Blockchain Basics and its Working
Blockchain technology is spreading like a fire on the internet. Cryptocurrencies like Bitcoin and Ethereum have an association with it.
Most of the question arise about what blockchain is and how it works. It is difficult for a beginner to answer what exactly Blockchain is.
Blockchain is expanding drastically and becoming more user-friendly. Now the responsibility is on you to get ready for the future. If you are a beginner to this technology, then this is the right spot for you to get the basic knowledge. In this article, we will explain everything about Blockchain, including how it works, why it is important, and how it can advance your career.
Blockchain Technology
Blockchain is an eye-catcher around the world. People share a decentralized ledger among themselves and record the entries in real time. The computers sharing networks share information among computers.
Like Google Docs, individuals can share it and track changes in real-time, removing the necessity for anyone to wait for the changes to occur.
Users can share and record changes in real-time, like in Google Docs, eliminating the need for anyone to wait for the change.
The blockchain records both tangible and intangible assets. It associates with cryptocurrencies to record decentralized entries. The most interesting point is that nobody can corrupt it.
In 2008, other computer technologies joined the blockchain concept to create new currencies. It uses a cryptographic process for protection instead of relying on any authority.
Blockchain is a structure to record the transactions known as blocks, in multiple databases known as chains in a network attached through peer-to-peer nodes. Users refer to this storage as a digital ledger.
The digital structure of the owner approves every entry in this ledger, validating the transaction and guarding it from mucking around. This digital ledger containing information is highly secure.
Reasons For Blockchain Popularity
Businesses need to share information to achieve greater accuracy. Blockchain is ideal for use as a medium of exchange. It shares information transparently and only allows authorized network members to access it. You can use these networks to track orders, payments, production, and much more.
Suppose you share an amount through your banking application, for this, you just log in to your banking application and share the amount. These types of transactions are easy to tamper with. People are hesitant to use these types of modes.
Blockchain as a digital ledger is seeking a lot of attention nowadays. What are the reasons for its popularity? Let’s dig it out.
Record keeping is one of the most critical parts of any business. Businesses mostly keep it in the form of paper, in a bank, or recorded by a third party. This leads to an increase in the cost, time, or sometimes both for the business. Blockchain makes it easy to record information and its process, leading to saving time and money.
As per the assumptions of the people, Blockchain and Bitcoin are a weak match, but that’s not the scenario. It has the potential to revolutionize various industries, including finance, accounting, and supply chain.
Blockchain, as an upcoming technology, has many benefits in the Digital World
Highly Secure
The feature used in this technology is a digital signature that organizes a fraud-free transaction. This makes it impossible to change data without a defined digital signature. Transactions made through Blockchain are not easy to manipulate, as an administrator cannot delete any entry.
Decentralized System
Mostly you need permission while making transactions through the bank or government. Users in Blockchain carry out transactions through mutual consent. This helps in making fast and secure transactions.
Clear and Traceable
The essential transparency of this technology promises that every network participant has access to the same information. Every transaction becomes part of the public ledger. This transparency leads to the trust of all participants, and if an error occurs, it can be traced and removed. It has the potential to trace the origin of assets, which helps in audit and minimizes the chances of deception.
Blockchain Structure And Design
The design of Blockchain is a distributed, decentralized, and unchangeable ledger that contains a series of blocks. Each block contains specific data, and blocks chain together through a cryptography technique, forming an order of information. This structure ensures the security of data through its conquered mechanism, which has a number of nodes that concur the transaction before adding to the network.
Blocks
Three important sections compose a block in Blockchain
- The header contains metadata, which has a unique number used in the mining process and the previous block hash.
- The block section stores transactional information in blocks.
- The hash is a distinctive cryptographic value representing the entire block used for verification purposes.
Block Time
Block time refers to the amount of time taken by the block for its generation. It varies from a few seconds to minutes or hours. Block time refers to the efficiency of the block. If the time taken by the block is shorter, conflicts are more likely. If the block time is longer, it increases the transaction time but decreases the chances of conflicts.
Hard Forks
Hard Forks refer to the permanent divisions in the Blockchain’s history, resulting in two separate chains. The reason for Hard Forks is due to the basic changes in the protocols of a blockchain and all nodes do not admit this change. Hard Forks can result in new cryptocurrencies or dividing the existing cryptocurrency, as it requires a general agreement among the network to resolve the problem.
Decentralization
Decentralization is the key element in blockchain technology. With this technology, there is no single authority that can manage the network. This process spreads the power to make decisions among a network of nodes. The nodes together agree on which transaction to add to the network. Decentralized technology helps in carrying out transparent transactions, resulting in the trust of participants, and also decreases the chances of data manipulation.
Finality
Once the network confirms the block containing the transaction, reversing the transaction becomes impossible. This feature ensures the honesty of the network and avoids double spending on the network.
Public Blockchain
The public blockchain allows everyone to participate in the network and make transactions. These are uncloudy because they record transactions publicly.
How Does Blockchain Technology Work?
Blockchain is similar to a Spreadsheet or Database, as both record data, but the main difference between a Database and Blockchain is how they access and store data.
It is working on the process of distribution. Different machines record different copies of data. Comparing all the copies confirms the validity of the data.
BlockChain collects the information and records in the block, similar to the cell in a spreadsheet containing information. This information is then encrypted and forms a hash. The hash is then added in the following block header and encrypted to make a series of chains.
What are the types of blockchains?
The blockchain network is further divided into different types.
Private BlockChain Network
Private businesses use private blockchain, which is also known as permission blockchain. This Blockchain provides high security and privacy for the data. This makes it suitable for businesses that require special permissions and compliance. In Private Blockchain, every node might be able to perform transactions, but participants have limited approved nodes.
Public Blockchain Network
Public Blockchain, also known as Permissionless Blockchain like Bitcoin and other cryptocurrencies, this plays a big role in the population of Distributed Ledger Technology (DLT).
Public Blockchain faces certain challenges relevant to the privacy of data. Distributed Ledger Technology, distributes data through a peer-to-peer network instead of storing information on a single platform.
Permissioned BlockChain Network
A permissioned blockchain is also known as a private Blockchain. It gives special permission to authorized individuals. This technology gives the right to choose the participants and give them permission according to their needs.
Hybrid BlockChains
Hybrid Blockchain has qualities of both Public and Private BlockChain. The purpose of it is to keep some information public for transparency and some information private for safety. Permissions are only given to authorized individuals. A Hybrid blockchain is preferable to keep a balance between public and private blockchains. E.g.stock exchange keeps some information public and sensitive information needs to be private.
Sidechains
Sidechains are independent blockchains that run along the main blockchains. It is used to add different functions and changes without affecting the main blockchains. Sidechains are also used to handle transactions of the main Blockchain to avoid clogging and scalability.
Blockchain Layers
Blockchain layers relate to making multiple layers of Blockchain on top of each other. Each layer has its own rule and mechanisms which can interact with other layers. This ensures higher versatility, as multiple layers help carry out transactions.
History Of BlockChains
In 1982, an American computer scientist and cryptographer named David Chaum proposed blockchain technology. Stuart Haber and W. Scott Stornetta defined In 1991 that the chains of blocks are secure by cryptography. After this point, different individuals started working on digital currencies.
In 2008, a group of developers working under the surveillance of Satoshi Nakamoto introduced the blockchain model. Satoshi Nakamoto introduced blockchain in 2009 through Bitcoin currency, to date no one knows who Satoshi Nakamoto is.
Interest in Blockchain started to grow as the technology introduced peer-to-peer and blockchain-based software in 2014.
In 2016, overstock.com, a digital retail company, sold its 126,000 shares using Blockchain technology.
Advantages And Disadvantages Of BlockChain
Accuracy Of The Chains
Multiple devices and computers approve transactions in the Blockchain, detaching all people from the verifications. Blockchain Technology allows the recording of exact information and leads to less human error. If there is any computation error, a single copy records it and is not acceptable by other networks.
Cost Reduction
Blockchain eliminates third-party verification unlike the bank, where customers pay to verify their transactions e.g. businesses charge small amounts of fees while using a bank card to process that transaction. Bitcoin and other cryptocurrencies reduce the fees as there is no central authority.
Secure Transactions
Blockchain handles a large number of transactions wrapped in multiple layers of data security. This process makes transactions more secure as every block has its own unique address. It is easy to read the information provided in this technology but adding information to the chains requires clearing several security hurdles.
Efficient Transactions
Transactions going through a single authority might take some time to process; e.g. if you deposit a check on Friday evening, it will take almost two days to pass. Besides this, Blockchain works 24 Hours a day and only takes a few minutes to process your transaction.
Disadvantages
Technology Cost
Although Blockchain Technology is capable of saving transaction fees, the technology is obscure from fees. The computers involved in the Blockchain require a lot of energy, and according to the studies, the energy consumed by the Blockchain is more than the energy consumed in Pakistan.
This issue comes up with the solution of using Natural energy, like solar, wind, and energy from the water.
Illegal Activity
Blockchain Technology is capable of protecting from theft and hacks. The most common example of illegal use of Blockchain is probably the Silk Road, an online dark web used for selling drugs and a money laundering platform operating from 2011 till October 2013 until the FBI shut it down.
The dark web allows users to buy illegal goods and pay in different cryptocurrencies, which are not traceable. You can see this in both negative and positive ways. It allows everyone to access their accounts, but it also allows criminals to carry out transactions.
Uses of Blockchain Technology
Nowadays over 23000 cryptocurrencies are using Blockchain Technology as it is the most reliable and trusted network. Basically, Blockchain technology is not only used for cryptocurrency. Multiple businesses use it for their data security and privacy.
Banking And Finance
Blockchain in Banking, Boosted the process of transactions. Most financial institutes operate five days a week, so if someone deposits a check on Friday at 6 pm, it takes two days to reflect the amount in their account.
Even if you process the transaction during business hours, it still takes time to process as it waits for the central authority to authorize the transaction and still the mass of transactions are pending for authorization.
Besides this Blockchain decreased the time to process transactions. Transactions take a few seconds or minutes to process information in the Block and then add them to the network.
Blockchain works 24 hours a day without getting tired or taking rest. It also allows banks to transfer funds to other Banks in the blink of an eye, making it secure and efficient.
Health Care
Blockchain is also used to record patient details. Details collected from patients are then added to the blocks, ensuring patients that their records are safe and no one can tamper with them once recorded. These blocks are then added to the network with a private key, allowing only authorized persons to access the records.
Property Record
In some previous decades, records were managed manually in a file or on a computer system, this process was time-consuming, and there was always a chance of human error. If there’s a dispute on property and you have to reconcile the record, it will take time and effort to collect that record.
Blockchain is capable of eliminating the need for scanned documents or physical records. If the property owner is verified on the blockchain, then there is no need to worry as the deed is saved permanently on the blockchain, which makes it impossible to temper.
