Cryptocurrencies. Bitcoin. Blockchain. Altcoins. Wallets.
Blockchain exchange. Today, everyone is discussing them. But what they really are
is understandable only by a few.
It all began in 2008 when an anonymous person or group of
anonymous people known as Satoshi Nakamoto, invented Bitcoin. A lot has
happened since that day. The birth of Bitcoin, the initial cryptocurrency
carved the path for the events that followed.
In this blog, we are going to discuss what is Blockchain, what is
Blockchain technology, How does Blockchain transaction work, followed by what
are its benefits and much more. Let’s get started!
What is Blockchain?
Just like the name indicates, a blockchain is simply a chain of
blocks, containing digital records. If we dive more into the details,
Blockchain is a distributed ledger where the digital records are distributed to
all participating nodes in the network. Each node keeps an updated copy of the
ledger. Each block comprises Data, Hash of the current block and Hash of the
previous block. The data recorded in these blocks depends on the type of
blockchain.
The blockchain is used for the transfer of items securely without
the need of a third-party intermediary like bank or government. Do note that
once data is recorded in a blockchain, it is very difficult to change it.
NOTE: Blockchain is not Bitcoin, but it is the technology
behind Bitcoin.
What are the key elements of blockchain? There are three key
elements of Blockchain which are as follow:
- Distributed ledger technology
Each of the participants has access to the distributed ledger and
its unchangeable record of transactions. The transactions are recorded only
once and cannot be duplicated.
2.
Records are immutable
The data cannot be changed or hampered once it has been recorded.
If a transaction includes an error, a new transaction must be added to reverse
the error.
3.
Smart contracts
Smart contracts, a set of rules, are stored on the blockchain and
executed automatically. This speeds up the transaction.
What is Blockchain Technology?
The term ‘blockchain technology’ refers to a transparent and
publicly accessible ledger that lets us transfer the ownership of units using
public-key encryption and proof of work securely.
Blockchain is one form of distributed ledger technology (DLT). A
blockchain is distributed across the internet and managed by peer-to-peer (P2P)
networks. The entire data on a blockchain network are grouped together and
organized in the form of blocks.
What makes blockchain technology so useful? It represents creation
in information registration and distribution that removes the need for a
trusted party to facilitate virtual relationships.
Blockchain technology is the arrangement of three technologies
i.e. the Internet, private key cryptography and a protocol governing
incentivization. The three main properties of Blockchain Technology are Decentralization,
Transparency, and Immutability.
Some of the other benefits of Blockchain Technology:
- Highly secure because of cryptographic and
decentralized blockchain rules.
- A transparent process with a correct and
monitored record creation and tracking.
- Real-time transactions increase time
effectiveness.
- Direct transactions remove the intermediary
costs.
- Data is stored cryptographically inside.
- Blockchain is immutable; no one can tamper
the data that is inside the blockchain.
How does Blockchain transaction work?
Given below is the step-by-step process of how blockchain
transaction works:
Step 1: First, a person requests a transaction. The transaction
could involve cryptocurrency, contracts, records or any other related
information.
Step 2: The requested transaction is transmitted to a P2P
(peer-to-peer) network via nodes.
Step 3: The network of nodes confirms the transaction and the
status of the user with the help of known algorithms.
Step 4: Once the transaction is done, the new block is added to
the existing blockchain and hence, is permanent and unalterable.
What are the limitations of blockchain technology?
Though blockchain comes with a fair share of advantages, there are
some limitations to Blockchain technology. Read on to know them.
- Slow transactions:
The nodes prioritize transactions with the higher rewards and
simultaneously, the backlogs of transactions build up.
- High costs:
The nodes in the blockchain seek higher rewards for completing the
transactions. The transaction costs of Bitcoin is relatively high.
- Smaller ledger:
A full copy of the blockchain is not possible and this can affect
immutability, consensus, etc.
- Wasteful: Each of the
node that runs the blockchain has to maintain a consensus across the
blockchain. This gives low downtime and makes the stored data on the
blockchain unchangeable. Since each node repeats a task to reach
consensus, all this is wasteful.
Where is blockchain used?
Blockchain Technology is widely used in the different sectors
across the world such as-
Billing, monitoring and Data Transfer in the market, government
sectors, healthcare, IoT, Science & Art and Finance & Accounting.
Wrapping Up
In a nutshell, Blockchain is an economic hypothesis that provides
a fresh way to think about how one can use it to enhance the basic services. At
its core, blockchain is a decentralized, digitalized and distributed ledger
model.
It is said that as the landscape will evolve, blockchain is likely
to take on the forms which are yet to be imagined.
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