I’d be happy to explain what blockchain technology is, and how this thing works.
It simply allows a transaction occurring between two ends on a network to be recorded in a secure, transparent digital ledger-a basic blockchain technology concept where other digital currencies like Bitcoin and Ethereum base their foundation, although their use extends a little further than that. Blockchain, in simple words, is a linked list of blocks, each linked with a set of transactions verified and checked by various nodes in its network before adding it to that chain.
To see how this works, let’s get down to the basics. Looking at traditional ledger systems-such as in banking or accounting-there is a leading authority that makes entries into, and updates, the ledger. It’s the same authority that checks, verifies, and validates transactions for their correctness and ensures that the data maintained is accurate. There are some limitations, though-for example, being slow, susceptible to errors, and even tampering in certain cases.
Contrary to that, blockchain depends on no form of central authority. Instead, it is part of a decentralized network. It gets updated with nodes spreading all over the world, confirming the transactions inside it. In such contexts, blockchains become resilient, secure, and transparent. That happens in the following fashion:
It relays a newly created transaction, such as sending some Bitcoins to a friend, to the network of nodes, whereby all the nodes verify the transaction by means of complex algorithms and sophisticated cryptographic techniques that ensure the sender rightfully owns the funds for such a transaction, that the receiving wallet address is correct, among other basic verification controls.
First, it gets verified and then pooled together, batched with other transactions in what is known as a block. It would contain some kind of unique code, with each block called a hash, connecting to the previous block to make it some permanent record that cannot be changed. It’s really just a kind of digital fingerprint that makes any change in the data within the block almost impossible.
Because of this, all nodes on the network compete to solve one complex mathematical problem that requires great computational power. The solution shall give the right to that node to add the new block of transactions to the blockchain, and a form of reward is the cryptocurrency it receives for the effort in what is called mining regarding Bitcoin.
With every addition in the chain, each node itself updates a copy of the blockchain independently, but everybody stays in sync. Basically, this is how decentralization works, where different independent nodes can check upon a given transaction, therefore eliminating the need for services from a central authority.
One of the very important aspects that make blockchain so secure is cryptography. It fully ensures that all the transactions taking place on the blockchain are encrypted, hence protection of user identity and prevention of tampering with their data. Since each block carries a different hash, which links in a chain to the previous block, changing any transaction detail would require recalculation of the hash for each subsequent block-a task virtually impossible because of the great amount of computational power required.
Let’s now see some of the important features that make blockchain technology so potent:
Decentralized: Blockchain does not operate through one central governing body but through a decentralized network of nodes. This latter point, therefore, ensures that it can have intrinsic safety and resistance against potential hacking/attacks or failures.
Transparent: Since any transaction taking place across this network is visible to any user who is online, tracking and verification can be allowed to be in real time.
Security: Advanced cryptography in use, combined with a decentralized nature, makes any action of malicious actors aimed at data tampering impossible to go unnoticed.
Immutable: The unique hashing system in blockchain develops an indelible record that cannot be deleted or tampered with. This ensures data integrity and protection from being tampered with.
Consensus mechanisms: ensure that many forms of different consensus algorithms, like PoW and PoS, enable nodes in a network to agree on one state of the blockchain, including prevention of control by one single entity of the network.
Blockchain technology has far-reaching applications beyond cryptocurrencies, including:
Supply Chain Management: The company can track the product throughout its lifecycle to ensure authenticity and origin.
Smart Contracts: Self-executing contracts, whose rules are pre-set, can automate many enterprise activities and save costs while improving productivity.
Identity Verification: Blockchain technology can provide users with secure digital identities impervious to identity theft and data hacks. Healthcare: EHRs on a blockchain ensure that this is shared in a secure manner and that sensitive medical information remains confidential with the patient.
Voting systems: Blockchain-based systems ensure more transparency and security in electoral processes anywhere in the world. This means that, as far as innovation in security, transparency, and decentralization are discussed, there is no parallel to blockchain technology. Blockchains introduce new frontiers to many industries, governments, and even several individuals, whereby nodes from any part of the world can witness an event in real time and record it immutably.
