Everything You Want to Know About Blockchain Technology

Tech News - What is Blockchain Technology, How It Works, What Is The Main Purpose

Cryptocurrency, sometimes called crypto, is any form of currency that exists digitally on computers and uses cryptography to secure transactions. It is a digital currency in which transactions are verified and records are maintained by a decentralized system, rather than by a centralized authority. This digital information, which details the owner of every coin and the transactions they have made, is stored in a special kind of database called a Blockchain. When you buy a cryptocurrency coin, your account on the blockchain (commonly referred to as a wallet) will show a transfer into it and will update your balance accordingly. Your bank might go offline because a freak storm cuts power to its data center, or a hacker shuts down its systems. A blockchain is stored on thousands of computers across the world, all connected by the internet, making it extremely resistant to failure.  Blockchain was initially used to manage cryptocurrency, but it has since received a lot of attention for its potential to completely transform other industries. Other than just serving as the fuel behind Bitcoin, blockchain has a wide range of other possible applications. With its ability to create more transparency and fairness while also saving businesses time and money, the technology is impacting a variety of sectors in ways that range from how contracts are enforced to making government work more efficiently. The list below outlines some of its emerging applications across finance, business, government, and other industries. 

• Internet of Things (IoT)
• Smart contracts
• Money transfer
• Healthcare
• Logistics
• Non-fungible tokens (NFTs)
• Personal identity security
• Government
• Media

Blockchain History

In the mid-1960s, a paper was released that became the foundational concept of the internet. The main issue addressed in that paper was that if there was a Soviet missile attack on the US computing installations, which were centralized at the time, then all of the computers in the US would be wiped out. So, a new door of research was opened to explore the idea of decentralized and distributed data computing. In the event of an attack, only part of the network would go down, and the whole network would survive due to distributed computing. This is a foundational idea for the Internet, and it is also foundational for the blockchain. So, the blockchain database is one that is distributed.

Just like the internet, blockchain is a technology. There are a lot of misconceptions about blockchain technology. One major misconception is that blockchain technology was invented in 2008 by Satoshi Nakamoto, the founder of Bitcoin. That is false. The blockchain idea was coined in 1991 by Stuart Haber and W. Scott Stornetta. Their first work involved working on a cryptographically secured chain of blocks, whereby no one could tamper with the timestamps of documents. In 1992, they upgraded their system to incorporate Merkle trees that enhanced efficiency, thereby enabling the collection of more documents on a single block. However, it was in 2008 that Blockchain History started to gain relevance; credit goes to Satoshi Nakamoto, who used this technology for bitcoin.

Blockchain vs. Regular Database

A misperception about blockchain is that it is just about cryptocurrency. That is not the case. A blockchain is fundamentally a database. It's got some features that distinguish it from the regular database and one distinguishing feature is that it's a distributed database. It is an open ledger that offers decentralization to the parties. In addition, it also offers transparency, immutability, and security. It has many features, including being open, distributed ledger, P2P, and permanent. It is true that there are other databases that are distributed, and the most common is having a backup location where you've got an identical mirror of that database. Blockchain is not just defined as having distributed data. There are a number of other features as well. On top of this list is transparency. In a public blockchain, you can see everything. Everybody in the network has a copy of the database on their computers, and they can all see what's actually going on in the blockchain. The second feature is unique to blockchain technology, and this is the idea of immutability. In a blockchain-based database, you can add data to it, but you can't go back and perform edit or delete operations, as you do with most databases, where you can change historical information at any time. There is no way to do such things on blockchain. Here, the idea of immutability is fundamental. If there's a mistake in the data, then you can add another transaction to correct the mistake, but the mistake lives on forever within this construct. Another fundamental property of blockchain is cryptographic security, which makes it virtually impossible for information entered onto a blockchain to be falsified and, as a result, makes the decentralized database very secure.

Public vs. Private Blockchain

There are different uses for blockchain technology, and therefore, there are different types of blockchain. Blockchain is broadly classified into two types: public blockchain and private blockchain.

The public blockchain network is permissionless in nature and allows anyone to join. It is an open network that is not controlled by anyone. Public blockchains allow all nodes of the blockchain to have equal rights to access the blockchain, create new blocks of data, and validate blocks of data. Bitcoin, Ethereum, and Litecoin are examples of public blockchains.

The private blockchain is a permissioned one, and there is a central authority that manages who can use the network. The central authority also does not necessarily grant each node equal rights to perform functions. Private blockchains are only partially decentralized because public access to these blockchains is restricted. Some examples of private blockchains are business-to-business virtual currency exchange networks, such as Ripple and Hyperledger.

Here’s a comparison of the two:

Blockchain Technology Features

• Blockchain is much faster than the traditionally manual process of validation. It utilizes its unique way of data storage to provide a highly efficient process with trust, transparency, and immutability.
• It uses the consensus method to validate transactions and each node keeps a copy of this record to handle transparency.
• It has the ability to trace the origin of products which results in better management of inventory, respond to problems or questions, and confirm the histories of merchandise. Blockchain can help track the origins of a variety of items, such as medicines to confirm they're legitimate instead of counterfeit and organic items to confirm they're indeed organic.
• Each transaction is encrypted using an advanced hashing method. A bad actor cannot make changes to the transactions because each node holds a copy of the transactions ever performed. It is nearly impossible to hack all the nodes and temper records at once. 
• Blockchain networks are also immutable, which means the data, once written, cannot be reverted by any means.
• Blockchain technology offers a shared and distributed ledger that is open to everyone.
• With blockchain, an organization can go for a completely decentralized network where there is no need for a centralized authority, improving the system’s transparency. The fact that everything is stored in a decentralized ledger also makes it easy for everyone to trust each other.
• As blockchain has no inherited centralized player, there is no need to pay for any vendor costs. This way, organizations can bring down a lot of costs associated with third-party vendors.
• Blockchain provides better traceability to prevent theft, counterfeit, and loss of goods. It enables every party in the process to trace the goods and ensure that they are not being replaced or misused.
• Anonymity is also a feature of blockchain, where every member of the blockchain network has a generated address, not a user ID. This preserves the anonymity of users, especially in a public blockchain.  
• The provenance feature makes it possible to trace the origin of each transaction in the blockchain ledger.

How Blockchain Works?

1. A user enters a new transaction.
2. A block is created in the blockchain for the transaction.
3. The transaction is then broadcast to a network of peer-to-peer computers scattered across the world.
4. The network of computers then solves equations to confirm the validity of the transaction and the block. The node that validates this transaction first gets a reward.
5. The transaction gets verified and executed.
6. The block is then chained with existing blocks creating a long history of all transactions that are permanent.

Blockchain Architectural Elements

Node — a computer in the blockchain architecture

Transaction — A data record verified by blockchain participants

Block — contains a hash code for identification, the hash code of the previous block, and a set of time-stamped transactions

Chain — An ordered sequence of blocks

Miners — Nodes that validate blocks before adding them to the blockchain structure

Consensus (protocol) — A set of rules and agreements for performing blockchain operations

It's called blockchain because it's not one big sheet of data. It is broken into blocks. So a blockchain is a set of blocks linked together via hashes. Each block has a number, transaction data, previous hash, current hash, timestamp, and nonce. The word Chain is an ingenious invention by Haber and Stornetta. At the end of a block, there is a string of text called Hash (A). A hash is the backbone of the blockchain network. It acts like a block’s fingerprint. The validated transactions in the blockchain are encrypted into a series of numbers and letters that do not resemble the original data. This string of text is called a hash. This hash is repeated in the next block (B), which creates a linkage or a chain that takes all of these blocks and connects them in a linear way. The first block is a bit special, as it cannot point to previous blocks because it’s the first. This block is called the “genesis block.”