Information are recorded in a system using Blockchain, in a way that makes it difficult or impossible to change, modify, hack, or cheat the system. A blockchain is essentially a digital ledger of transactions that is duplicated and distributed across the entire network of computer systems on the blockchain. This is a data record that is distributed across a network of computers, meaning there is no single point of failure.
Why is Blockchain Popular?
It is crucial for any business to keep the record of data and transactions. This information is handled in house or passed through a third party increasing time and cost on the business. Blockchain technology allows for distributed control over the financial system of a society and helps with avoiding middlemen. Blockchain avoids this long process and facilitates the faster movement of the transaction, thereby saving both time and money.
Blockchain is an emerging technology with many advantages in an increasingly digital world:
Instead of being stored in any one single point, blockchain system is entirely decentralized, which means that it is not possible for an overarching authority to advance its own agenda and control the network. Conventionally, you need the approval of regulatory authorities like a government or bank for transactions; however, with Blockchain, transactions are done with the mutual consensus of users resulting in smoother, safer, and faster transactions.
- Highly Secure
Blockchain technology uses a digital signature feature which seals the block cryptographically and makes it highly impossible to copy, delete or edit without a specific digital signature. Finding any central points of error or failure of system is not likely to happen with a block chain technology.
The chance of hostility is zero due to the absence of weak points within the system, which boosts the network’s reliability. On top of this, every transaction needs the digital signature through both private and public keys which utilize different cryptographic schemes ensuring complete encryption.
- Automation Capability
Blockchain technology is programmable and can generate systematic actions, events, and payments automatically when the criteria of the trigger are met.
It is possible for any individual to view the entire record of transactions. Besides any alteration of data is incredibly difficult even though the software is open source,. With multiple eyes glued to the network, any alteration in the logged data is sure to be seen, which adds to the transparency and security of blockchain.
- Ease of use
With competent integration capabilities, blockchain has the advantage of being easy to use and fast. The flow of data or money is quicker because of the absence of middlemen. Blockchain technology operates on a 24×7 basis, which means any day or any time, transactions can be made quickly and safely.
How does blockchain technology works?
The key to understanding blockchain technology is to understand the structure of the blockchain, how new blocks are added, and how conflicts are resolved.
Structure of a blockchain
Each block in the chain contains some data and a ‘hash’. A hash function is a function in which input of any length of data or string will give an output of a fixed length. The output of a hash function is known as Hash. In hash function, the size of input is not a matter whether it is 2 or 200, it will give the output of the same length.
Every block also includes the hash from the previous block. This becomes part of the data set used to create the newer block’s hash, which is how the chain is linked together. Even the smallest of changes to a block’s data will invalidate its hash, and the hashes of any blocks that follow, which alerts the network to any attempted changes. This helps to keep the blockchain secure.
For example, if we use the SHA-256 algorithm for hashing it will always produce an output of 256-bits length.
How new blocks are added?
Blockchain files are distributed across a network of computers therefore updating the file is not an easy task. New blocks must be approved by other machines in the network.
Computers compete with each other to create new blocks in a process known as ‘mining’. Mining is the process of adding transactions to the existing blockchain ledger. This can be run in two ways:
- Proof of work (PoW)
Proof-of-Work, or PoW, is the original consensus algorithm in a Blockchain network. In Blockchain, this algorithm is used to confirm transactions and produce new blocks to the chain. With PoW, miners compete against each other to complete transactions on the network and create the hash. The difficulty of generating hashes is adjusted as the network expands, so that new blocks are created and approved at a constant rate as the computing power in the network changes. The difficulty of generating bitcoin hashes, for example, is adjusted by changing the number of zeroes they must start with, ensuring that a new hash is found only once every ten minutes or so by the entire network.
- Proof of stake (PoS)
Nodes (infrastructure of Blockchain) are selected via a lottery that takes their ‘stake’ in the system into account. This is usually how much of a crypto currency they own, with this stake held in the system to demonstrate that the node has a vested interest in the reliability of the blockchain. This system was created to deal with some inherent problems with the proof of work method, particularly high energy usage.
What can blockchain technology be used for?
Blockchain is a versatile technology and the potential applications are practically limitless. This can be used to store any type of digital data (for example, documents, photos or computer code) or to manage permissions. It can also be used to create new secure systems such as recording votes in an election, acting as an unalterable archive, timely payment of taxes by the citizens or keeping a track of intellectual property rights. Some networks, such as the Ethereum network, also allow users to build decentralized software applications on the blockchain, and add ‘smart contracts’. These contracts are written as lines of code and automatically enforce their clauses.
This proves that blockchain technology could be the most disruptive invention since the internet, with nearly six in ten large companies considering implementing some form of blockchain technology, according to a survey by Juniper Research.
Due to its potentially disruptive nature, investors have already begun the search for blockchain investments, with the markets often moving quickly in response to blockchain announcements.