchain is a digitally distributed, decentralized
public ledger that exists on a network. It is particularly notable in its use
with cryptocurrencies.
Blockchain has played an important role in cryptocurrency
systems, ensuring the secure and decentralized recording of transactions.
The unique thing Blockchain brought to the table was that it
ensured the fidelity and security of a data record and did all of this without
the need for a trusted third party.
The main difference between a Blockchain and a database is
in the way they structure data.
The basic steps followed by a blockchain are:
It collects information in groups called "Blocks".
Each block has a specific storage capacity, and it is closed and linked to a previously served block once it is filled.
This forms a chain called “Blockchain”.
Any other information will be added to a newly created block until its capacity is full. The process keeps repeating itself.
Each block in the chain has an exact timestamp when added to the chain, which cannot be altered.
Let's see how Blockchain works in detail.
Transaction Process: How Does Blockchain Work?
Someone or a
computer transacts
The transaction is
transmitted over the network
The computer
network solves equations to confirm the transaction
The transaction is
added to blocks if confirmed
The blocks are
chained together creating an entire story
And that's just it! It sounds like a complicated task, but
it is done in minutes with modern technology. And because technology is
advancing rapidly, I expect that to happen faster than ever.
A new transaction enters the system. It is then transmitted
to a network of peer-to-peer computers scattered in different locations around
the world. The computer network then solves equations to confirm the authenticity
of the transaction.
It is placed in a block after confirmation. All blocks are
chained together, forming a long chain of the permanent history of all
transactions.
How are Blockchains used?
Although Blockchain is a big part of cryptocurrency, it is
not the only use. We may use Blockchain to reliably store your transaction
data. People confuse it with cryptocurrencies like Bitcoin and Ethereum.
Blockchain has already been adopted by Walmart, AIG,
Siemens, Pfizer, and Unilever. For example, IBM's Food Trust uses it to track
the journey of food before it reaches its final destination.
Now, for some of you, that might sound a little overkill.
But the reason for food tracing is that the food industry has seen countless
outbreaks of E. coli and Salmonella. There have also been cases where hazardous
materials have been accidentally introduced into the food.
Tracing and identifying the causes of the epidemic has
always been a difficult and time-consuming task. However, thanks to Blockchain,
food is now tracked and businesses know exactly where the food truck stopped
before it gets to the intended location.
This allows them to conclude much more quickly in the event
of a health hazard. There are also tons of other uses for Blockchain.
What is blockchain decentralization?
Decentralization makes the Blockchain safe even if it is
public. You can easily access it by just using an internet connection.
Have you ever been in a situation where all your data was
stored in one place and that "secure" place was compromised? Even if
you've never faced it yourself, I'm sure it doesn't sound like a scenario you'd
want to be in.
Blockchain has a way to avoid this situation. It broadcasts
the information to multiple computers located in different locations around the
world. This creates redundancy. If someone somehow manages to delete, modify or
destroy a transaction history from one place, it will not affect other nodes.
Instead, other nodes will cross-reference and locate the
node with the incorrect information. This is called
"decentralization", which means that not all information is stored in
one centralized location.
This makes information and history irreversible. So,
Blockchain is not only a reliable place for transaction history, but we can
also use it to store data. You can also store integral items such as legal
contracts, state identifications, or even a company's product inventory.
Advantages and disadvantages of blockchain
Like everything in the world, Blockchain has many advantages
and disadvantages. In this section, you will study them in bullet form.
Benefits
- Improved accuracy as it removes human involvement from the verification process
- Information is much harder to falsify due to the decentralization
- Secure, private, and efficient transactions
- Provides a banking alternative as well as a much more secure way to store personal information for citizens
The inconvenient
- Bitcoin mining has a high technological cost
- Data storage has limits
- It has a risk of being used for illicit activities
- The regulations still remain uncertain as they vary by jurisdiction.
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