What is Blockchain Technology?

Blockchain technology has recently been the subject of many discussions. But what is it? Simply put, blockchain is a modern technology that enables people to send and receive cryptocurrencies such as Ethereum and Bitcoin.

The blockchain network is decentralized and not controlled by any one person. This is perhaps its most interesting feature. A group of online users confirms and verifies all of its transactions. Other special features on the blockchain network include transparency, security, and speed.

Why is it called “blockchain”?

To help you understand more, let’s explore why this technology is called “blockchain.”

Imagine a real-world container carrying many boxes from point A to point B. In the cryptocurrency world, the container is the “block,” and each of the boxes is one individual transaction. The block carries many transactions, just like the container carries many boxes.

Now that you know what a block is, let’s define a “chain.”

To make it easier to understand, we will still use the example of a container carrying boxes. Let us imagine that the container has arrived at its first destination. This means that a transaction has been confirmed and is now available for the public to see.

Now, the container is ready to move to its next destination. Each new or old box (transaction) that the container (block) carries will still be available for all to see. This process is similar for all transactions that occur on the blockchain, hence the name “chain of transactions.” Next, let’s examine how it works.

How does blockchain work?

In contrast to fiat currencies, which are issued by central banks, cryptocurrencies such as Bitcoin have no central authority. Miners solve complex mathematical problems to authenticate each transaction. Miners are also referred to as “nodes.”

When someone makes a Bitcoin transaction, the transaction originates from his or her wallet. Each wallet has a private key. This key is a digital signature that provides mathematical proof that the transaction originated from the owner of the wallet.

When multiple transactions are taking place across the world, they are grouped into blocks by strict cryptographic rules. The block is then sent to the blockchain network, which consists of numerous nodes running high-powered computers. These nodes compete to solve complex mathematical problems to validate these transactions. Whoever solves the problem first is rewarded with Bitcoin.

The validated block is then added onto previous blocks, forming a chain referred to as “blockchain.”

How is blockchain tamper-proof?

As mentioned earlier, blockchain cannot be tampered with. Every new block added to the chain transports a complex cryptographic reference to the previous block. This reference is part and parcel of the mathematical problem that must be solved before another block is added to the chain.

Solving this puzzle partly involves figuring out random numbers known as “nonce.” Nonce is combined with other data to create a digital fingerprint called a “hash.” Since it is encrypted, it is secure.

Every hash is unique and has to meet particular cryptographic conditions. Once these requirements are met, a block is completed and finally added to the chain.

For someone to tamper with a blockchain, they would have to re-mine the cryptographic puzzles of each of the previous blocks (more than half a million blocks), which is impossible to do.

What are the advantages and disadvantages of blockchain?

Advantages

Transactions involving fiat currencies are registered on privately held databases owned by state and corporate entities. These databases are closed. The public cannot access them. They are owned by one entity. This nature makes them susceptible to fraud or attacks that could cripple their networks.

On the other hand, blockchain is decentralized and records all cryptocurrency transactions. Several people are involved in authenticating the transactions in the network to eliminate fraud as well as ensure there are no repeat payments. In addition, since the system is decentralized, if a part of the blockchain goes down, it does not result in a collapse of the entire blockchain.

Disadvantages

Some blockchain networks (such as the Bitcoin network) have become quite congested lately, leading to an increase in the transaction times and costs involved. As a result, there have been disagreements about how this technology should develop in the future to address these issues.

For instance, when a group of developers failed to reach an agreement on the future of blockchain, they split the underlying network, which led to an offshoot that they named Bitcoin Cash. Bitcoin Gold was born in the same way.

What other blockchains are there?

Besides the Bitcoin blockchain, other companies have developed blockchain platforms that allow firms to build apps and processes on their networks. They include Ripple, Ethereum, IBM, Hyperledger, and R3, among others.

The Ethereum blockchain focuses on smart contracts. It is linked to a digital coin known as Ether. Ether is the second largest cryptocurrency in the world. Ethereum allows people to build peer-to-peer applications that leverage its underlying blockchain and use its digital coin Ether to power their product.

Ripple is designed for cross-border currency transactions. Moving money across the world is expensive, time-consuming, and usually involves many parties. Ripples’ blockchain system reduces the number of intermediaries involved, thereby cutting down the transaction time from several hours or minutes to just a few seconds.

Is there any other real-world use case of blockchain?

Blockchain technology can be employed in almost all industries. Different companies and countries could benefit from its advantages by replacing their centralized systems with decentralized blockchain systems.

Here are some ways that blockchain can be used in the real world:

Final words

As we come to the end of this post, we hope you now have a better understanding of what blockchain is, how it works, and what its benefits are. We have also looked at some of its real-world applications.

Do you agree that blockchain will disrupt many sectors and have a far-reaching impact on how we run every aspect in society? We are also happy to answer any questions you might have here at Cryptoflyy.com.

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