What is Blockchain Technology and How Does it Work?

What Does Blockchain Mean?

Blockchain is one of the most secure and incontrovertible record-keeping technologies that has been designed to make it almost impossible to hack or forge the data that has been stored on the blockchain. It is based on distributed ledger technology (DLT).  It is a digital database also called a ledger that stores data in blocks that are linked together via cryptography. Although, blockchains can store different types of information the most common use for transactions has been as a ledger.

Let’s explain blockchain in simple terms,

• Imagine that you and your friends have a secret place.
• You can keep a record of all things that you do together in a notebook.
• Now by chance if one of your friends loses the notebook and somebody else finds it and makes the changes in the details entered by you initially. How to secure that data?
• It’s where blockchain comes into play. It’s like a special notebook that helps you write everything in detail and doesn’t let anyone erase or change it.
• Instead of keeping every detail in one single place, it’s better to keep it at variant places, so that all your friends can see what details have been entered into the notebook.
• Blockchain is quite different from conventional databases in the way it stores and manages information.
• In traditional databases, the data is stored in rows, columns, tables, and files whereas in blockchain there is a digital chain of data that is stored in blocks.
• In traditional databases, there is a centralized computer that stores data whereas in blockchain there is a decentralized computer database system with a peer-to-peer network system.
• Unchangeable and distributed are two important traits of blockchain. The immutability feature of the ledger makes you feel that you can always trust it to be accurate. The distributed feature protects the blockchain from network thefts.
• In blockchain, the block is used to store a transaction or record on the ledger. The information contained in one block is dependent on and linked to the information in a previous block and forms a chain of transactions. Hence it is called the blockchain.
• In blockchain, nodes are the computers or gadgets that constitute a blockchain network. They are responsible for
  • the approval of transactions
  • generation of new blocks
  • maintaining a blockchain copy
  • validation of transactions
• In blockchain, an electronic ledger is an updated database of all the transactions. It consists of several blocks each of which makes one transaction.

How Does Blockchain Work?

The blockchain follows a multi-step process.

The transaction process in a blockchain can be summarized as follows:

1. An authorized participant requests a transaction.
2. After this action is initiated, a block is created that represents a specific transaction or data.
3. This block is then transferred to every computer node in the network.
4. Only the authorized nodes validate transactions and receive the reward for the proof of work and a block is added to the existing blockchain.
5. The update is then distributed across the blockchain network, which confirms the final transaction.

Whenever any new block is to be added to the blockchain various nodes execute algorithms just to evaluate, verify, and process the history of the blockchain block.

If all the nodes authenticate the history and signature of that newly introduced block, then this transaction is accepted into the ledger and the new block finds a place in the blockchain. In case there is no consensus achieved, the new block is not accepted into the blockchain. This distributed consensus model is good as it helps blockchains to function as distributed ledgers without the need for any central authority to validate the blockchain transactions. Thus, making the blockchain transaction highly safe and secure to use.

Uses of Bitcoin Technology

1. Cybersecurity: Secured and encrypted ledger helps to improve digital asset security and privacy
2. Internet of Things: Blockchain networks can be ideal carriers of IoT sensor data.
3. Cryptocurrency: The money can be exchanged and recorded without any bank involvement thus helping in secured international transfers, revenue sharing, and real-time revenue settlement.

Conclusion:

In essence, blockchain is a special type of shared database spread across a network of computers. While it’s famous for keeping secure and decentralized records of cryptocurrency transactions, its applications go beyond that. Blockchain can be used in any industry to make data tamper-proof, meaning it can’t be altered after it’s been recorded.