What is Blockchain and How does it work?

In today’s world, everything is all about technology. As the need for modernization is increasing with every passing day, people have accepted and are accepting new technologies. Technology has made a place in our regular life such as using a remote to control devices or voice notes to deliver commands. Blockchain’s new additions of technologies like Augmented reality and IoT have also won force in the past few years.

Blockchain- The unprecedented technology that remarkably affected various industries, was presented to the market with its initial new application Bitcoin. Bitcoin is a form of digital currency (cryptocurrency), which can be used instead of money for trading. Blockchain is the source of the technology behind cryptocurrency 

Many people often confuse Bitcoin and Blockchain to be one and the same, but that is not the case as Bitcoin is one of the applications of Blockchain, also apart from bitcoin, there are many applications that are being developed based on blockchain technology.

What is Blockchain?

Blockchain can be described as a structure that keeps transaction records and ensures security, transparency, and decentralization. It can also be defined as a series or records that are stored as blocks that cannot be controlled by a single authority.  It is a  shared record that is completely open to everyone on the network. Any information stored on a blockchain makes it is greatly difficult to modify or change it.

All the data stored or any transaction made on a blockchain cannot be tampered with or changed as Blockchain is guarded with a digital signature that proves its authenticity.

Blockchain technology provides all network members to reach an agreement, generally known as consensus. As the stored data on a blockchain is available for the network participants as the data is recorded digitally and has a common history. This eliminates the possibility of any fraudulent activity or transaction without the need of a third party.

To better understand the blockchain, consider an example where you are looking for an option to send some money to your friend who lives in a different location. A common option that you can normally use can be through a bank or a payment transfer application such as PayPal or Paytm. This option involves a third party to process the transaction due to which the extra amount of your money is deducted as a transfer fee. Also, in cases like this, you cannot ensure the security of your money as it is possible that a hacker could disrupt the network and steal your money. In both cases, it is the customer who is the victim. Here is where the blockchain comes into the picture.

To secure the process of money transfer we should use blockchain instead of banks. Blockchain transfer also eliminates the need for third-party apps and additional fees for transfer as the funds are processed by us directly. The Blockchain database is not centralised and it is not limited to a single location, as the information is not stored in one place, there is no possibility of corruption of information by any hacker.

What are the Types of Blockchain?

Although blockchain has grown on many levels since its initiation, there are two widespread categories into which blockchain can be labelled prominently i.e. public and private blockchain.

Let’s have a peek at the similarities between public and private blockchains. 

Public and private blockchains both are peer-to-peer decentralized networks.

The network members keep a copy of the ledger shared with them.

The newest updates are synced with the copies maintained by the network, with the help of consensus.

To evade malicious attacks, the rules for immutability and security of the ledger are decided and applied on the network.

As we are done with the similarities of both the blockchains, we shall now glance at their differences.

Public Blockchain –  True to its name, a public blockchain is an unattended ledger that can be accessed by anyone and everyone, all they need is access to the internet to download and use it. Besides making transaction public blockchain also gives access to their overall history. Public blockchain also remunerates their network members for performing the tunnelling process and preserving the immutability of the ledger. Bitcoin Blockchain is an example of the public blockchain.

All the communities around the world can readily and securely exchange information through the public blockchain. The Public blockchain also has a con as it can be compromised if the rules around it are not followed stringently. In addition, there is little range for alteration at later stages in rules that are initially decided and implemented.

Private Blockchain-   Unlike public blockchains, private blockchains aren’t shared with anyone and everyone, it is only shared between trusted members. Owners have complete control of the network. In addition, the rules of private blockchain can be changed according to different levels of permissions, appearance, number of members, authorization, etc.

Private blockchains can run independently or can also be united with other blockchains. These are commonly used by enterprises and organizations. Hence, the level of trust among participants is higher in a private blockchain.

How does a Blockchain works?

A blockchain is a series of blocks that contain data or information. The first successful and widespread application came in to existence in the year 2009, by Satoshi Nakamoto. With the usage of Blockchain technology the first digital cryptocurrency was designed, that is commonly known as Bitcoin.

Now let us  learn how a blockchain actually works.

Every block in a blockchain network has to store some information along with the hash of it prior block. A hash is a unique mathematical code which belongs to a particular block. The hash of the block is subject is alteration if the information inside the block is altered. The link between the hash keys and the blocks makes the blockchain secure.

Transactions that occurs on the blockchain is verified by the nodes on the network. The nodes in Bitcoin blockchain is called miners, they use the theory of proof-of-work to process and verify the transactions on the network. For a transaction to be authentic, each block must specify a hash of its predecessor block. The transaction will only happen if and when the hash is genuine.If the network is attacked by a hacker and the information is altered of any particular block, the hash associated with the block will also be altered.

The violation will be detected because the altered hash will not match with the original. This ensures that the blockchain is unalterable such that any changes that are made to a series of blocks will be reflected throughout the network and easily detected..

In short summary, how blockchain allows transactions

A blockchain network uses public and private keys to create digital signatures to ensure security and consent.

Once authentication is ensured through these keys, then comes the need for authorization.

Blockchain allows network participants to reach mathematical consensus to perform mathematical validation and agree on a particular value.

While transferring, the sender uses its private key and announces transaction information over the network. A block is created that contains information such as a digital signature, timestamp, and the receiver’s public key.

This block of information is transmitted through the network and the verification process begins.

Miners throughout the network begin solving mathematical puzzles related to transactions in order to process it. Miners have to invest their computing power to solve this puzzle.

Upon first solving the puzzle, the miner gets a prize in the form of bitcoins. Such kind of problems is referred to as proof-of-work mathematical problems.

Once most of the nodes in the network come to a consensus and agree to a common solution, the blocks are stamped in time and added to the existing blockchain. This block can contain anything from money to data.

After adding new blocks to the chain, existing copies of the blockchain are updated for all nodes on the network.

Now-a-days some industries have accepted and adopted blockchain in their businesses but still many are exploring the idea.

In the world of technologies blockchains is a fresh idea which will surely last. This technology has succeeded in becoming highly popular even in its initial phase. With their first  application being cryptocurrencies, blockchain technology is testing to discover new areas of application with every passing day. All it needs is the acceptance, once it is adopted worldwide, it has the ability to change the way of live.

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