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Understand Blockchain in 3 Minutes! Complete Blockchain Guide

Written by: Delma Wilson

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Delma Wilson

Delma is a B2B Content Marketer, Consultant, Blogger in the field of Blockchain, and Cryptocurrency. In her spare time, she loves to blog, play badminton and watch out ted talks. She likes pets and shares her free time with NGO.

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Feb 10, 2021

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Technology is something that is devoted to creating tools, process actions and with time gets upgraded. We all know the famous Martin Cooper who invented mobile phones. Now, this era has smartphones built on the same technology but in the upgraded version. In short, technology is constantly changing. 

In this article, we are focusing on the future technology that is Blockchain and its importance of it in the digital world. You may have heard about “bitcoin” which is a buzzing word over the past few years and yes, it’s imperative to learn the technology behind it.  

To comprehend blockchain technology it is necessary to understand the need for the technology. 

Present Loopholes

The present industries are Fintech, Real estate, supply chain management, healthcare, advertising and many more are all sailing on the same boat with the fear of drowning with the burden of cost, speed, visibility, customer needs, security, and payment methods.

The all-in-one solution is blockchain technology, it can provide transparency in product supply chains. Off-late industries have never provided the transparency of transactions to their fellow users. 

There has always been a middle man between sender and receiver which allowed the mediator to misguide the customers and charge fees more than required. Blockchain lacks mediators, the transactions are carried out directly by the sender and receiver.

Not only that the slow process of the transactions, data privacy loopholes include hacking and manipulating of data, money laundering, etc.

So take a look below, and demystify the blockchain technology and it’s working!

Working of the Blockchain!

Blockchain is an emerging technology that is simply a decentralized and distributed secure database. This consists of a string of blocks, where each block consists of recorded data and a unique identifier called the hash.

Take a note that block stores data depending upon its blockchain technology.

  • Whenever the transaction is requested, the block to represent the transaction is created. This block is sent to every node(miners) in the distributed network.
  •  The nodes play a vital role in validating the block where the nodes have to compare this block’s hash with the block of previous hash
  • You must be wondering what will the first block do?  As it doesn’t have any previous block, well the first block is exceptional; its hash is known as the Genesis Block.
  • Suppose someone tries to tamper with any block, which in turn tampers and messes up with hash. The miners trace up this block and hence it is rejected.
  • There is a silver line in accepting the tampered block provided more than 50% of the miners should validate it but changing the single block will change the following blocks. Subsequently, it is impossible to do so!
  • So the security in the blockchain comes with Proof-of-Work(PoW) and hashing mechanisms. Each node verifies the block and ensures the block isn’t tampered and adds up this block to their own blockchain known as PoW.
  • The nodes are awarded With Mining Reward for Proof-of-work and hence the transaction is completed.
how does a blockchain work

Note: Blockchain is a decentralized and Peer-to-Peer Network, therefore the transaction copy is sent to every node(miners) who are part of that network.

Let’s consider the real-life examples of blockchain. 

Undeniably “Bitcoin” is the great and very first example to be considered in the world of cryptocurrency. While the other examples are Propy, a real estate company, supply chains IBM and Walmart,  healthcare projects like MedRec, Mobile Payment such as Ripple, Digital currency Group helping in Amazon web services, and many more have accepted the blockchain technology for its fast and secured performance.

The working would be a lot easier to understand if you understand the terms of blockchain!!

Blockchain Terminologies!

  • Node: It is any computer that takes part in that blockchain network. The nodes are connected to other nodes directly or indirectly. Every node on the network has a copy of all the transactions or operations.
  • Address: An address is a string of alphanumeric characters which is used as the identifier to send and receive cryptocurrency transactions. For example, Wallet address can be K1Uf232Y5ggMLKC7z9AQrGgX9Z5VJOKj5GfS66sfc6Y57ki8
  • Block: A block is the storage that stores data of every transaction along with that it holds the unique hash key, hash key of the previous block. Consequently storing the hash of the previous block connects two blocks and the chain of blocks is created known as “blockchain”.
  • Block Height: After the very first block is created known as Genesis block the process of adding blocks keeps on going. Therefore, block height is a number showing the level of blocks present in the blockchain. 
  • Hash: Hash is the function that takes an input of any length be it numbers or alphabets. It transforms and produces the output of fixed length. This fixed-length is called a hash and cannot be easily tampered.
  • Distributed Ledger: It is a digital ledger and It’s a ledger that stores transaction history in an organized manner.  Hence all the nodes in the network can have the copy of the ledger, hence the name Distributed ledger.
  • Decentralized: It is one of the most important terms in blockchain technology, decentralized means giving the control of authority to not one but is distributed among the nodes. The decision-making power purely depends on the distributed network.
  • Peer-to-Peer(P2P): The interaction happens between the connected nodes(computers) as every node is connected with other nodes. P2P is a network where two or more nodes share data. 
  • Cryptocurrency: It is a virtual/digital currency which is regulated and transacted on the blockchain network. As the name suggests, crypto+currency is secured by cryptography and encryption techniques. The value of this currency depends upon the demand and supply changes.  
  • Mining: The process of generating new blocks by solving complex mathematical problems done by the miners. The validated blocks are given to the blockchain.
  • Bitcoin: It is the first cryptocurrency that is used as peer-to-peer technology for instant payments. The native token is known as BTC.
  • Consensus: It means majority of nodes agreeing upon one change to be carried out and agree on a shared state of ledger. There are different types of consensus consisting of 
  1. Proof-of-Work, 
  2. proof-of-Stake, 
  3. Proof-of-capacity, 
  4. Proof Of Authority 
  5. Proof of History
  6. Paxos and many more. 
  • Smart Contract: Smart Contracts are small scripts written on solidity programming language. These are predefined and self-executing algorithms used in the blockchain. 
  • Transaction: It is the exchange of digital assets such as bitcoin between two parties on the blockchain technology.

History of Blockchain!!

The history of blockchain dates back to the year 1991 where researchers Stuart Haber and W. Scott Stornetta proposed a solution for time-stamping digital documents which were used to prevent tampering of the documents.

Later in 1992, the concept of Merkle trees which is a hash tree of data structure used for data verification and synchronization. This was developed on the system proposed by Stuart Haber and W. Scott Stornetta. It was more like upgrading the system.

After 11 years of silence in 2004, cryptographic activist Hal Finney introduced a system Reusable Proof-of-Work(RPoW). The RPoW worked on receiving a non-exchangeable hashcash based PoW, in return creating an RSA-signed token. This could be transferred from a person to person.

This was the background behind the bubble of blockchain

After a financial Crash in 2008, in late 2009 a group of people or an individual with the name Satoshi Nakamoto published a white paper on how to get rid of old systems, it is the concept of distributed ledger and virtual currency built on blockchain.

The first virtual currency transaction of bitcoin was done by the name Satoshi Nakamoto.

Have a look at the links below to check out the first transaction made!!

Later, in 2010 10,000 BTC were purchased for the first time. 2010-2013 the transactions of virtual currency took forward the technology. 

Different types of blockchain

There are four different types of blockchain.

  • Private
  • Public
  • Hybrid 
  • Federated or Consortium
  1. Private Blockchain: As the name suggests it provides users the desired privacy. It includes the permissioned consensus and is run by a single organization. This blockchain is partially decentralized and participants are allowed only with the invitation. While private blockchain due it’s closed sort of network facilitates faster transaction and has full transparency. 
  1. Public Blockchain: It is a permission-less, open-source network. It is freely accessible to anyone on the network without any authorisation. The blockchain here is completely decentralized and facilitates full transparency of the transactions made. This Blockchain slows down the transaction using the consensus 

Proof-of-Work or Proof-of-Stake for security and validated transactions. The best example to be given is Bitcoin Public Blockchain.

  1. Hybrid blockchain:Well, it is the combination of both private and public blockchain. The organization needs to have a permissioned system alongside permissionless public systems.
  • Here the transactions are not accessible to everyone in the network but     
  • Can be made public for verification purposes. It is mainly owned      
  • By single organizations and cannot be manipulated by the same.
  1. Consortium or Federated Blockchain: It is a blockchain consisting of a cluster of multiple private chains but managed by multiple organizations. It is also known as federated blockchain, and is more decentralized as the authority is shared among the organization.
  • It is a permissioned blockchain and enjoys a lot more Security and 
  • Speed!! Each organization forma a stakeholder alliance to maintain 
  • The healthy operation of the blockchain.

FAQ

How secure is business data in a blockchain?

The record on a blockchain is theoretically immutable to change. Sensitive or non-public information can be protected through the use of smart contracts, but this has yet to be put into practice outside of financial institutions.

Who establishes the governance model for determining what users may or may not join the blockchain ledger?

Blockchain governance is determined by those who set up the system. Changes to the governance can take place through voting similar to the resolving algorithms of transaction consensus.

Is Blockchain technology restricted only for use in the cryptocurrency market?

No, It depends solely on the business and kind of data you want to store looking at the economics, importance of the data stored, and viability of the business.

What is consortium blockchain?

These Blockchains are designed to be administered privately by multiple administrators or organizations, who may be working on the same kind of subjects that may be of mutual interest. These blockchains are not made public unless deemed by the administrators.

What is encryption and why is it important in Blockchain?

Encryption is the process of converting the easily readable and interpretable data into unreadable data for the common user, using targeted encryption algorithms. The people who only have access to the decrypting algorithm can access the data.

Since blockchains can be used to store and keep records of data related to finance, the internal security of organizations, or any other sensitive information, to be kept secure from potential hackers who could misuse the information.

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Delma Wilson

Delma is a B2B Content Marketer, Consultant, Blogger in the field of Blockchain, and Cryptocurrency. In her spare time, she loves to blog, play badminton and watch out ted talks. She likes pets and shares her free time with NGO.

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