What is blockchain technology? How does it work?
What is Blockchain?
Blockchain technology is a shared, distributed ledger that keeps a record of the ownership of digital assets. All information stored on the blockchain cannot be changed, making the technology a legitimate disruptor for industries such as payments, cybersecurity and healthcare. Find out more about what it is, how it is used, and its history.
Blockchain is simply defined as a shared ledger technology that records the existence of digital assets
What is blockchain technology?
Blockchain technology, sometimes called distributed ledger technology (DLT), makes the history of any digital asset immutable and transparent through the use of a network and cryptographic hashing.
A simple comparison of how blockchain technology works can be compared to how a Google Docs document works. When you create a Google Doc and share it with a group of people, the document is simply distributed rather than copied or moved. This creates a shared distribution chain that allows everyone to access the underlying document at the same time. No one is locked out waiting for changes from another party, as all document changes are recorded in real time, making changes completely transparent. However, the main gap that you should be aware of is that unlike Google Docs, the original content and data on the blockchain cannot be changed once they are written, which increases its level of security.
Of course, blockchain technology is more complex than Google’s script, but the comparison is correct because it shows the key technical points:
Meaning of blockchain: definition of blockchain
Blockchain is a digital ledger or database where encrypted blocks of digital asset data are stored and linked together, creating a single real-time source for data.
Digital assets are distributed, not copied or transmitted.
Digital assets are decentralized, allowing real-time access, transparency and governance between multiple parties.
Blockchain ledgers are transparent – any changes made are recorded, maintaining integrity and trust.
Blockchain ledgers are public and built on inherent security measures, making it an essential technology for almost every sector.
Why is blockchain technology important?
Blockchain technology is a particularly promising and transformative technology because it helps reduce security risks, eliminate fraud, and achieve transparency in a negative way.
Blockchain technology, best known for its association with cryptocurrencies and non-fungible tokens, has since become a regulatory solution for all types of global industries. Today, you can find blockchain technology that provides transparency in the food supply, data storage in healthcare, new games and completely changes the way we deal with data and relatives in bulk.
How does blockchain technology work?
For proof-of-work chains, this technology has three important concepts: blocks, nodes, and miners.
What is weight?
Each chain consists of many blocks and each block has three main elements:
The data in the block.
nonce – “a number used only once.” A nonce in a blockchain is an integer that is randomly generated when a block is created, and and / or or and
Hash – A hash in a blockchain is a number permanently associated with a nonce. For a Bitcoin hash, these values must start with a large number of zeros (ie be very small).
When the first block of the chain is generated, the nonce generates a cryptographic hash. The data in the block is considered signed and permanently linked to the number and hash unless it is mined.
What is a Blockchain Miner?
Miners create new blocks in the chain in a process called mining.
In blockchain, each block has its own unique number and hash, but it also refers to the hash of the previous block in the chain, so block mining is not easy, especially in large chains .
Miners use special software to solve the highly complex mathematical problem of finding a number that produces an acceptable hash. Since a nonce is only 32 bits and a hash is 256 bits, there are about four billion non-hash values that must be extracted before the correct one is found. When this happens, the miners are said to have found a “golden number” and their block is added to the chain.
Making a change to any block before the chain requires mining again not only the block with the change, but all the blocks that come after it. This is why blockchain technology is so difficult to work with. Think of it as “safety in numbers” since finding the golden numbers requires a lot of time and computing power.
When a block is successfully mined, the change is accepted by all nodes in the network and the miner is rewarded with money.
The main purpose of using blockchain technology is to allow people – especially people who don’t trust each other – to share important information in a secure, unbiased way.
– MIT Technology Review
What is Decentralization in Blockchain?
One of the most important concepts in blockchain technology is decentralization. No computer or entity can own the chain. Instead, it is a ledger that is distributed across the nodes connected to the chain. Blockchain nodes can be any type of electronic devices that keep copies of the chain and keep the network running.
Each node has its own copy of the blockchain and the network must algorithmically match any newly mined block in order for the chain to be updated, trusted and verified. Because blockchains are transparent, every transaction in the ledger can be easily audited and tracked, creating the inherent security of the blockchain. Each participant is assigned an alphanumeric identification number that identifies their transactions.
The integration of public information and a system of checks and balances helps the blockchain to maintain integrity and create trust among users. In fact, blockchain can be seen as the scalability of trust in technology.
How does blockchain technology work?
Blockchain is a digital database consisting of blocks of data that are “linked” together and secured by complex mathematical problems.
Mathematical problems related to a non-comparable number and hashes are almost impossible to change later – the record of past actions on the blockchain is very accurate and safe to be tampered with.
The blockchain is distributed uniformly across multiple separate domains, ensuring that no organization can own or interact with it.
Blockchain is not only used for financial transactions. Due to its secure and transparent nature, this technology is versatile to meet the needs of more than one area of expertise. Industries covering energy, logistics, education, and other blockchain benefits every day.
The most important tools and applications of blockchain
- Financial income
- Cyber Security
- Accounting and record keeping
- health care
Cash flow: Blockchain vs. Cryptocurrency
The most popular (and perhaps controversial) use of Blockchain is in cryptocurrencies. Cryptocurrencies are digital currencies (or tokens), such as Bitcoin, Ethereum, or Litecoin, that can be used to purchase goods and services. As a form of digital currency, cryptocurrencies can be used to buy everything from your lunch to the next house. Unlike money, cryptocurrencies use blockchain technology to act as a public ledger and an improved cryptographic security system, so that online transactions are always recorded and protected.
For example, the term Bitcoin is used interchangeably to refer to both blockchain and cryptocurrency, but they are still two separate entities. The first application of blockchain appeared in 2009 under the name of Bitcoin, which is a “cryptosystem” that uses distributed ledger technology. This also made Bitcoin the first “blockchain”. The blockchain feature used to store this new digital currency is what brought the two organizations together, and what brought them so quickly into the spotlight. The Bitcoin blockchain only describes the technology on which the money is based, while the Bitcoin cryptocurrency only describes the money itself.
How does cryptocurrency work?
Cryptocurrencies are digital currencies that use blockchain technology to record and store every transaction. Cryptocurrency (Bitcoin, for example) can be used as a digital form of money to pay for everyday things as well as larger purchases, such as cars and houses. They can be purchased using one of several digital wallets or trading platforms, then digitally transferred when the item is purchased, with the blockchain recording the transaction to the new owner. The appeal of cryptocurrencies is that everything is recorded in a public ledger and is encrypted, creating a secure, irrefutable, time-stamped record of payment. each one.
To date, there are more than 20,000 cryptocurrencies in the world with a total market capitalization of about $1 trillion, with Bitcoin holding the majority of the value. These tokens have become incredibly popular over the past few years, with Bitcoin values ranging between several thousand dollars.
Here are some of the main reasons why cryptocurrencies have become popular recently:
- Blockchain security makes theft extremely difficult as each cryptocurrency has its own unique number attached to its sole owner.
- Crypto reduces the need for individual funds and central banks. With blockchain, crypto can be sent anywhere and anyone in the world without the need for currency exchange or without the interference of central banks.
- Investments can benefit some people. Detractors are driving up the price of cryptocurrencies, especially Bitcoin, helping some early adopters become billionaires. Whether this is actually a good thing has never been seen, as some retractors believe that speculators do not have the long-term benefits of crypto in mind.
- Many big businesses came to the idea of blockchain-based digital currency for payments. In January 2021, Tesla announced that it will invest $1.5 billion in Bitcoin and accept it as payment for their cars.
In fact, there are many acceptable arguments against blockchain-based digital currencies. First, crypto is not a highly regulated market. Many governments have jumped into crypto, but few have strict laws around it. Additionally, cryptocurrencies are incredibly volatile due to adversaries. The uncertainty has made some people very rich, while many have lost thousands of dollars.
Whether digital currencies are the future or not remains to be seen. For now, it seems that the meteoric rise of blockchain is starting to take root in reality rather than pure hype. Although it is still developing in this new, research-intensive field, blockchain also shows promise beyond Bitcoin.
What is a Blockchain platform?
While the blockchain network defines the basic principles of the distributed ledger, the blockchain platform defines the way users can interact with the block and its network. Blockchain platforms are designed to be scalable and act as extensions of existing blockchain infrastructure, allowing the exchange of information and services to flow directly from that framework.
An example of a blockchain platform includes Ethereum, a software platform that owns the cryptocurrency Etherium, or ether. Using the Ethereum platform, users can also create customizable tokens and smart contracts built directly on the Ethereum blockchain infrastructure.
Beyond Bitcoin: The Ethereum Blockchain
Originally created to keep Bitcoin going, blockchain technology has been associated with cryptocurrencies for a long time, but the technology’s transparency and security have seen increased adoption in many areas, most of which can found behind the development of the Ethereum blockchain.
At the end of 2013, the Russian-Canadian developer Vitalik Buterin published a white paper presenting a platform that combines the traditional functionality of the blockchain with one important difference: the functionality of computer code. Thus, the Ethereum project was born.
Today, Ethereum’s blockchain technology allows developers to create complex programs that can communicate with each other on the block itself.
Similar to Bitcoin, it should be noted that Ethereum blockchain and Ethereum cryptocurrency are two separate entities.
Ethereum programmers can create tokens to represent any type of digital asset, track its ownership, and perform its functions according to a set of programming instructions.
Codes can be music files, contracts, concert tickets, or patient medical records. Over the past few years, non-fungible tokens (NFTs) have grown in popularity. NFTs are unique blockchain-based tokens that store digital media (such as video, music or art). Each NFT has the ability to verify the authenticity, past history, and ownership of a piece of digital media. NFTs have become very popular because they offer a new wave of digital creators the ability to buy and sell their creations, while receiving fair credit and a fair share of the profits.
The innovation of blockchain has expanded the capabilities of ledger technology into other areas such as media, government and information security. Thousands of companies are currently researching and developing products and environments that work fully on the successful technology.
Blockchain technology challenges the innovation landscape by allowing companies to experiment with emerging technologies such as peer-to-peer power distribution or media models. Like the definition of blockchain, the use of a ledger system will only change as technology evolves.
What is a smart contract? They are structured digital contracts that automatically create or record events that trigger when certain conditions of agreement are met. Each contract is controlled directly by lines of code stored throughout the blockchain network. So once the contract is executed, the transactions of the agreement become traceable and immutable. Although it is the basis of the Ethereum platform, smart contracts can also be created and used on blockchain platforms such as Bitcoin, Cardano, EOS.IO, and Tezos.
Blockchain applications for industries
As mentioned earlier, blockchain technology is used far beyond its roots in cryptocurrencies – almost every modern industry is being transformed by the technology in some way.
Beyond banking and financial services, blockchain technology is revolutionizing healthcare, record keeping, smart contracts, supply chains, and even elections. Although the potential of this technology is growing, all the possible applications of blockchain have not yet been discovered.
History of Blockchain
Although blockchain is a relatively new technology, it has a rich and interesting history. Below is a brief timeline of the most important and notable events in blockchain development.
The first idea of blockchain dates back to 1991, when the idea of a series of records or blocks that are transparently protected was introduced by Stuart Haber and Wakefield Scott Stornetta. Twenty years later, the technology has advanced and is widely used. 2008 marked a turning point for blockchain, when Satoshi Nakamoto gave the technology a formal prototype and intended use. The first blockchain currency and cryptocurrency was officially announced in 2009, starting the path of blockchain influence throughout the technology space.
- Satoshi Nakamoto, a pseudonym of a person or group, publishes the book “Bitcoin: A Peer-to-Peer Electronic Cash System.”
- The first successful Bitcoin (BTC) transaction took place between computer scientist Hal Finney and the mysterious Satoshi Nakamoto.
- Florida-based programmer Laszlo Hanisys has completed his first purchase using Bitcoin – two slices of Papa John’s pizza. Hanycez transferred 10,000 BTC, which is about $60 at the time.
- Bitcoin market cap officially exceeds $1 million.
- 1 BTC = 1 USD, giving the cryptocurrency parity with the US dollar.
- The Electronic Frontier Foundation, WikiLeaks, and other organizations are beginning to accept Bitcoin as donations.
- Blockchain and cryptocurrencies have been mentioned in popular TV shows such as The Good Wife, introducing blockchain into popular culture.
- Bitcoin Magazine was started by the original Bitcoin developer Vitalik Buterin.
- The market capitalization of BTC has exceeded $1 billion.
- Bitcoin reached $100/BTC for the first time.
- Buterin publishes a paper entitled “The Ethereum Project,” suggesting that blockchain has other possibilities besides Bitcoin (such as smart contracts).
- Zynga, The D Las Vegas Hotel, and Overstock.com have all started accepting Bitcoin as payment.
- Buterin’s Ethereum project is crowdfunded with an initial coin offering (ICO) that raises $18 million in BTC and opens new avenues for the blockchain.
- R3, a group of more than 200 blockchain companies, was formed to find new ways in which blockchain can be implemented in technology.
- PayPal announces Bitcoin integration.
- The first known NFT was created
- The number of merchants accepting Bitcoin exceeds 100,000.
- NASDAQ and the San-Francisco blockchain company have joined forces to test the technology of trading in private companies.
- Technology giant IBM has announced a blockchain strategy for cloud-based business solutions.
- The Japanese government recognizes the legitimacy of blockchain and cryptocurrencies.
- Bitcoin reaches $1000/BTC for the first time.
- The market capitalization of crypto currencies reaches $ 150 billion.
- JP Morgan CEO Jamie Dimon says he believes in blockchain as the technology of the future, giving the ledger system a vote of confidence from Wall Street.
- Bitcoin reached a high of over $19,783.21/BTC.
- Dubai has announced that its government will rely on blockchain technology in 2020.
- Facebook intends to launch blockchain and also hints at the possibility of creating its own cryptocurrency.
- IBM is developing a blockchain-based banking platform with major banks such as Citi and Barclays signing on.
- Chinese President Ji Xinping publicly welcomes blockchain technology, and China’s central bank announces that it is working on its own cryptocurrency.
- Twitter & Square CEO Jack Dorsey announced that Square will hire blockchain engineers to work on the company’s future cryptocurrency projects.
- The New York Stock Exchange (NYSE) announced the creation of Bakkt – a digital wallet company that includes cryptocurrency trading.
- BTC will reach around $30,000 by the end of 2020.
- PayPal has announced that it will allow users to buy, sell and store cryptocurrencies.
- The Bahamas has become the first country in the world to launch its own central bank currency, known as the “sand dollar.”
- Blockchain technology has become a major player in the fight against the Coronavirus (COVID-19), especially to securely store medical research data and patient information.
- Bitcoin has surpassed $1 trillion in market cap for the first time.
- Web3 implementation is increasing in popularity.
- El Salvador has become the first country to accept Bitcoin as legal tender.
- Tesla bought $1 worth of Bitcoin. It became the first car manufacturer to accept Bitcoin as a vehicle payment method.
- Metaverse, a virtual environment that incorporates blockchain technology, is getting a lot of attention.
- The cryptocurrency loses $ 2 trillion of its market value, due to the economic price and high profits.
- Google has launched a dedicated group of digital assets to provide customer support on blockchain-based platforms.
- The UK government offers guarantees for stablecoin owners.
- The popular video game Minecraft bans blockchain technology and the use of NFTs in its game.