Nov 17, 2022
Addressing the need of having transparency over transactions, blockchain has become one of the most important parts of crypto and other industries.
Blockchain is one of the most talked about technologies in cryptocurrency regarding the future of technology in general, from the power of cryptocurrencies to new forms of cybersecurity. Although the applications of blockchain technology seem endless, many people are unsure what it is.
Traditionally, transactions were tracked in written ledgers and kept in financial institutions. Traditional ledgers can be managed only by those with access. Blockchain has taken these concepts and democratized them, removing the mystery of information and transaction data management. In its simplest form, a blockchain is a decentralized list of transactions that is constantly updated and verified. Also known as distributed ledger technology (DLT), it can be programmed to store and track anything of value across multiple locations and devices across a distributed network. This creates a kind of a global network of connected computers.
Although blockchain technology is often associated with cryptocurrencies, it is not limited to the digital asset market. Because of its unique ability to add and store data, it can serve many other functions across many industries.
What is blockchain?
While blockchain has just lately been getting a lot of attention, its core functions are nowhere near a new concept. The technology originated in 1991, when a group of researchers first described the idea of cryptographically securing data on a blockchain and time-stamping it in the chain to make it impossible to overwrite or corrupt the data. Over the next decade, this concept became the subject of research and experimentation.
Later on, in 2008, Satoshi Nakamoto came up with the model that became the first working blockchain, which later served as the first public Bitcoin trading ledger. With these advancements, the technology has grown and expanded into more than just cryptocurrency, opening up new data-driven opportunities for countless industries.
Today, with innovative organizations such as Ethereum and Ripple at the forefront, blockchain represents a complete paradigm shift in data sharing, storage and scalability.
Basically, blockchain is a decentralized ledger that supports Bitcoin. Blockchain is highly secure and runs on a decentralized consensus algorithm that no one has complete control over, eliminating any third party institutions that normally control transactions and other important data, and giving you the chance to be the owner of your assets.
Let’s separate the word blockchain into two parts: block and chain. A block is a series of transactions on a network. In a chain, blocks are linked so that the next block contains the hash of the previous block. Even a small change to a previous block can change the hash and break the entire chain, making data manipulation difficult.
Each block also has a timestamp to make it clear when the data was recorded and stored, which is crucial for things like transaction or supply chain data, where it’s important to know exactly when a payment or package was received.
The faster and more accurate information is, the better. Blockchain is ideal for providing this information as it provides real-time, shareable and completely transparent information stored in an immutable ledger that can only be accessed by legitimate members of the network. A blockchain network can track orders, payments, invoices, production, and more. Because participants share a single view of the truth, you can see every detail of a trade from start to finish, bringing greater confidence, new efficiencies and opportunities.
How does it work and what are its components?
Every chain has three important components: blocks, nodes and miners:
Blocks are sets of data that act as links in a chain and contain two important numbers called nonces and hashes. When the first block (or “genesis block”) of a blockchain is created, its nonce creates a hash, then the block is considered signed and permanently associated with the nonce and hash.
Nodes are basically the units that can participate in the blockchain. When a new node joins the blockchain, it receives its own copy of the chain and must be algorithmically validated by the blockchain to add or replace node functions across the chain.
Blockchain miners are in charge of changing (or “mining”) blockchain data and creating new blocks by means of consensus. This is done by finding the correct unencrypted combination in a block (also known as a “golden nonce”).
Each transaction is stored as a “block” of data. These transactions note transfers of assets, which can be tangible (product) or intangible (intellectual). The data block can store any information of your choice: who, what, when, where, how much and even the condition of the assets.
Each block is linked to the previous and the next blocks. These blocks form a chain of data as assets move from place to place or change data. Blocks confirm the exact time and order of events, and form a secure connection to each other to prevent a block from being replaced or inserted between two existing blocks.
Transactions are closed in an irreversible chain: blockchain. Each additional block strengthens the authentication of the previous block and therefore of the whole blockchain. This makes blockchain tamper-evident, providing the ultimate power of immutability. Furthermore, this eliminates the possibility of an attacker corrupting the transaction and creates a transaction log that you and other network users can trust.
That being said, with each passing day, blockchains are becoming an increasingly important part of our lives, work and interaction with digital information. As with any revolutionary new technology, there is no single set of standards and their overall impact is yet to be determined. But there is no doubt that it will change the future of technology in general.