Table of Contents
What is Blockchain Technology?
Blockchain Technology can be defined as a shared, unalterable ledger or register that ensures the transparent and protected keeping of transaction records across several computers. In 2009, when Bitcoin had just been introduced to the public by an anonymous entity, blockchain was the technology that aided the cryptocurrency’s processes.
This technology is a chain of blocks; each block contains a list of transactions. It was built so that, once a block is added to the chain, it cannot be changed independently; this helps in maintaining the data’s integrity. This constancy is achieved using cryptographic hashing, in which each block carries a unique identifier (hash) of the previous block, resulting in a continuous chain.
Let’s use this analogy from Fabricio Santos of Cointelegraph:
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A blockchain is like a series of glass boxes with content everyone can see, verify, and change. Everyone knows where the boxes are and what they contain.
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He also added that “when someone opens a crypto wallet, it is creating a new address in the blockchain, and the private key ‘unlocks’ this address.”
All cryptocurrencies and digital tokens must process transactions and run on some version of a blockchain. This includes popular cryptocurrencies like Ethereum, Bitcoin, and XRP, as well as altcoins or meme coins like DOGE.
How Does Blockchain Technology Work?
A blockchain is distributed, which means that numerous versions are saved on various machines, and they must all match for the blockchain to be genuine. It is made up of programs called scripts that perform the same functions as a database: entering and accessing data, as well as saving it somewhere.
Blockchain collects transaction data and enters this data into a block, similar to how a cell in a spreadsheet stores information. When the block is full, the data passes through an encryption method that generates a hexadecimal number called the hash, as previously stated.
Following that, an encrypted version of the hash will be added to the next block header along with the information from other blocks. This results in a chained-together succession of blocks.
The Cryptocurrency Transaction Process (Bitcoin)
Most transactions are carried out through a specific process, but this depends on the blockchain on which they are executed. In this section, the Bitcoin blockchain is our preferred choice of reference. When you begin a transaction on your cryptocurrency wallet (an application that provides an interface for the blockchain), it initiates a series of activities.
Your Bitcoin transactions are transmitted to a memory pool, where they are held and queued until the miner or validator can retrieve them. When a transaction is inserted into a block, the block is closed and encrypted using an encryption technique. The mining process then begins.
The entire network is working at the same time to create the hash. Except for the nonce, which stands for ‘number used once’, each one generates a random hash.
Every miner starts with a nonce of zero, which is appended to their hash, which is produced at random. If that number is not equal to or less than the target hash, the nonce is incremented by one, and a new block hash is generated. This process is repeated until a miner generates a correct hash, winning the race and getting the reward.
A transaction is incomplete until a block is closed. The validation of five other blocks is required before a block can be confirmed. The confirmation process usually takes about an hour to complete, with blocks about 10 minutes apart on average.
It is also necessary to note that not all blockchains follow this process. For example, to validate blocks that are then confirmed by a network, it randomly chooses one validator from each of the users holding Ether’s stake. Compared to the Bitcoin process, this is a lot faster, and it’s not as energy-intensive.
Even in-game blockchain transactions in games like Axie Infinity must be validated.
Features of Blockchain Technology
Blockchain technology has key features that make it very important for storing data.
- Decentralization
- Immutability
- Security
- Smart Contracts
Decentralization
Decentralized technology allows you to keep your assets in a common network that is not subject to oversight or control by a single person, organization, or institution. The owner will be personally in charge of their account via a key tied to that account, allowing him or her to pass on his assets to anyone he desires.
Blockchain enables multiple network nodes to distribute data from the database, including computers or devices that are running any kind of Blockchain software at different locations. This not only adds redundancy but also ensures data integrity.
For instance, the other nodes would stop someone from changing a record if they attempted to do so at one instance of the database. It prevents any one node in the network from changing the data it contains.
Immutability
One of the main values of blockchain is the ability to create immutable records. Because it requires confidence in an intermediary of some sort to ensure the security of a database, databases that are stored centrally will be targeted by hackers and fraudsters.
Blockchains like Bitcoin hold their ledgers in an ongoing state of forward momentum. There is a copy of this Digital Log on every node in the system. Each node must verify the validity of the transaction to be added. If a majority believes this to be true, it becomes part of the record.
Security
In the absence of one flaw, Bitcoin technology has been regarded as more secure than its predecessors. The network of Blockchains is distributed, meaning that data is transmitted at all times on not only one but multiple nodes so that the integrity of the original data remains intact if a node has been hacked or malfunctioned.
Smart Contracts
A new kind of contract can be created and executed with the use of blockchain technology, which is a self-executing contract that autonomously executes if certain conditions are met. By guaranteeing security and transparency in the implementation of contracts, there is scope for intelligent contracts to transform an entire industry.
Frequently Asked Questions
What is Blockchain?
To put it simply, a Blockchain is a shared database or ledger. Information is stored on data structures known as blocks, and each network node is similar to the database as a whole. Security is ensured because most people will reject any effort to edit or delete an item in one copy of the book.
What is the major difference between Private and Public Blockchains?
A public blockchain is a point at which anyone can join the network for free and set up a node, commonly known as an Open or Permissionless Blockchain. Because of their open nature, these blockchains must be safeguarded with cryptography and consensus techniques such as Proof of Work. By contrast, each node has to be approved before it can become part of a Private or Permissioned blockchain. The level of security should not be so high, given that the nodes are viewed as trustworthy.
Conclusion
In this article, we have talked about blockchain technology, how it works, and some of its key features. We should also note that blockchain technology is an innovative technology that has the potential, to change many sectors. It is a highly sought-after platform for different applications due to its wonderful features.
