Along with cryptocurrency’s rise in popularity, blockchain has also become one of the most notable concepts in the crypto industry. It has piqued the interest of many people, even those who are unfamiliar with it. Curious to know more about the blockchain and how it works? Delve deeper into this intricate and revolutionary technology here at Cryptoshimbun!
What is the blockchain?
Blockchain is a database that contains a large array of information. It is also referred to as a decentralised ledger since there is no central authority controlling it. In the blockchain, all transaction records are stored in ‘blocks’ and each one has its unique hash.
With the hash codes connecting several blocks, it results in a ‘chain’ of information, hence the term ‘blockchain’.
One block to success: Beginnings of the blockchain
The concept of a blockchain was first made by researchers Stuart Haber and W. Scott Stornetta in 1991. It was originally a system to document timestamps wherein it is impossible to tamper with.
As time passed, the concept remained unused until Satoshi Nakamoto applied it to Bitcoin’s white paper in 2008 as the public ledger that stores the transactions made using BTC. In creating Bitcoin (BTC), Satoshi Nakamoto adopted blockchain technology and utilized it as the large cryptocurrency’s underlying technology.
Since then, blockchain has become a ground-breaking decentralized platform. Although it is often associated with cryptocurrency, it has branched out into other industries like retail and pharmaceutical companies. Some examples are Walmart, Pfizer and Unilever.
Each step matters: A guide on how the blockchain works
A blockchain is a public database that is shared across a network of computers that is responsible for making sure that all copies of the transaction are the same. The three most important participants in the network include the following:
Blocks serve as the ‘storage’ for different crypto transactions that are then hashed and encoded. Each block has four main components: a timestamp, reference to the previous block, a summary of the transaction and Proof of Work. All of these parts are necessary to secure the information in the block and ensure the entire chain is immutable.
The process of adding new blocks onto the chain is called mining and those who complete this task are called the miners. These are people who use powerful computers and special software to solve complicated math problems to generate a 64-digit hexadecimal hash code—a protocol which is called ‘proof-of-work. The miner who completes the hash code that is less or equal to the target hash first will be given an incentive in the form of cryptocurrencies. After a successful mine, the change is accepted by all the nodes in the blockchain.
Miners use special electronic devices called ‘nodes’ to keep copies of the blockchain. These devices check the details of a transaction and verify the information across all other nodes in the network to result in a consensus.
Step by step process of how the blockchain works
Blockchain is the underlying technology for different cryptocurrencies like Bitcoin (BTC) and Ether (ETH). A common crypto transaction usually involves these four processes:
- Recording of a transaction along with its details and digital signatures
- Checking of the records by the network through the nodes that validate the details of the transaction
- Adding the new record to a block with a unique hash code along with the hash of the previous block
- Putting the new block into the network while the hash codes connect the blocks in a specific arrangement.
Key features of a blockchain
The purpose of blockchain is to make transactions decentralized, more secure and convenient. This is possible because of its three main features:
Distributed ledger technology
All network participants have access to the blockchain and its immutable record of transactions. This distributed ledger only allows transactions to be recorded once, removing any chances of duplicates or double-spending that is often seen in traditional business networks.
Once a transaction has been recorded in the blockchain, it is already tamper-proof. If there is an error in a specific record, a new transaction will be made to reverse it, however, both transactions will remain visible.
A smart contract is a self-executing contract that is an agreement between the buyer and seller. This can include the conditions for corporate bond transfers and terms for travel insurance to be paid.
Try its full capacity: Benefits of using the blockchain
The blockchain is a revolutionary decentralized network that is beneficial for many businesses and industries because of the following reasons:
High accuracy of transactions
Since every blockchain transaction has to be verified by several nodes, it reduces the chances of error in the data upon reaching a consensus. If one node commits a mistake in the database, others will instantly see it and spot the inaccuracy. Also, every asset in the system is easily identified and tracked so there are no chances of double-spending.
Unlike bank transfers, using the blockchain allows two parties to complete a transaction without an intermediary. In turn, it saves you more time and money rather than having a third party involved.
It is nearly impossible for anyone to forge any transaction in the blockchain. To create fake information, they would need to hack every node in the blockchain, a feat that would require an enormous amount of energy, making it impossible to pull off. On that note, all data stored in the blockchain is permanent and cannot be tampered with by anyone.
You can now make any financial transaction in the blockchain whenever you want. It operates 24/7 and is great for international transfers. Compared to other options, you don’t need to wait for a few days to complete a transaction or go through troublesome red tape implemented by central financial institutions.
Maximize the potential of the blockchain by exploring it!
The blockchain is a network that keeps records, shares data and processes payments. Although the purpose of blockchain is often related to cryptocurrency, it can also be applied to other industries such as large businesses and voting systems.
Unravel more about blockchain and cryptocurrency when you browse Cryptoshimbun!