Blockchain Technology Explained: What Is Blockchain?
From the time it was invented, blockchain technology has had the entire world in awe of its impact across industries. It is the brainchild of a person or group of persons known by the pseudonym, Satoshi Nakamoto. You may have heard about blockchain but don’t understand the concept and how it works.
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This article’s essence is to provide you with a complete guide on the concept of blockchain technology. In this article, you will learn what blockchain is, its underlying characteristics, and current uses. We will also delve into the future potential of blockchain.
What is Blockchain Technology?
Blockchain is a system for recording data/information that ensures the recorded data cannot be tampered with. It is a digital ledger of distributed, duplicated, and distributed transactions across a network of computer systems. Each block on the blockchain network contains a particular number of transactions. When a new transaction occurs on the blockchain, the record of such transaction is added to every participant’s ledger.
Blockchain is a type of decentralized ledger technology where you can record transactions with an immutable cryptographic signature called “hash.” A decentralized ledger technology (DLT) is a distributed database that is managed by several participants. It implies that once a block in the chain is changed, it will be evident to everyone within the network.
For hackers to corrupt a blockchain system, they would have to alter every block in the chain and across all distributed versions of the chain. Blockchain technology networks like Bitcoin and Ethereum are continually growing because blocks are added to the chain. The addition of new blocks to the blockchain system helps to improve the security of the ledger.
The blockchain system is an ingenious way of passing information from point A to point B in an automated and safe manner. One of the parties to the transaction initiates the process by creating a new bloc. This new block will be verified by several computers distributed around the internet. Once the new block is verified, it is added to the chain and stored across the internet.
The newly added block creates a unique record with also a unique history. Falsifying a single record means you will have to falsify the whole chain in millions of ways. Therefore, it is practically impossible to falsify a record stored on a blockchain network.
Will Blockchain Technology Become The New Internet?
By allowing us to distribute but not copy digital information, blockchain technology has created a new internet foundation. Although it was initially developed for digital currencies (cryptocurrency) like Bitcoin, Ethereum, etc., the tech community has found other use cases for blockchain.
With its industry-disrupting capabilities, the full potential of blockchain technology is yet to be fully understood.
The Characteristics of Blockchain
There are three main characteristics of blockchain technology that has helped it gain widespread acceptance across industries. They are known as the three pillars of blockchain technology, and they are as follows:
In the context of blockchain, immutability means no one can tamper with what has been recorded on a blockchain network. You can imagine the value of blockchain’s immutability in financial institutions. There will be lots of embezzlement cases that will be nipped in the bud with blockchain’s immutability. People can no longer “work the book” or mess with company accounts.
The cryptographic hash function of blockchain makes it immutable. Put merely; hashing is the process of taking an input string of any length and giving out an output with a fixed length. Regarding cryptocurrencies, the transactions are seen as an input and run through a hashing algorithm. Bitcoin uses an SHA-256 hash to generate an output of a fixed length.
Let us see how the hashing process works. We shall use the SHA-256 (secure hashing algorithm 256) to put in specific inputs.
|Welcome to entorm. We are happy to have you here||4673CDBE34DCB332A156E31D89BDC77DB234AAE7132EDB8863CAD234DDE19
As you can see, irrespective of how big or small your input is, the output will always have a fixed 256-bits length. It becomes more critical when you are dealing with a massive amount of data or transactions. Therefore, instead of remembering the input data, which can be huge, you can remember the hash.
The cryptographic hash function is a particular class of hash function with properties that ideal for cryptography. For it to be considered secure, a cryptographic hash function must have certain properties. One of these properties is the “Avalanche Effect.” It means that even if you make a little change in your input, the effect on the hash will be enormous.
|How are you?||BDE24367ECC676AACDE98DEAC33725CD6VA5CS354ADD224EA6C54CCVD345|
|how are you?||CC367AA923DE356476DEA556ADC992CE123DD980ABB432DB76EB99ADE6642|
You can see how the hash changed significantly just by changing the first alphabet of the input.
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Before the advent of Blockchain technology and Bitcoin, all you know was centralized services. In a centralized service, you have to interact solely with the entity that stores all data to get any information you need. An excellent example of a centralized entity is the banks. The traditional client-server model is a perfect representation of the centralized system.
With blockchain comes decentralization. Therefore, information or data is no longer under the control of a single entity. Everyone owns the information stored within a blockchain network. In a decentralized network, you can transact with your business partner without the need for an intermediary. You can send money to anyone, anywhere around the world without having to go to the bank.
You hear people say that blockchain technology gives you privacy while others talk about its transparency. How can we reconcile these two attributes of blockchain? Your identity is safely hidden through complex cryptography, but your public address represents you.
Therefore, if I were to look up your transaction history, I will not see Dave sent 1BTC. Instead, what I will see is your public address (e.g., 1MF1sFG5467GVT89sec99esd5 ) sent 1BTC. With your public address, I can see all your transaction history. Such transparency has never existed before within a financial system.
How To Maintain The Blockchain Network
A peer-to-peer network maintains the blockchain system. This network is a collection of nodes that are connected. Nodes are individual computers that take in inputs, work on these inputs, and output. The blockchain system has equally privileged participants called peers. These peers must maintain the integrity of the blockchain network.
Application Of Blockchain Technology
There are several use cases of blockchain technology from the creation of smart contracts, simplification of the supply chain process, food security, and so much more. There is arguably no sector or industry that there is no possible application of blockchain technology. In our subsequent article, we shall be exploring the use of cases of blockchain technology fully.
The impact of blockchain technology within the last five years has been enormous, and the future potential is not in doubt. It will undoubtedly revolutionize how we do business and transact with one another.
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