A beginner’s guide to Blockchain
If you’ve been following developments in technology or business finance over the past couple of years, you’ve likely heard the terms “blockchain” and “Bitcoin” thrown around. They’re usually described in pretty confusing, complicated-sounding ways. So if you’re looking to have blockchain explained in simple, no-nonsense terms, you’ve come to the right place.
What Is Blockchain?
Blockchain is a technology that can allow individuals and companies to make instantaneous transactions on a network without any middlemen (if they are decentralized). Transactions made on blockchain are completely secure, and, by function of blockchain technology, are kept as a record of what happened. Cryptographic encryption algorithms ensure that no record of a transaction on blockchain can be altered after the fact
You may hear it described as a “digital ledger” stored in a distributed network. Blockgeeks has a good analogy to help understand how Blockchain works:
“Picture a spreadsheet that is duplicated thousands of times across a network of computers. Then imagine that this network is designed to regularly update this spreadsheet and you have a basic understanding of the blockchain.”
Why Is It Called Blockchain?
A block is record of a new transactions. When a block is completed, it’s added to the chain. Bitcoin owners have the private password (a complex key) to an address on the chain, which is where their ownership is recorded. Crypto-currency proponents like the distributed storage without a middle man — you don’t need a bank to verify the transfer of money or take a cut of the transaction.
What are the blocks?
Blocks are pieces that contain digital information. Each block contains a cryptographic hash, hash of the previous block, and transactions. The number of transactions on a block can be different for each blockchain. For example, each block on the Bitcoin blockchain holds up to 1 megabyte of information. Now coming back to the hashes. Since every block contains the hash( consider it as a link) of the previous block and this connects all our blocks to form a chain!
What is the chain?
Since all these blocks are connected( via the hashes of previous blocks), they form a chain.
I’m pretty sure the below questions might have come to the mind of the readers. Lets answer them one by one!
Who controls and manages blockchain?
The blockchain network has no central server. Hence it is Decentralized.Since it is a shared and immutable ledger,the information in it is open for anyone and everyone to see. Hence, anything that is built on the blockchain is transparent and everyone involved is accountable for their actions.
How does Blockchain manage to be secure?
A person’s identity is hidden via the cryptographic hashes, what we see is their public address. So, if you were to look up a person’s transaction history, you will not see “John sent 5 BTC” instead you will see “1fghnMurjdbdkdkdndmdk sent 5 BTC”.
Once data has been written to a blockchain, it becomes virtually immutable. This doesn’t mean that the data cannot be changed — it just means that it would require extreme computational effort to change it.
That’s blockchain explained. Now, the all-important question.…
Blockchain technology has four big advantages:
Since everyone in a blockchain network has access to the ledger and the rulebook, nobody involved gets left behind. You can see who owned or paid or gave or did what, at various points in time, whenever you want or need. It’s a totally transparent system. Furthermore, to ensure there are no nefarious nodes added to the blockchain, blockchain networks require new computers to participate in a “consensus test” (more on this later) to ensure they are trustworthy.
If a computer passes the consensus test, they become eligible to add blocks to the blockchain. This process is what those in the cryptocurrency world call “mining.”
Since everyone has a copy of the ledger that they use to validate the newest version, it’s a democratically secured system, too. There’s no single company or agency with extra power. Everyone is in charge. Furthermore, new blocks on the blockchain are always stored linearly and chronologically. After a block is added to the chain and receives its own hash, it is virtually impossible for a hacker to alter that block without having to then go back and alter every preceding block in the chain (which would require an immense amount of computing power).
3. Instantaneous Transactions
Blockchain transactions can take way less time than transactions that involve some sort of middleman, simply because they are self-validating.
4. No Central Authority
This one might sound a bit abstract — who cares if some sort of authority is watching over your transactions? But here’s the deal: When there’s a middleman, that middleman tends to slow things down and skim off the top, taking transaction fees and charging late penalties and all that business.
5. The Double-Spend Problem is Solved
One of the major benefits of blockchain technology is that it solves the double-spend problem. Here’s the short of the double-spend problem: Because digital money is just a computer file, it’s easy to counterfeit with a simple “copy and paste.” Without blockchain, banks keep track of everyone’s money in their accounts, so that no one “double-spends” — or spend the same money twice. Blockchain solves this problem differently and more efficiently than banks: it makes all transactions and accounts public so it’s blatantly obvious when money is being counted or used twice. (Don’t worry, your personal information isn’t included on the blockchain, though.)
The short story?
Using blockchain can potentially speed up transactions while cutting costs associated with third-party banks and lowering the risk of fraud. That means more speed, affordability, and security for everyone.
The Bottom Line
There it is — that’s blockchain explained.
Hopefully now you’ve got a the gist of what blockchain is, why everyone’s talking about it. Blockchain is still in its early stages. But it is definitely going to stay with us to revolutionalize our lives.