Blockchain – the underlying transformative technology behind cryptocurrencies.
Seems to be a complicated term at first; its core concept has a far-reaching effect on the financial market and other businesses.
The blockchain industry is transforming the entire landscape. It’s a major transformation, although it started almost like ten years back, it’s still in its infancy. There is lots of interest that is getting generated now, especially with respect to cryptocurrency investing.
Parts of this article has been published as a video at the following link: https://youtu.be/Re7amGr5DmE
Cryptocurrencies depend on a database to track the transaction volumes and keep them protected. Blockchain is a digital ledger of transactions that enables the distribution of information across computer networks in a series of blockchain.
In short, blockchain is a growing list of records as blocks that cryptography secures and connects with previous blocks with timestamp and transaction data.
But, how does blockchain originate and what makes it unique? Let us walk you through the What is blockchain guide to know how blockchain can change the way you do certain things.
A brief history to blockchain
The landmark events in history are divided into stages where each stage marks the beginning of something.
Blockchain was developed in series of three stages that showcase the important inventions and developments. Also, it indicates that more developments are yet to come. So, let’s discuss how blockchain evolved to become the pillar of a unique type of internet.
Digital Currencies and Bitcoin
Satoshi Nakamoto is the man behind the development of blockchain in 2008. He outlined the technology of what you know for BTC as white paper. Thus, Bitcoin and blockchain technology began together.
Blockchain was ideally designed for digital currency. Plus, its goal is to promote the advancement of digital currencies.
Blockchain works as a public ledger for all bitcoin transactions. Thus, Bitcoin soon became widely popular in solving the double-spending problem without using any authoritative body or central server.
More Broad Uses – Smart Contracts
As blockchain became widely popular, developers agreed that blockchain is a powerful database that can do much more than document transactions.
Vitalik Buterin, the founder of Ethereum, believed that blockchain could benefit the trust agreements and the assets. Therefore, the second generation of blockchain technology is Ethereum.
With Ethereum, smart contracts were invented, which are managed by two entities in the mainstream business world. In a blockchain, smart contracts are self-managing.
The achievement or expiration of a specific price goal triggers the smart contracts. As a result, it makes the required adjustments without taking any suggestions or recommendations from outside entities.
How does blockchain function?
What is the purpose of blockchain? When people don’t rely on the online transaction methods of certain websites, blockchain provides them with a platform to share their valuable information in a tamperproof and secure manner.
Miner, Block, and Nodes are the three crucial concepts of blockchain necessary for its effective functioning.
Concept 1: Blocks
In each blockchain, there are numerous blocks. Each one of the blocks comprises of the following components:
- The block contains the data.
- Nonce is a 32-bit whole number. Whenever a block is developed, nonce gets generated. Further, it creates a hash, a block header.
- 256-bit number, when connected with the nonce, is called a hash. The 256-bit number should begin with a minimal number, i.e., with a series of zeros.
Nonce will generate a cryptographic hash as soon as the block in the chain is developed. Until the block is not mined, the data is signed and tied to the hash and nonce.
Concept 2: Miners
Each block consists of a unique hash and none. However, the previous reference of hash is also present in the chain, making mining the block a challenging process. Mining is done to generate new blocks via mining.
Using the software, miners are able to understand how to find the right block among the previous ones. As hash is 256 and nonce is 32, miners had to mine about four billion hash-nonce combinations to find the right block.
When the new block is found, miners call it golden nonce and add the new block to the chain.
You cannot manipulate blockchain technology. If you make changes in the earlier block, you need to make some changes in the block that you will add later. So, all the blocks should accept the change. This happens with the help of nodes.
Concept 3: Nodes
Decentralization is the key concept of blockchain technology. Nodes help to keep the network functioning by maintaining different blockchain copies.
The organization and computer are not liable to own the blockchain. However, the chain is connected to the distributed ledger with the help of nodes.
Each node comes with its unique copy of the blockchain and makes the network approve and accept newly mined blocks to be verified, updated, and trusted algorithmically.
The transparency in the blockchain offers you to view and check every possible action inside the ledger. So, it combines the system of balances and checks with public information to create trust and maintain integrity among the customers.
Pillars of blockchain
The blockchain technology consists of three pillars that helped it to gain worldwide approval.
- Immutability: No one can tamper with anything that has been entered within the blockchain. The cryptographic hash functionality where hash will take the information of any length and produce in a fixed length. With Bitcoin, the information is given when it passes through hash computation and gives the output as fixed property experience.
- Transparency: Due to blockchain’s complex coding, the personality of the person remains hidden. The identity remains secure while you can check all the transactions.
- Decentralization: The centralized system used by banks and other institutions has certain vulnerabilities, such as information stored by a single entity. In decentralization, everyone can access the information. There is no third-party involvement.
Blockchain got successful in uncovering the use cases in various businesses, including healthcare, real estate, investment, and finance. The users have the flexibility to validate digital data and produce value in the blockchain system.
With blockchain technology, many businesses were benefited as they developed new applications. It includes supply chain auditing, smart contracts, identity management, stock trading, data management, and much more.
In short, blockchain is an immutable and shared ledger for building trust, recording transactions, and tracking assets.