Blockchains are incredibly popular nowadays. but what is blockchain? How do they work, what problems do they solve and how can they be used?
What Is Blockchain Technology?
As the name indicates, a blockchain is a chain of blocks that contains information. This technique was originally described in 1991 by a group of researchers and was originally intended to timestamp digital documents so that it’s not possible to backdate them or to tamper with them. Almost like a notary.
However, it went by mostly unused until it was adapted by Satoshi Nakamoto in 2009 to create the digital cryptocurrency Bitcoin. A blockchain is a distributed ledger that is completely open to anyone. They have an interesting property: once some data has been recorded inside a blockchain, it becomes very difficult to change it.
How Does Blockchain Technology Work?
So how does that work? well, let’s take a closer look at a block. Each block contains some data, the hash of the block and the hash of the previous block. The data that is stored inside a block depends on the type of blockchain.
The bitcoin blockchain for example stores the details about a transaction in here, such as the sender, receiver and amount of coins. A block also has a has. you can compare a hash to a fingerprint. It identifies a block and all of its contents and it’s always unique, just as a fingerprint.
Once a block is created, its hash is calculated. Changing something inside the block will cause the hash to change. So in other words: hashes are very useful when you want to detect changes to blocks. If the fingerprint of a block changes, it no longer is the same block. The third element inside each block is the hash of the previous block. This effectively creates a chain of blocks and it’s this technique that makes a blockchain so secure.
Let’s take an example.
Here we have a chain of 3 blocks. As you can see, each block has a hash and the hash of the previous block. So block number 3 points to block number 2 and number points to number 1. Now the first block is a bit special, it cannot point to previous blocks because it’s the first one. we call this block the genesis block.
Now let’s say that you tamper with the second block. This causes the hash of the block to change as well. In turn that will make block 3 and all following blocks invalid because they no longer store a valid hash of the previous block. So changing a single block will make all following blocks invalid. But using hashes is not enough to prevent tampering.
Computers these days are very fast and can calculate hundreds of thousands of hashes per second. You could effectively tamper with a block and recalculate all the hashes of other blocks to make your blockchain valid again. So to mitigate this, blockchains have something called proof-of-work. it’s a mechanism that slows down the creation of new blocks.
Is Blockchain Technology Secure?
In Bitcoins case: it takes about 10 minutes to calculate the required proof-of-work and add a new block to the chain. This mechanism makes it very hard to tamper with the blocks because if you tamper with 1 block, you’ll need to recalculate the proof-of-work for all the following blocks. So the security of a blockchain comes from its creative use of hashing and the proof-of-work mechanism. But there is one more way that blockchains secure themselves and that’s by being distributed. Instead of using a central entity to manage the chain, blockchains use a peer-to-peer network and anyone is allowed to join.
When someone joins this network, he gets a full copy of the blockchain technology. The node can use this to verify that everything is still in order.
Now let’s see what happens when someone creates a new block.
That new block is sent to everyone on the network. Each node then verifies the block to make sure that it hasn’t been tampered with. If everything checks out, each node adds this block to its own. All the nodes in this network create consensus.
They agree about what blocks are valid and which aren’t. Blocks that are tampered with will be rejected by other nodes in the network. So to successfully tamper with a blockchain you’ll need to tamper with all blocks on the chain, redo the proof-of-work for each block and take control of more than 50% of the peer-to-peer network. Only then will your tampered block become accepted by everyone else? This is almost impossible to do! Blockchains are also constantly evolving. One of the more recent developments is the creation of smart contracts.
These contracts are simple programs that are stored on the blockchain and can be used to automatically exchange coins based on certain conditions. More on smart contracts in a later blog article.
How Is Blockchain Technology Useful For Bitcoin?
Now let us tell you how blockchain is useful for bitcoin. Blockchain Technology for bitcoin is a specific type of database that stores every bitcoin transaction. In cryptocurrencies such as bitcoin, the blockchain spreads the options for these currencies over a network of computers. Due to this, it is possible to operate these currencies without any central authority. Risk is also reduced by its use and many processing and transaction fees are also aluminized. The blocks in Bitcoin’s blockchain store the data of monetary transactions. But in reality, blockchain is also reliable for storing data of other types of transactions.
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In What Works Can The Blockchain Technology Be Used?
There are many areas where blockchain technology can prove to be fruitful and can improve the services of many important sectors. Like the difference between banking and blockchain, most financial institutions have five days and a week of work. That is, if you want to deposit your check on the remaining two days of the week, then you will have to wait. And if you get the check deposited in working days also, then the transaction may take a lot of time. In such a situation, the transaction process can be completed in 10 minutes by integrating blockchain in banks. Fund exchange between banks and institutions can also be done faster through blockchain.
Talking about the healthcare sector, medical records of patients can be stored securely by using it. For this, once the medical record is generated and signed, it can be written on the blockchain. With this, the patients will get proof that their records cannot be changed now. Private keys can also be used while storing these records on the blockchain so that their privacy is also maintained.
Apart from banks and healthcare, blockchain can also be used in supply chains and voting systems. Suppliers in the supply chain can keep records of their purchased materials in the blockchain. Due to this, the authenticity of those products can be verified. In the same modern wedding system, election fraud can be prevented by using it. And transparency can also be created in this process with the help of blockchain protocol. In this way, This can be used in many sectors.
Advantages & Disadvantages Of Blockchain Technology
there are many advantages and some disadvantages of it. Advantages such as accuracy can be improved through this transparent technology. Removal of third-party verification can lead to cost reduction. Transactions can also be kept secure and private. The drawback of this technology is that it is not free. Because of its speed, it can only do limited transactions every second. Its use has been happening in illegal activities.
So, friends, this was such special and important information about blockchain Technology that you must have.