What is Blockchain and how does it work ?

Blockchain Definition

A Blockchain is a set of blocks tied together by chain as shown in the image.  The blocks are joined together. These blocks are called nodes of computer networks .The information is stored digitally. The best and practical use of blockchains are in cryptocurrency systems. Bitcoin  uses blockchain to maintain a safe and secure decentralized data. It is a shared network. A blockchain consists of essentially three concepts blocks, nodes, and miners.

Why blockchain is important?

All our activities are organized on the basis of information . All our business runs and depends on data. In the modern world, Data is the king. The faster and accuracy always matter in all businesses. Blockchain is more suitable as it provides information in no time It’s shared and  accurate . It is transparent and delivers the information within in no time. It  can’t be altered and tempered even by the owner  as all the information is stored in immutable ledgers. These are totally different  from Web2.O’s ledgers.

 What is the difference between database and blockchain ? 

  • Storing data will help us to understand the difference between typical data and blockchain. In blockchain , data is stored in blocks and are connected to each other. Blockchain is decentralized.
  • Typical data is stored in tables and  centralized .

You (a “node“) have a file of transactions on your computer (a “ledger”). Two government accountants (let’s call them “miners”) have the same file on theirs (so it’s “distributed”). As you make a transaction, your computer sends an e-mail to each accountant to inform them.

Each accountant rushes to be the first to check whether you can afford it (and be paid their salary Bitcoins). The first to check and validate hits “REPLY ALL”, attaching their logic for verifying the transaction (“proof of work”). If the other accountant agrees, everyone updates their file…

This concept is enabled by “Blockchain” technology. In India, you can check the price .

What are the main key points of blockchain?

Distributed ledger technology(DLT)

All  participants have access to the distributed ledger and its immutable record of transactions. With this shared ledger, transactions are recorded only once, eliminating the duplication of effort that’s typical of traditional business networks. These ledgers can’t be tempered and copied.

Immutable records

No participant can change or tamper with a transaction after it’s been recorded to the shared ledger. If a transaction record includes an error, a new transaction must be added to reverse the error, and both transactions are then visible.

Smart contracts

To speed transactions, a set of rules — called a smart contract — is stored on the blockchain and executed automatically. A smart contract can define conditions for corporate bond transfers, include terms for travel insurance to be paid and much more.

How Does it Work?

The main aim of blockchain is to allow information to be recorded and distributed to everybody but it is not possible to edit the data. As someone creates data and stored on blockchain by smart contract, this data is immutable even by the creator. Blockchains are known as distributed ledger technology(DLT).The first project was launched in 1991and later developed as Bitcoin in 2009 .A blockchain consists of essentially three concepts — blocks, nodes, and miners.

Blocks: Every blockchain consists of multiple blocks and each block contains the data, a record of transactions. The key thing is that no one person or entity owns the chain.

Miners: Miners are tasked with creating new blocks on the chain through a process called mining. Miners solve complex mathematical problems to add the data on the block. When a block is successfully mined, the miner is rewarded financially.

Is blockchain transparent ?

A blockchain is a digital ledger of transactions that are distributed across a network of connected computer systems.

With cryptocurrency, a whole new language and technology have come into vogue. While some investors are interested in the returns, others are willing to dive deep and understand the technology on which it is operating. Cryptocurrencies are virtual coins — Bitcoin, Ethereum, and Dogecoin among others — that can be mined, bought, and traded for value. The technology that enables it is called a blockchain. It is a system of recording data in a way that makes it difficult to change or cheat the network. It also makes the data available to everyone at any time, so that all transactions are transparent.

A blockchain consists of essentially three concepts — blocks, nodes, and miners. Blocks, every blockchain consists of multiple blocks and each block contains the data, a record of transactions. The key thing is that no one person or entity owns the chain. Miners are tasked with creating new blocks on the chain through a process called mining. Miners solve complex mathematical problems to add the data on the block. When a block is successfully mined, the miner is rewarded.

Pros and Cons of Blockchain

For all of its complexity, blockchain’s potential as a decentralized form of record keeping is almost without limit. From greater user privacy and heightened security to lower processing fees and fewer errors, blockchain technology may very well see applications beyond those outlined above. But there are also some disadvantages.

What are the pros and cons of blockchain technology ?

Pros or Advantages
  • Improved accuracy by removing human involvement in verification
  • Cost reductions by eliminating third-party verification
  • Decentralization makes it harder to tamper with
  • Transactions are secure, private, and efficient
  • Transparent technology
  • Provides a banking alternative and a way to secure personal information for citizens of countries with unstable or underdeveloped governments
Cons or disadvantages
  • Significant technology cost associated with mining bitcoin
  • Low transactions per second
  • History of use in illicit activities, such as on the dark web
  • Regulation varies by jurisdiction and remains uncertain

Data storage limitation

What are the main networks in blockchain technology ?

  • The main networks are public network and Bitcoin is an example of public blockchain.
  • Private blockchain networks is almost same as public network and it’s totally decentralized and  it is controlled by by some organization.
  • These networks are governed by some organizations and are called consortium .

Conclusion

Blockchain is a system of nodes where information is stored in a decentralized manner and can’t be tempered by anybody .The system is under development stage and we will have to do a lot of work to make it in real way decentralized technology which can benefit the society in a great way. People are crazy towards cryptocurrencies like Bitcoins and Ethereum but we all know these are not legal tenders and we have to be very careful in investing in these highly volatile assets.

Special thanks to Investopedia and IBM for providing technical knowledge .

Sources of images..Canva, Pixabay and and pexel.

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