The word “blockchain” is mentioned everywhere, and many think of it as the technology that powers Bitcoin.
Although this was the initial idea, blockchain turned out to be capable of so much more.
In yet another awesome article of ours, we aim to explain exactly what blockchain technology is in less than 5 minutes.
Here we go!
Okay, so… What is blockchain?
Basically, blockchain is a digital collection of records (data).
Now imagine these records in blocks that are linked with each other through a chain.
(Get it? Block–chain!)
The chain which holds the blocks together makes the data stored inside it immutable, strongly resistant to alteration and protects it using cryptography.
Once each block is chained to the other, no change can be made to the data inside it, and it will be available to anyone who wants to view the content of each block.
Here’s how blockchain works in 5 steps!
Step one: a node (a device on a blockchain network) starts a transaction with a private key created cryptographically. The most common transaction is a data structure that represents the transfer of value between users on the blockchain network.
Step two: the “miners”; who are specialised computing hardware, make sure that transactions are accurate through the “gossip protocol”. The “gossip protocol” is the tool used between the miners to communicate the value of transactions based on preset criteria.
Step three: when the transaction is authorized, it is put in a block, which is then transmitted onto the network. When this happens, the transaction is basically confirmed.
Step four: The block that was initially created now becomes part of the ledger; a distributed decentralized incorruptible database. The next block to be created will be cryptographically linked with the first block. This link between the two blocks is called a hash pointer. At this stage, the transaction gets its second confirmation and the block gets its first confirmation.
Step five: Every time a new block is created, transactions must be reconfirmed. In order to consider a transaction finalized there must be at least six confirmations within the network.
If you’re still having trouble understanding how blockchain works, here’s a narrative which Deloitte created to help beginners understand this concept better.
“You (a “node”) have a file of transactions on your computer (a “ledger”). Two government accountants (let’s call them “miners”) have the same file on theirs (so it’s “distributed”). As you make a transaction, your computer sends an e-mail to each accountant to inform them. Each accountant rushes to be the first to check whether you can afford it (and be paid their salary “Bitcoins”). The first to check and validate hits “REPLY ALL”, attaching their logic for verifying the transaction (“proof of work”). If the other accountant agrees, everyone updates their file… This concept is enabled by “Blockchain” technology.”
Why Is Blockchain Important?
As mentioned previously, many think that blockchain is just strongly related to Bitcoin and other cryptocurrencies.
This, however, is just the tip of the iceberg and only one of its many possible uses.
Here are some key qualities of Blockchain which prove that its better than traditional systems of ledger information keeping.
Peer-To-Peer: Since all users can talk to each other directly, there is no central authority such as the government or bank to control it. Data can be exchanged directly and freely.
Distributed: Interfering cannot happen easily in blockchain, as the ledger is spread across the whole network.
Cryptographically Secured: Thanks to the cryptographic security, the services in the blockchain are unhackable. Blockchain provides digital freedom when it comes to money, as it’s decentralized. This means that no bank or government has access to your currency, personal information, or any other digital data.
Add-Only: Data added in the blockchain cannot be removed, or changed. An identical copy of each block is stored on roughly 60,000 computers that make up the bitcoin network.
Consensus: One of the most significant aspects of blockchain, is that the ledger is updated via consensus. Therefore, decentralization is guaranteed. Any update made to the blockchain goes through strict criteria defined by the protocol and added only after all participating peers (or nodes) agree.
The power of this relatively new technology has already attracted millions of dollars of investments.
Transitioning it from a geek trend to mainstream acceptance, blockchain is developing many additional services.
Simultaneously, it has opened new horizons for people’s careers.
Industries such as banking, automotive, insurance, healthcare and even the food industry are just a few that have inducted blockchain to their business strategies.
Ignite stated that “Blockchain is already getting the attention of major players in the food industry. Walmart and Nestlé have joined with eight other companies to form the IBM Food Trust”.
Blockchain helped enrich careers such as software developers, architects, consultants, cryptocurrency traders and more.
Deloitte also stated: “Block-chain technology is broader than finance. It can be applied to any multi-step transaction where traceability and visibility are required.”
Having covered the beginners’ induction to the blockchain, you should now have gotten a better idea on the purpose and importance of blockchain!