BLOCKCHAIN TECHNOLOGY EXPLAINED
What is a blockchain?
A blockchain is a digital ledger of transactions that is duplicated and distributed across the entire network of computer systems on the blockchain. A blockchain is a distributed digital ledger that stores data of any kind. Cryptocurrency transactions, NFT ownership, and DeFi smart contracts can all be recorded on a blockchain. Even though traditional databases may hold this type of data, blockchain is special in that it is completely decentralized. ⛓
Consider an Excel spreadsheet or a bank database. Instead of being kept in one place by a single administrator, several identical copies of a blockchain database are stored on multiple computers spread out across a network.
Blockchain intends to enable unaltered sharing and recording of digital information. Immutable ledgers, or records of transactions that cannot be altered, deleted, or destroyed, are built on a blockchain. Blockchain can be classified as a distributed ledger technology.
Blockchain consists of three important features;
Blocks are data structures within the blockchain database, where transaction data in a cryptocurrency blockchain are permanently recorded.
Every chain consists of multiple blocks and each block has three basic elements:
– The data in the block.
– A nonce which is a 32-bit whole number. The nonce is randomly generated when a block is created, which then generates a block header hash.
– The hash is a 256-bit number attached to the nonce. It starts with a huge number of zeros.
Decentralization is one of the key ideas behind blockchain technology. The chain cannot be owned by any one computer or entity. Instead, it functions as a distributed ledger through the network’s chain of nodes. Any type of electrical equipment that saves copies of the blockchain and keeps the network running can be a node.
Every node has a unique copy of the blockchain, and for the chain to be updated, trusted, and confirmed, the network must algorithmically approve every freshly mined block. Every action in the ledger can be easily reviewed and examined since blockchains are transparent. An exclusive alphanumeric identification number is supplied to each participant, and this number displays their transactions.
The blockchain can maintain integrity and foster trust by combining public information with a system of checks and balances. The node broadcasts information about the block to all other nodes on the network whenever a miner tries to add a new block of transactions to the blockchain. Based on the block’s signature and transaction legitimacy, the nodes can accept or reject the block. A node saves and stores a new block of transactions on top of the other blocks it already has stored if it accepts a new block of transactions. As a result, nodes record and keep blocks of transactions or transaction histories.
For other nodes to synchronize or update with the blockchain, nodes broadcast and distribute this transaction history to them.
Blockchain mining is the process of adding new transactions to the distributed ledger of transactions already present in a blockchain. Although mining is mostly linked with bitcoin, it is also used by other blockchain-based platforms. By maintaining the integrity of the whole blockchain without the need for a central system, mining includes establishing a hash of a block of transactions that is difficult to counterfeit.
Since mining demands a fast CPU, more power must be used, and more heat is produced than during regular computer activities, it is often done on a specialized computer. Users that decide to utilize a computer for mining are compensated for doing so, which is the primary incentive for mining.
Types of Blockchain
Public Blockchain — Anyone may read, write, or audit the data on a public blockchain, allowing anyone to participate in its operation. It is exceedingly difficult to modify transactions that have been recorded on a public blockchain since nodes are controlled by a single company.
Private Blockchain — Each user does not have the same privileges on a private blockchain. Users are given the authorization to access particular sorts of data and carry out particular tasks. Everything else is still shut. The rules established by the network’s creator determine the access method. With several nodes to improve security, this private blockchain process is more like an internal data storage system.
How is blockchain used?
Blockchain is not restricted to crypto as many people think. There are several uses of blockchain which include the following;
The most common use of blockchain today is in cryptocurrency. A blockchain keeps track of all bitcoin purchases, exchanges, and expenditures. Blockchain technology may become increasingly common as more people utilize cryptocurrencies.
Blockchain is being used to carry out transactions using both cryptocurrencies and fiat money, such as dollars and euros. It could be quicker than sending money through a bank or other financial institution because the transactions may be confirmed more quickly and carried out privately outside of typical business hours.
– Smart contracts
Simply explained, smart contracts are algorithms that run on blockchains when specific conditions are met. They are frequently used to automatically implement agreements so that all parties may be certain of the outcome immediately away, without the need for a
middleman or further delay. They can also automate a process so that it will only take action when certain conditions are met.
– Asset Transfers
Blockchain can also be used to record and transfer the ownership of different assets. This is currently very popular with digital assets like NFTs, a representation of ownership of digital art and videos.
Election specialists are looking at using blockchain to prevent election fraud. By enabling voters to submit votes that couldn’t be tampered with, blockchain voting theoretically eliminates the need for someone to physically collect and authenticate paper ballots.
Now let’s take a look at some advantages of blockchain
ADVANTAGES OF BLOCKCHAIN
– Enhanced Security: Blockchain has the potential to fundamentally alter how people see your sensitive and important data. Blockchain reduces fraud and unlawful behaviour by producing records that are impenetrable and encrypted end-to-end. By anonymizing personal data and employing permissions to restrict access, privacy concerns may also be solved on the blockchain. To prevent hackers from accessing data, information is kept across a network of computers rather than on a single server.
– Trust and transparency: There is no need to wonder whether information has been manipulated for one participant’s gain because there is no third party engaged and participants exchange encrypted records of transactions. increased clarity. Transactions and data are recorded consistently across various locations thanks to the blockchain’s distributed ledger. Full transparency is provided by the simultaneous viewing of the same data by all network users with permissioned access. Every transaction is permanently recorded and has a time and date stamp. Members may access the whole transaction history which almost eliminates the possibility of fraud.
– Higher transaction accuracy: Due to the requirement that many nodes confirm a blockchain transaction, this can reduce mistakes. If one node has a database error, the other nodes would detect something is wrong and understand the issue.
In comparison, a conventional database may be more inclined to accept an error if it is made. The danger of duplicate spending is also removed because each asset is individually identified and recorded on the blockchain ledger.
– Increased efficiency and speed: Traditional record-keeping is prone to human error and frequently needs third-party mediation. Transactions may be conducted more quickly and effectively by optimizing these procedures with blockchain technology. The blockchain allows for the storage of documentation alongside transactional information, doing away with the necessity for paper exchange. Because there is no need to reconcile several ledgers, clearing and settlement may happen significantly more quickly.
Disadvantages of Blockchain
– High Costs of Energy: It consumes a lot more power than a single database or spreadsheet to have all the nodes validate transactions. This increases the cost of blockchain-based transactions and places a significant carbon load on the environment.
As a result, some prominent business figures are starting to distance themselves from Bitcoin and other blockchain technologies. Elon Musk recently for instance said that Tesla will cease taking Bitcoin due to how harmful it is to the environment.
– Risk of asset loss: Some digital assets, such as cryptocurrencies in a blockchain wallet, are protected using a cryptographic key. If it is lost, there is no way to access your assets hence they must be guarded with great care.
– Irreversibility of transactions — Another downside of blockchain systems is that once a transaction has been carried out, it is irreversible, say you send crypto to a wrong address, and there is no turning back. Many developers are trying to curb this issue of data irreversibility.