Blockchain Technology Explained – All You Need to Know

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what_is_blockchain
what_is_blockchain

Last updated on December 26th, 2017 at 07:08 pm

Introduction – Blockchain / Block

Blockchain technology is the very backbone of the Bitcoin currency which constitutes a distributed transaction database of an ever-growing array of records which are protected from altering or modifying. Here, every new piece of record, called a “block,” is added consecutively to the pre-existing blockchain. Now, this technology was developed on the internet originally for the operation of Bitcoin but many more uses of this technology, including its applications, are being discovered. It basically is a new type of internet, which is very transparent, independent and simply put, quite a revolution to the computer world.

Blockchain and Decentralized Ledger

The blockchain is a decentralized ledger used to record transaction or data across several computers, such that the record cannot be changed without changing all subsequent blocks in the network. This means that transactions cannot be deleted. It enables users to verify transactions easily. By being decentralized, it is difficult for hackers or cyber thieves to exploit Blockchain transactions. Any data stored on it can be said to be incorruptible. An address of its kind consists of a long string of numbers called a public key, and a person can have a private key which is like a password that guarantees its owner access to their digital assets or access to interact with the supported capability.

This technology resembles a system, where a spreadsheet database which contains a chain of records of pre-existing data and every new information, is shared and stored in millions of devices in several locations all around the world. It works such that each time new information is added to the blockchain, from any part of the world, each individual database at any part of the world, is updated automatically and permanently. This new blockchain can be viewed publicly by anyone, anytime. Hence it is amazingly transparent.

Blockchain
Blockchain

When did Blockchain technology start?

Blockchain technology was initially developed in 2008, by a group of programmers under the pseudonym, Satoshi Nakamoto, explained in his 9-page whitepaper. This technology served to control the exchange or transfer of the Bitcoin digital currency transparently, yet without the need of a third party, making Bitcoin the decentralized currency it is today. The sole authority to modify or alter a blockchain rested in the hand of its developers, who voluntarily revoked this right permanently. So in essence, a blockchain cannot be modified by anyone. Initially developed for Bitcoin cryptocurrency, Blockchain technology is a world of possibilities and can literally revolutionize the internet. Now, there are several applications of this system of information recording.

How Blockchain Works?

A bit of completed “block” is what forms the chain. Blocks are transition records that go into a permanent database called a Blockchain. Each Block has a hash of the previous block, and each chain has complete information about several users balance and addresses right from the first to the most recent block.

Once a block gets completed, a new one is created, and so Blockchains continue to grow in size. Blocks are added through cryptography.

Blockchain Components

Each block has four major components of information:

  • Hash-which is an ID or consensus identifier that consists of a random set of encrypted numbers.
  • Hash numbers from the previous block
  • All the transactions that make up a block
  • Public key

Blocks are created when several nodes reach a consensus to validate transactions, that is, no central source validates transactions that are why Blockchains are called distributed ledgers. There are 2 major consensus mechanisms, which lead to the validation of transactions:

Proof of Work (POW)

Proof Of Work (POW), which is done to prevent ledger hacking by asking users to validate transactions by repeatedly running hashing algorithms.

Proof of Stake

Proof Of Stake- basically, this just asks users to prove that they own a certain amount of currency.

Uses of Blockchain

  • Creation of cryptocurrency. The first cryptocurrency, which is Bitcoin, uses the technology and others as well.
  • Simplifies business operations.
what_is_blockchain
what_is_blockchain

The impact and consequence

No one would have expected that the invention of the first generation computers could lead to the modern day micro-devices or that pinhole camera or darkroom photography techniques will one day be replaced by micro cameras which can even be fitted into pens or eyeglasses. In just the same way, Blockchain technology may thoroughly replace the current internet system in ways currently unimaginable. When it comes to innovations such as this, nothing is yet impossible.

Today, there are up to 5 major innovations which have emerged from the development of the Blockchain technology, Bitcoin itself being the first.

Why is Blockchain preferred?

The advantage of Blockchain is that it enables easy reconciliation of records, and simplifies business operations by streamlining internal operations. It also eliminated repetitive steps and annihilated errors. With this technology, there are also minimal processing delays.It is also used to track important parts moving through a supply chain an to expand the number of trade deals settled. You can also use it to create a permanent public and transparent system for compiling data and to track digital payments. More importantly, it can be used to issue cryptocurrencies and to store rights as regards to copyright registration of users.

Banks, Governments, and Money Laundering

Although almost any institution can use it, the governments and banks are expected to make the most use of this technology. When banks make transfers, there are a lot of third-party services required, but with the use of Blockchain technology, the whole financial payment system becomes quicker and still able to be monitored by banks, while also being cost-effective. Tax payment systems, international trade, salary payment systems for very large firms will be made quicker and way more transparent, money laundering will be as difficult as ever, and the tracing of organized financial cyber-fraud will take mere hours.

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