Are you pondering why blockchain is being spoken of in every technological innovation related to crypto, NFTs, or Metaverse of late? Since the emergence of Bitcoin, every technology aficionado has been attempting to investigate how blockchain can be deployed across various applications and enterprises. While this technology offers numerous benefits to the world, most people have yet to learn what it is or how it functions.
This article will simplify the blockchain for novices to explain concepts and their workings so that you can get a fundamental understanding about it.
Blockchain: What Does It Precisely Mean?
Firstly, judging by the name, one can say that it is a chain of blocks. Each of these units is linked sequentially to store digital information virtually.
The standard definition states that it is a shared and distributed digital ledger that predominantly stores transaction information and other digital data in a decentralized manner. Each block in this network is analogous to a ledger page or record book, retaining an immutable record of transactions that don’t necessitate a third-party authority to validate the data’s authenticity and integrity.
The best example to comprehend blockchain technology is bitcoin (we will discuss the functioning in the following section).
History
This technology has its root in the Journal of Cryptography, where Scott and Stornetta published “How to Time-Stamp a Digital Document” in 1991. But, it was in 2009 that blockchain technology ascended to popularity. One of the substantial factors for its fame is the Great Recession that occurred in 2008.
Thus, one can infer that blockchain technology was developed and popularized to counter the 2008 recession crisis. Bitcoin is the preeminent example that used this technology and is still in vogue.
Although this technology monitors and records economic transactions, it is not limited to finance alone. Instead, one may use it to store any digital data, monitor and save land ownership details, medical records, and even ballots.
Structure
The blockchain is made up of numerous blocks, where each block consists of three significant sections as given below:
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Data: It is nothing but the information that is stored and depends on the blockchain’s purpose. For instance, in the case of cryptocurrency, the data incorporates transaction information such as sender and receiver credentials, number of currencies, and other information.
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Hash: This is a unique signature analogous to a fingerprint that recognizes a block and what it comprises.
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The hash of the previous block: As the name implies, this portion of the blockchain holds the antecedent block’s information. Additionally, this particular element makes the blockchain secure.
To better comprehend what a blockchain is, one must first understand what it is not. This is because individuals misinterpret the concepts of blockchain and make some errors. Thus, here are a few points that you must know:
Blockchain Is Not A
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Cryptocurrency
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Cryptographic codification
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Python framework or library
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Programming language Machine learning technology or AI
Features Of Blockchain
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Enhanced security and capacity Immutability
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Decentralized network
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Consensus
Types Of Blockchain
Various varieties of blockchains are in use today. Each of them has an application, benefit, or advantage that makes it desirable for specific duties. There are four primary categories of blockchains based on the nature of decentralization:
Public Blockchain
As the name implies, this form of network is accessible to all and has no proprietor as such. Anyone with a secure internet and computer can join this network without restrictions. Each node in this network retains a copy of transactions that transpire in this network. This blockchain is anonymous and secure, with a sluggish processing pace.
Example: Bitcoin and Ethereum
Private Blockchain
This network is private, where only selected nodes are employed to record and store transactions. Thus, anyone using this network experiences higher bandwidth, enhanced privacy, improved blockchain scalability, and balanced network performance. However, these networks are a bit centralized and have some risk factors due to the reduced number of nodes.
Examples: Corda and Hyperledger
Consortium Blockchain
Also known as the federated blockchain, this form of network operates on the hybrid model. It incorporates both public and private blockchain features. Numerous organizations govern the blockchain network, and a few nodes conduct transaction verification.
Thus the network is quicker and more decentralized, offering privacy and flexibility to the users. Additionally, the network addresses various issues such as transparency, disparities in vision, and vulnerability.
Examples: Multichain and Tendermint
Hybrid Blockchain
As the name suggests, this network entails both public and private blockchain network features. It also has fewer nodes than public blockchains and dedicated nodes that verify transactions. The structure of these blockchain networks is highly configurable.
Furthermore, the network has the ability to select which transactions and participants to be made public. While it has some significant advantages, it still has disadvantages in efficiency, transparency, and lesser incentive for participation.
Examples: XRP tokens and Ripple
Read Also: Blockchain Can Provide the Right to Privacy That Everyone Deserves
Explain The Workings Of A Blockchain Technology
A blockchain functions similarly to a database, but the primary distinction resides in the way it is structured. To elucidate further, the blockchain’s information or details is stored in blocks which is not the case with a database. The information or data in a database is recorded in tables.
As discussed above, one can record various categories of information on blockchain networks in addition to transaction details. Let us see how transactions operate in a blockchain:
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Facilitating transactions: This is the first stage in the transaction procedure. Any information that is to be transmitted is double-encrypted with the aid of private and public keys at this stage.
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Verification of transaction: Next, the encrypted information is transmitted to the peer-to-peer network of computers that is prevalent across the world. The network’s nodes validate the transaction’s validity (such as determining if there is enough balance to conduct the transaction).
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Creation of new block: A blockchain consists of numerous sites where a number of transactions get verified and approved simultaneously. Thus, transactions that are validated as such at a specific node constitute a mem pool. Also, new verifications that are performed at that particular node get added to that mem pool. Furthermore, numerous mem pools that are formed as such constitute a block.
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Consensus algorithm: Every node that is engaged in the formation of a block will attempt adding it to the blockchain to make it permanent. However, if each node is enabled to contribute records, the functioning of the blockchain network gets disrupted. Thus, to circumvent such issues, a consensus mechanism is employed by the node.
Conclusion
Blockchain technology is ever-evolving and is going to bring many more innovations to the fore. This technology addresses the inadequacies of the centralized system by offering a decentralized solution. By now, you would have a fundamental comprehension of how this technology functions and the numerous varieties of blockchain that are to be used for certain applications.