What is Blockchain?
You must have seen a lot of articles which define Blockchain as a decentralized digital public ledger. That sure answers the question but seems more complex than it is. In simple terms, it is a technology that helps with secure transactions across a peer-to-peer (P2P) network.
By P2P, we mean no external third-party is involved. Just the parties that are involved in the transaction.
Cryptocurrency is a digital currency that records transactions using Blockchain Technology. An example of such digital currency is the Bitcoin. Some other examples of cryptocurrency are Litecoin, Ethereum, Zcash, etc.
Now we have the whole picture, let us focus on blockchain technology in this blog.
Decentralized:- When we do the transactions with a bank, the bank is a central controlling authority for all the money i.e. bank is a centralized repository. With blockchain, there is no central control of the currency.
Blockchain – A chain of timestamped blocks where each block represents data of a transaction. The block contains transaction details like date, time, amount, user details (in the form of digital signature) and hash, which is a unique key that identifies the transactions. The user details are publicly seen, however not identifiable. That is why it is called Public Ledger. It is open and transparent. Each block is connected to the other with the hash, which is unique to the particular block. Think of blockchain as a LinkedList where the hash of the recent element is stored in the new element to link the blocks. This crypto-hashing mechanism prevents the data from being hacked. The hash is essentially your digital data represented as a combination of letters and numbers. So, any small change in one block changes the hash, which means a change in another block, which in turn means another block and so on, which is practically impossible to achieve. Thus, blockchain applications are secure.
A simple scenario could be booking an Uber cab (just a hypothetical example, Uber doesn’t use blockchain yet). You book a cab and complete the transaction. Once your transaction is verified, a block is created and added to the already existing blocks. Adding your block to the chain means that it cannot be altered. There are many more users using Uber services and many blocks will be added to the chain creating a huge chain. The bigger the chain, the more secure it is. Your ride is one block, another ride is another block. The final blockchain could be the entire route that the cab has taken during the day or the total number of rides the driver has accepted.
Blockchain transactions eliminate the need for a third party. For example, if you use your credit card for payment, the company is charged a percentage of the amount by the credit card provider. With a digital currency like bitcoin that uses blockchain technology, transactions can be done totally free of cost between the involved parties.
1. Blockchain Mining
When you make a transaction, how is it verified? In the case of blockchain, a network of computers that are spread across the globe do that. Each computer on the network verifies if the new transaction is correct using complex mathematical algorithms. Only when all the computers give a thumbs-up, your block gets added to the chain. After it gets added, it becomes unalterable. Read more about bitcoin mining here.
As we have seen, this digital ledger simplifies transactions by making them secure and making every node (computer on the network) responsible for its success. Blockchain relies on three main principles which are also the pillars of blockchain
If you found this technology interesting, check out this nice free course to learn more about it.
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