Being internet savvy and not being aware of the existence of Blockchain technology is nearly impossible. The Blockchain is legit one of the most discussed topics on the internet today. However, its popularity doesn’t really equate to mass understanding, as there are many who don’t know the working system of this highly beneficial invention. This phenomenon is the facilitator of this article on understanding the technology behind the Blockchain.
In this article, I will take you through the nitty-gritty of the Blockchain, with the sole aim of living you well educated, kind of to the extent where you can boldly say you have authority as far as knowledge is concerned. And without wasting much of your time, let’s jump into it.
What Is The Blockchain?
Blockchain is a decentralized system used for maintaining records of crypto transactions. In clearer terms, it’s a digital ledger, that maintains and stores transactions across several computers linked in a peer-to-peer network. These records are stored in encrypted blocks, thus making them difficult to tinker with.
The Blockchain as a decentralized database is not managed by a central party. Instead, it is handled and managed by multiple participants in the Distributed Ledger Technology (DLT).
How Does The Blockchain Work?
According to a review from MIT Technology, “The whole point of using a Blockchain network is to allow people who don’t trust one another–share valuable data in a secure, tamperproof way”. This means that the concept of Blockchain operation isn’t based on a central storage unit. Rather, the digital assets and information are distributed among the users instead of being transferred or copied from one user to another. This makes the inherent security in the ledger technology transparent and trustworthy, consequently reducing risk and curbing fraud.
Blockchain technology consists of 3 important network concepts: Blocks, Miners, and Nodes.
Blocks: A block is the constituent of a chain in the network of information. Each block is made up of 3 basic elements:
1. The data in the block.
2. A nonce, which is a 32-bit number generated when a block is created.
3. A hash, which is a 256-bit number joined to the nonce. It is extremely small, hence it just begins with a large number of zeros.
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A chain is made up of blocks, so when the first block of data is created, the nonce generated in turn generates a cryptographic hash. The data in the block is forever tied to its corresponding nonce and hash unless it is mined.
Miners: Miners use a special software to create new blocks on a chain, through a process known as Mining. In a Blockchain, every block has its own unique nonce and hash and also references the nonce and hash of the previous block in the chain, so in order to create a new block, the complex problem of finding an acceptable nonce to generate a corresponding hash is frequent.
There are roughly four billion nonce-hash combination probabilities that must be mined before the right one–the golden nonce–is found. Once it is found and accepted, the new block is added to the chain. It is extremely difficult to manipulate and alter Blockchain Technology because, if a change wants to be made to a block, it would require re-mining of that block and all the other blocks that come after it in the chain. Hence, the Blockchain is incredibly safe.
Nodes: Blockchain Technology is decentralized, which means that it is not owned or controlled by a central party. Instead, the control is distributed among users of the network using nodes connected to the chain. Nodes are any form of electronic device that maintains copies of the blockchain and keeps the network stable and functioning. In the early years of cryptocurrency, a node could be as simple as a single laptop, but now, it could be a server farm sited in a region of electricity and connectivity.
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Every node has its own copy of the blockchain data and the network must approve and verify the data of a new block algorithmically before its data can be updated on the node. Blockchain is like a transparent ledger, so every action in it can easily be viewed and checked. For easy reference, every user is assigned a unique alphanumeric identification number used to show their transactions.
A unique system of checks and balances combined with confidentiality of public user information gives rise to integrity and trust in the network among users.
How Secure Is Your Data?
The Blockchain is one of the most secure data-sharing networks currently used by millions today. Due to its decentralized nature, it enables the security of the system to be distributed among the participants and erases the need for a central or main control system.
It is proficient enough to offer proper encryption and validation of all information entered into the system. Managing everything so that data can not be altered in any way. The Blockchain is encrypted by nature and that makes it possible to provide proper validation for security.
Even if in any case, a user wishes to change data, every node bearing ledger information on the network has to verify that the change has been done. Utilizing the decentralized nature of Blockchain, it has been proven capable of blocking anyone who tries to interfere or read any sensitive data. Blockchain is used mostly in distributing data storage software where huge data is broken down into chunks for easy storage. These chunks are available in encrypted form across a network in a way that means all data is secure and impossible to hack.
Blockchain is unfeasibly hard to hack or attack. The technology is decentralized, encrypted, and cross-checked which allows the data to remain strongly backed. As blockchain is fully loaded with numerous nodes connected as one, to hack most of the nodes concurrently would practically be impossible. So in conclusion, there couldn’t be a safer way to store your data.
What Problem Does The Blockchain Solve?
Dealing and investing in cryptocurrency can be very strenuous, no matter the amount of money being dealt with. International transactions using payments via banking channels can be a hassle, especially with the numerous intermediaries involved. It also uses up a lot of time and money. Blockchain uses its sophisticated and secure distributed ledger to ensure accountability and security in every transaction performed.
Blockchain helps to rationalize transaction processes by eliminating the need for middlemen and lengthy procedures. Thus, paving the way for a more efficient transaction.
Once a transaction is recorded in the ledger, the payment made is almost instantly transferred to the receiving party. These transactions cannot be reversed or changed, hence transparency is ensured and all users can participate in the exchange of their digital assets in a trustless but secure network.
Areas The Blockchain Technology Can Be Implemented
Blocks on Bitcoin’s blockchain mainly store monetary data and transactions, but the Blockchain can also be used to reliably store data about other types of transactions too. Several companies like Pfzier, Siemens, Walmart, Unilever, etc have already incorporated blockchain into their storage operations. Using blockchain has given brands the ability to track product routes from their origin, especially while it is being delivered. Other uses of blockchain are:
1. Securing Your Funds: The U.S Dollar, for example, is controlled by the Federal Reserve and under this central control, the fate of the currency and the individual owners lie in the hands of their bank or government. If a user’s bank is hacked, the user’s private information and assets are at risk of theft. If the user’s bank collapses or they live in a country with an unstable government, the value and stability of the currency might be at risk.
Blockchain being the bedrock for cryptocurrencies can help alleviate these threats by operating without the need for a central authority. Blockchain also doesn’t just reduce these risks, but it could also eliminate the strenuous processing involved. By spreading the operations of Blockchain across a network of computers, it allows Bitcoin and other cryptocurrencies to operate without a central authority, thus providing a more stable currency with more applications both domestically and internationally.
2. Banking and Finance: No industry in a region stands to gain better from the integration of blockchain into its business operations than the banking sector. Certain basic transactions like depositing a check in an account can be quite frustrating especially if it has not been reflected in the account, probably due to the traffic of the large volume of transactions the bank needs to settle.
But by integrating blockchain into banks, customers can see their transactions processed in as little as 10 minutes. Blockchain never sleeps, even during the holiday, so a transaction can be performed any day, any time without having to worry if it’s open or not. The exchange of funds between institutions is faster and more secure.
3. Healthcare: Incorporating blockchain into the healthcare system can help to securely store patients’ medical records in an effectively organized manner. When a patient’s medical record is generated and signed, it can be written into the blockchain with the proof and confidence that the provided information cannot be altered. These health records may be confidential and encoded and stored on the blockchain with a private key. This makes the records only accessible to certain individuals, thereby ensuring complete privacy.
D.Records of Property, etc.
The Evolution Of Blockchain
By now, you should have at least one reason floating around in your head as to why Blockchain should be here to stay. Blockchain technology has had quite an impact right from its inception and here are a few of these relevant:
1 . Transparency: Discrepancy will be limited in a system that is decentralized. Power is not held by a central authority and this encourages transparency in a lot of activities that would normally be altered or influenced by external factors.
This safe haven has guaranteed the efficiency of activities and this paves the way for more ‘trustless’ activities and processes. Blockchain can be very useful for different functions of our society even, including during elections as mentioned earlier. Companies can also utilize the blockchain to ensure that users can interact with the processes involved with the services rendered with full or partial transparency.
2 . Digital Freedom: Freedom is a fundamental right that cannot be overemphasized. Several entities with centralized systems such as banks, that offer connectivity in terms of the economy tend to take away our freedom. Accounts can be blocked, funds and assets can be confiscated, sometimes even wrongly and for no just reason. With no centralized authority on Blockchain, true digital freedom is experienced. Every user is a sole owner and has full responsibility for their assets, and this freedom relies heavily on the structured architecture of blockchain technology.
3. Immutability: Blockchain Technology is immutable and nearly impossible to alter. This makes for a more functional system in a highly competitive market.
4. Inexpensiveness: The Blockchain system is quite inexpensive when compared to other technologies. The eradication of a centralized authority removes the hassle that could run down the effectiveness of the network. With no centralization, there would be no need for a middleman, talk less of payment. This in turn improves cost-efficiency.
5. Strengthened Security:
Blockchain uses the process of cryptography to add an extra layer of security to the data stored on the network, making it impossible to hack. The fact it is decentralized, in addition to the barricade created by cryptography, makes blockchain provide better security than other systems. Cryptography utilizes complex mathematical algorithms (hash algorithm), used to secure the data and systems on the blockchain network and prevents external intrusion. Remember, each block on the network carries a unique hash, which means that no data can be forged, altered, or changed by hackers.
The future of Blockchain
Blockchain technology seems to be quite high and mighty in curbing trust-related issues and the smooth running of processes. But what do you think lies in its future?
New innovations are constantly entering the market, threatening bigger and better utilization of the technology so far, but active networks will continue to bring great changes to a number of industries and sectors using them. These are the trends predicted by the IBM Blockchain team to happen in Blockchain in the nearest future:
1. Interconnectivity will be closer than we think:
The dream of reaching interconnectivity at the maximum level might not be achieved till several years in the future, but it would definitely be closer than it is now. Many organizations today, about 83% of them, believe in the assurance of standards that would influence the allowance of interconnectivity among permissioned and permissionless blockchain networks. It would be an important factor to join a blockchain network targeted at industry-wide levels. One-fifth of them already believe it to be essential. As more emerging networks attain critical mass, the idea of general interconnectivity will be expected.
2. Emergence of Pragmatic Governance Models:
Diverse and larger consortiums will be formed for the purpose of an easier approach to decision making, permissioning, and even effective payment methods. The emergence of this form of governance will help to accumulate information from different sources and pave way for new and more reliable data sets. 68 percent of CTOs and CIOs already expect to see a scalable model of governance for interactions across multiple blockchain networks in an organization. It is aimed to be an important feature of an organization’s blockchain environment as early as the next one to three years.
3. Expansion of Central banks into Retail and Wholesale Central Bank Digital Currencies (CBDCs):
Central Bank Digital Currencies are already being experimented within countries in Asia and the Middle East. It has been predicted that it would gain massive momentum in a few years. Payment methods will also be redefined in several ways to make them more effective. With this in mind, there might be an increased interest in digitization and tokenization of other types of properties, assets, and securities such as central bond debentures for treasury bonds.
4. Fraudulent data sources will be curbed by validation tools:
Heightened data protection mechanisms are in high demand, especially in organizations with confidential databases. In upcoming years, blockchain solutions will use validation tools along with IoT beacons and oracles, crypto-anchors, and mechanisms that link digital assets and properties to physical activities by injecting data outside into several networks. This will improve trust among users and remove the dependency on human data entry, which is often prone to fraud, alteration, and error.
The purpose of blockchain, according to its creators, is to allow people to capture and transmit digital information, but not to modify it. Theoretically, blockchain could be used to easily record any amount of data points. This could take the shape of electoral votes, transactions, goods inventories, home deeds, state identifications, and a variety of other things.
Although comprehending blockchain may appear to be a challenging undertaking, we hope that we have been able to shed some light on how the technology works.