What Is Blockchain and How Does It Work?

What Is Blockchain and How Does It Work

“Blockchain”- are you listening to this word for the first time? Otherwise, are you a newbie to this course or subject? Then, this article is going to help you for sure in lighting up your knowledge about Blockchain Technology.

So, first, you are going to know what a blockchain is. I guess, now you are so curious to know. So, let’s get started.

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What Is Blockchain?

A distributed database that is shared among the nodes of a computer network is known as a blockchain. A blockchain is a database that stores information electronically in digital format. These are famous for cryptocurrency systems, such as Bitcoin. They play an important and crucial role in maintaining a secure and decentralized record of transactions. The special feature of a blockchain is that it guarantees the responsibility and security of a record of data. It also generates trust without the need for a trusted third party.

A system that records information that it is impossible to change or hack. It is used to maintain or store the records of transactions that are duplicated and distributed across the entire network of computer systems on the blockchain.

It is a chain in which each block contains a list of transactions. That transaction records are added to every participant’s ledger whenever a new transaction occurs on the blockchain.

Distributed Ledger Technology (DLT) is a decentralized database managed by multiple participants. It is a type of DLT in which transactions are recorded with an unchanged cryptographic signature called a hash.

You can understand the technology through Google Docs in the simplest way. Suppose you create a document and share it with a group of people, the document is distributed instead of copied or transferred. At that time, a decentralized distribution chain is created that gives everyone access to the document at the same time. You need not wait for any changes from another party. All modifications to the document will be recorded in real-time, making changes completely transparent.

We all know that every business runs on some information. It is the best platform for delivering that information because it provides immediate, shared, and completely transparent information stored on an unchangeable ledger. But it can be accessed with the permission of network members allotted to it. Using a blockchain network, you can track orders, payments, accounts, production, and much more. If members of the blockchain network share a single view of the truth, you can see all details of a transaction end to end. It gives you greater confidence, as well as new efficiencies and opportunities.

Features of Blockchain:

Peer-To-Peer Network:

Transactions can take place directly between two nodes in a blockchain network. There is no need for a third-party mediator in this network. Suppose, if there is a financial transaction between two nodes in a blockchain, those nodes can directly facilitate the transaction without having to do it through a bank. A transaction takes place between two nodes which get verified by all the other nodes in a blockchain network. That is why participants of a blockchain network can make direct and secure transactions within seconds accordingly.

Decentralized:

The entire blockchain system we have now is a decentralized and distributed one. It means, there is no central entity that controls and manages the blockchain. But, every node in the network has equal authority and access to the records. Each node has the right to verify a transaction or conduct a transaction. Hence the blockchain network is tightly secure and transparent.

Incorruptible and Immutable:

There is no middle-man in the transactions due to its point-to-point and decentralized nature. Also, everyone in the network has a copy of the records with them. So that you can make the data entered into the blockchain tamper-proof. It is mostly impossible for someone to hack and change the records as the blockchain uses cryptography or hashing techniques to secure a block (set of records).

I hope you came to know something about blockchain. Did you ever think about the origin and history of blockchain technology? Do you really want to know about it? Then, we shall go ahead. Continue reading this article to know more about the history of this technology, where it started, and many more interesting facts about it.

What is the Blockchain Technology?

In 1991, blockchain technology was discovered first by the research scientist Stuart Haber and W. Scott Stornetta. When they are working on time-stamping digital documents, they tried to introduce a computationally practical solution for time-stamping digital documents so that they could not be backdated or tampered with. They develop a system using the concept of a cryptographically secured chain of blocks to store the time-stamped documents.

In 1992, Merkle Trees were incorporated into this design. It allows several documents to be collected into one block and makes blockchain more efficient. These are used to create a secured chain of blocks. Merkle Trees stores a series of data records, and each data record is connected to the previous one. But this technology collapsed in 2004.

Evolution of Blockchain:

The first major evolution of blockchain was bitcoin. It is a digital currency experiment. The market cap of bitcoin now remains between $10–$20 billion dollars because millions of people use2008 it for payments, including a large and growing remittances market. Let us see some phases in the evolution of blockchain.

1. Emergence of Bitcoin:

As everyone believes Bitcoin and Blockchain are similar, it is not true. Bitcoin came into the picturevitalik in 2008. And it is the first application of Blockchain technology. According to the history of bitcoin in blockchain technology, it is an electronic peer-to-peer system.

Ever since Bitcoin has come into the picture, many applications have cropped all principles and capabilities of the digital ledger technology. The history of the blockchain contains a long list of applications that have come into being with the evolution of the technology.

2. Ethereum Development:

In the present world, innovation is the order of the day. One of the famous developers at that time named Vitalik Buterin inchafelt Bitcoin had not yet reached there.

Buterin started working on a malleable blockchain that can perform various functions in addition to being a peer-to-peer network. Ethereum originated as a new public blockchain in 2013 with added functionalities compared to Bitcoin. It is a development that has turned out to be a pivotal moment in it’s history.

The new feature of the blockchain innovation expanded Ethereum functionalities from being a cryptocurrency to being a platform. This is used for developing decentralized applications as well.

Ethereum blockchain has evolved in 2015. It is one of the biggest applications of blockchain technology given its ability to support smart contracts used to perform various functions. It is also used for gathering an active developer community that has seen it establish a true ecosystem.

Ethereum blockchain is used to process the most number of daily transactions. It has the ability to support smart contracts and decentralized applications.

This is the history and evolution of blockchain technology. Now, let us see the working of the blockchain system and its importance in the present world.

How Does Blockchain Technology Work?

It is a system of network of multiple nodes or computers which acts as a distributed network over the internet, worldwide. Each node has the authority to make a transaction, verify a transaction, receive a transaction, and create a block. The blockchain is a cryptographically linked chain of blocks (set of records) such that no one can falsify or modify the data stored in it. Once we enter a set of transactions in a blockchain then it becomes a part of it forever. So, we can call blockchain to be a distributed database whose data cannot be changed. There is a separate copy on each node of a blockchain network of this ledger or database. You can access the transaction history whenever you want. You can also get it updated every time a node adds a set of new transactions (block) into the chain.

Step 1:

There are two nodes in the network say node A and node B want to make a new transaction.

Step 2:

You can process this transaction only if all the other participant nodes in the network verify it as a legitimate transaction. Hence, each node will receive the request to verify the transaction to happen between A and B.

Step 3:

Each node will check certain points about the transaction such as the authenticity of the two nodes. It is the transaction amount within limits, does A has sufficient funds to make this transaction, etc.

Step 4:

Now, check and verify all the aforementioned points of all the nodes. The transaction is ready to take place. Thus, the transaction gets added into a memory pool or mem pool.

Step 5:

Such several verified transactions get aggregated into mem pools. Then, multiple mem pools combine together to make a block. A defined memory is present in every block that is used to limit the store transactions.

Step 6:

There will be a block header in every new block, that consists of transaction data summary, timestamp, hash code of the previous block, and its own hash. Every block has its unique hash code which acts like its fingerprint.

Step 7:

Nodes in the network need to do proof-of-work, in order to add a new block to the existing blockchain. You need to know that each block has its unique hash function which is an identification code created using SHA256. To descript this code, you need to do proof-of-work and find the correct answer to this hash puzzle. We need specialized computers to do proof-of-work that take on an average of 10 minutes to crack the code automatically.

Step 8:

Every time a node completes its proof-of-work, a block gets verified and it is used to find the correct answer to the hash puzzle for that block. It is important to verify more and more nodes or complete the proof-of-work for the same block so that it finally gets added to the blockchain. A unique set of transaction records are allocated to every block. You must have a completely unique set of transactions in that, in order to create a new block and add it to the blockchain.

Step 9:

With this, a new block is added between points, A and B, and a transaction is completed.

These are the steps involved in the working of blockchain technology. I hope you got enough information to know about it and how it works. Not only this but there is much more to learn about the technology.

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