What is Blockchain Technology?
In the current technological era, everything is becoming digital. Almost every currency platform is using digital ways to operate its systems and keep servicing. If you are connected with digital assets like Bitcoin, etc., you might have heard the word “Blockchain.”
For instance, you know that physical banks use a specialized database to keep things systemized. Similarly, digital currencies are using a system to store data and information. All this information is available on the blockchain.
In the past, blockchain was a very complex term, and little was known about it. Today, it has turned into a prevalent technology known to almost everyone, especially for trading cryptocurrency. People involved in cryptocurrency trading may have some knowledge about it.
When your assets are on the internet and circulating in the online world, chances are more significant to get a cyber-attack. It can result in losing all or some of your assets if not handled timely. To look at such cases, blockchain offers a platform where your money is in hands.
This post will focus on blockchain, its meaning, history, working, and much more. You will learn much about it that no one will have discovered till now. Keep reading till the end, and you will come up with something new in your wit. Let’s start our discussion without any further a do:
Blockchain in its True Meanings
Blockchain is not much complicated as people think but is not much simple as you think. The basic concept of blockchain and its technology is pretty simple to understand. It used to be a kind of database holding a lot of data or information in true meanings.
Moreover, blockchain operates on a complex system in which documentation of transactions executed in any cryptocurrency is propped over numerous computers connected in a peer-to-peer (P2P) network. You can consider it as a digital record of all transactions performed.
You may have heard of DLT (Distributed Ledger Technology), the technology behind blockchain operations. Whenever any user makes a transaction, the records or payment history is saved on the user’s ledger. Numerous participants on the blockchain manage it.
History of Blockchain Development
Blockchain is the latest technology, but it has owned an exciting and fascinating history. Below is a detailed account of some of the most critical and essential events in blockchain development.
In 2008, Satoshi Nakamoto, an anonymity term for a personality or group, published “Bitcoin: A Peer to Peer Electronic Cash System.” It was the beginning of Blockchain development about BTC. Next year, the initial winning Bitcoin (BTC) transaction happens between Hal Finney and Satoshi Nakamoto.
In 2010, Laszlo Hanycez, a programmer, in Florida made the first-ever purchase and bought two Papa John’s pizzas with Bitcoin. He transferred 10,000 BTC, which at that time was worth nearly $60. Now it is worth about $80 million. The market cap of BTC officially surpassed $1 million.
In 2011, cryptocurrency was compared with the USD dollar and equalized 1 BTC to $1USD. Some organizations such as Electronic Frontier Foundation and Wikileaks incite to accept Bitcoin as donations.
After one year, both blockchain and cryptocurrency cast discussion in famous television shows. Due to this, it was injected into pop culture. Initial Bitcoin developer, Vitalik Buterin, launched a magazine about Bitcoin.
In 2013, the BTC market cap exceeded $1 billion. For the first time, Bitcoin touched $100 per BTC. The following year in 2014, Bitcoin payment started at gaming company Zynga, D Las Vegas Hotel, and Overstock.com.
In 2015, the number of traders affirming BTC exceeded 100,000. NASDAQ and San-Francisco blockchain firm Chain team up to examine the technology for trading pieces in private corporations.
In 2016, tech giant IBM announced a blockchain plan as cloud-based solutions for business problems. The government of Japan accepts the legality of blockchain and cryptocurrencies. In 2017, Bitcoin touched $1,000 per BTC for the first time.
In 2018, Facebook pledged to start a blockchain group and showed producing its cryptocurrency. IBM builds a banking platform, which was based on blockchain, with large banks such as Citi.
According to blockchain supporters, the decentralized technology can revolutionize every industry and can bring many advanced changes in the traditional frameworks. Many governments have initiated blockchain-based projects with an anticipation of perfect plans for real life issues.
Framework of Blockchain
As every platform is made from different elements, the blockchain’s framework also has some parts. The three important of these are nodes, blocks, and miners. Let’s discuss them one by one to make blockchain clearer:
Every blockchain consists of various blocks, and each block is further composed of 3 basic elements; block, nonce, and hash. Once a block is created, the nonce is generated altogether, which in turn produces a hash (block header).
At the time of the chain’s first block creation, a nonce creates its cryptographic hash. Block’s data is thought to be signed and tied forever to nonce till mining.
A procedure called mining, performed with miners, a unique software, helps create new blocks to the chain. All blocks have their nonce and hash within a blockchain. They refer to hash of the past block. Thus mining a chain is complex, mainly on big chains.
Miners decipher the complex problem to find a nonce which creates an admitted hash. The nonce accounts for 32 bits compared to the 256 bits of hash, four billion nonce-hash combinations needed to be executed before finding the right one.
If you want to change a specific block, you must mine that particular and all onward blocks in the ledger. It is thus tough to handle blockchain technology. It needs a long time duration and high power computing to have a successful change.
After successful mining, the change is endured by every node on the chain. After that, a miner gets rewarded with the cryptocurrency.
One most essential pillar in the blockchain world is decentralization (we will discuss later). Not a single computer or firm can hold the chain.
A node can be an electronic entity that keeps replicas of the blockchain and retains the network productivity. All nodes have their copies of blockchain, and the network must algorithmically accept all newly mined blocks for the blockchain to be tested, trusted, and renewed.
As blockchains are clear, you can check and view all actions in ledger. Every user is provided with a specific number for identity and points their activities.
Gathering user information in this way assists the blockchain, keeps the purity, and establishes trust among stake holders. Typically, blockchains could be considered scalable of belief on the latest technology.
Pillars of Blockchain Technology
As we have already described, the framework of blockchain, which has its importance. Now, we will discuss the pillars of blockchain technology that maintain it to operate without any flaws and issues. There three main pillars responsible for the broad acceptance of blockchain are following.
Before the launching of Bitcoin, we were familiar with centralized services. In this, a centralized entity stores lots of data, and you will have to associate only with this entity for any information you need.
Banks are a good example to understand the concept of a centralized system. Your money is stored in the bank, and when you want to perform a transaction, you have to go through the bank.
Moreover, when you search for a term on Google, you actually sent a query to the server. After that, the server comes back to you with the related data. It, therefore, acts as a simple client-server for giving you information.
Although centralized systems have served us and are still serving, but there are many chances of cyber-attacks. As they are centralized, they store all the data in a single spot. So, it is easy for powerful hackers to locate and target these spots.
In contrast, a decentralized system stores the information on more than one entity. It is like encryption of the information, and no third-party is involved during your interactions. Bitcoins were made part of this system, and you can manage your funds without using the bank.
The concept of transparency in the blockchain is the most intriguing and confused one. Some people blame their privacy while other support and appreciate it. It needs consideration to look at this happening and whether it happens alike or not.
The technology being transparent ensures not to show your real identity and show some complex numbers in the form of an address. For instance, if you check your history, you will notice written 1MF2bhsFLkBzzz8vpFYEmvwT1TbyCt5NZJ sent 1 BTC instead of your name.
This type of transparency is really appreciable in such a digital era. You are not publically exposed, and you can continue your business. Another benefit of this network is for large institutions that require a high level of security and accountability.
In the blockchain context, immutability is when something has got entry into the blockchain, it is difficult to interfere in. This concept will be quite useful for financial institutes if they start using cryptocurrencies.
The reason behind this exceptional feature of blockchain is the block header, which is a cryptographic hash function. For example, in Bitcoin (cryptocurrency), a transaction is taken as input, and after running through a specific hashing algorithm, the output is given.
Indeed, immutability is a standard highlight of this efficient and industry-leading technology. It can redefine the entire data auditing process and results in cost-effectivity, and build more trust and purity in the data.
Working of Blockchain
Blockchain works on five basic principles, each one of which is discussed below. Keep reading this guide, as we will mention the uses of blockchain after this.
- Allocated Database
All participants on the blockchain have entree to the whole database and its entire record. However, no one can manage the data or the information. They can check and verify the histories of their transaction allies directly, with no third-party involvement.
- Peer-to-Peer Transmission
In the blockchain, the whole interaction happens directly between peers rather than with a central node. All nodes store and forward information to the remaining nodes.
- Transparency with Pseudonymity
All transactions and their linked content are apparent to anyone with entrance to the network. As we have already mentioned, each user on a blockchain has a personal 30-plus-character address for identification; you remain unknown to others.
- Irreversibility of History
When a transaction is added into the database history, you cannot change it once the accounts are updated. It is so because the account is linked to all transaction histories issued on them.
Several computational algorithms and programs are used to make sure that the history on the database is irreversible. Also, it is available to all others on the system in chronological order.
- Computational Logic
The ledger’s digital view implies that blockchain transactions can be paralleled with computational logic and programmed necessarily. Thus, users can initiate algorithms and rules that help to trigger automatic transactions between nodes.
Uses of Blockchain
Now, let’s know the uses of blockchain, and you could specify it for your upcoming projects. We have seen that blockchain is the perfect and most reliable space to store data and make transactions. So, it offers uses in several departments; we will discuss some of them.
- Banking and Finance
Banking and Finance are the first places that can use blockchain for their operations and enjoy its benefits. The finance departments work only during business hours, and all transactions are cleared during business hours. It means that you will have to wait up to days to get your funds.
In contrast, blockchain keeps its services operating all the time and with no interruptions. Also, you can deposit and withdraw funds whenever you want and can exchange funds securely.
If blockchain technology is added to banks, users will make their transactions in a count of minutes. The only limitation is the stock trading business, in which the clearing process takes a little much time, up to three days. But you will get your funds without any security issues.
- Substitute of Currency
Blockchain makes the bedrock for all the cryptocurrencies such as Bitcoin. The Federal Reserve manages the U.S. dollar, which is a central authority system. In this system, a user’s information and currency are technically at the bank or government notion.
The currency value is at risk if the bank faces a collapse or if the country’s government is unstable. In case a user’s bank got hacked, the customer’s data is in danger.
Blockchain spreads its operations through a computer system and lets Bitcoin and other cryptocurrencies run with no need for a central authority. It lessens risk and removes fees on processing and transactions.
Moreover, it can also provide countries having unstable currencies or financial bases with a stable currency. Plus, it gives a more comprehensive system of individuals and companies for doing business on a domestic and international level.
- Records of Property
The physical record offices keep you waiting for hours to get your property records with the government. A document is delivered to a government employee at the office, where information is manually entered and can have errors and inaccurate information.
On the other hand, blockchain can eradicate the necessity of considering documents and tracing down files in the records office. If property claims are saved and validated on the blockchain, owners can trust their deed’s accuracy.
So, using blockchain can reduce many efforts for both the citizens and the country’s government. All the properties will be stored in their precise, accurate, and permanently recorded online.
- Smart Contracts
The smart contract, a computer code, is built into the blockchain for helping, verifying, or allocating a contract agreement. These contracts work in several conditions that every user submits. Once those conditions are fulfilled, agreement terms are done automatically.
For instance, an inherent renter wanted to rent a flat with a smart contract. The landowner accepts to offer the renter the gateway code to the flat once the renter pays the security fee. The smart contract will process this procedure further to start the contract.
If the owner doesn’t provide the door code by the contract date, the smart contract returns the security fee. It would repeal the charges and processes linked to the application of a lawyer or third-party arbitrator.
Well! That’s all about the blockchain till now. In this comprehensive guide, we have covered almost every aspect. We hope that this guide will help you regarding all the processes you perform through blockchain.
Finally, we can summarize the benefits of blockchain to open a gateway to the future.
- Enhanced accuracy by excluding human association in the verification
- Cost cuts by dumping third-party verification
- Decentralization executes it more difficult to tamper with
- All transactions are safe, hidden, and practical
- It offers a banking option and a system to ensure data security
Also, there are some disadvantages of this technology that you must keep in mind.
- Significant technology loss related to mining bitcoin
- Fewer transactions per second
- Records of practice in illegal activities
No matter how much one can degrade the bitcoin technology, we would strongly recommend it for cryptocurrencies. You should also consider it if you are an investor or a trader. Best of Luck.