A blockchain is a growing list of records, called blocks, which are linked using cryptograph . Each block contains a cryptographic hash of the previous block, a timestamp, and transaction data. By design, a blockchain is resistant to modification of the data. It is an open, distributed ledger that can record transactions between two parties efficiently and in a verifiable and permanent way.
What is Blockchain Technology?
A blockchain is, in the simplest of terms, a time-stamped series of immutable record of data that is managed by cluster of computers not owned by any single entity. Each of these blocks of data are secured and bound to each other using cryptographic principles . Since it is a shared and immutable ledger, the information in it is open for anyone and everyone to see. Hence, anything that is built on the blockchain is by its very nature transparent and everyone involved is accountable for their actions.
How Does Blockchain Work?
Information held on a blockchain exists as a shared — and continually reconciled — database. The blockchain database isn’t stored in any single location, meaning the records it keeps are truly public and easily verifiable. No centralized version of this information exists for a hacker to corrupt. In the context of cryptocurrencies, a blockchain consists of a stable chain of blocks, each one storing a list of previously confirmed transactions.
Each participant (node) maintains a copy of the blockchain data, and they communicate with each other to ensure that they are all on the same block. Therefore, blockchain transactions occur within a peer-to-peer global network and this is what makes Bitcoin a decentralized digital currency that is borderless, censorship-resistant.
Let’s take a look at the basic of how a blockchain works;
Alice sending 2 Bitcoins to Bob. She gives Bob’s public address (Public Key), amount of bitcoin, her digital signature (made with Private Key) & Public Key.
Alice’s transaction to Bob is broadcast to all miners.
Miners validate the transaction. Making sure that it is Alice the one who wants to make the transaction.
After the transaction is validate, the miners will include the transaction into a block, with other transactions.
Mining the Block
Using the Proof of Work (PoW) model system, the miners will run the block through algorithm (eg. SHA-256 algorithm for bitcoin).
Mining the Block
‘Nonce’ will be added into the block to get the required output hash with the amount of ‘0’ to be valid. It’s depending on ‘difficulty’ that changes with how much computing power on the network.
After miners succeed getting the output hash needed, they’ll broadcast the new block to all other miners.
The new block will be validated by the other miners before they can add it to their copy of blockchain.
New Block Added
After the new block is confirmed to be valid, all of the miners will add the block into their copy of blockchain.
What Can A Blockchain Do?
Establish digital identity
The identity component of blockchain technology is fulfilled through the use of cryptographic keys. Combining a public and private key creates a strong digital identity reference based on possession.
A public key is how you are identified in the crowd (like an email address), a private key is how you express consent to digital interactions. Cryptography is an important force behind the blockchain revolution.
Serve as a system of record
Blockchains are an innovation in information registration and distribution. They are good for recording both static data (a registry) or dynamic data (transactions), making it an evolution in systems of record. In the case of a registry, data can be stored on blockchains in any combination of three ways:
- Unencrypted data – can be read by every blockchain participant in the blockchain and is fully transparent.
- Encrypted data – can be read by participants with a decryption key. The key provides access to the data on the blockchain and can prove who added the data and when it was added.
- Hashed data – can be presented alongside the function that created it to show the data wasn’t tampered with.
A feature of a blockchain database is that it has a history of itself. Because of this, they are often called immutable. In other words, it would be a huge effort to change an entry in the database, because it would require changing all the data that comes afterwards, on every single node. In this way, it is more a system of record than a database.
Serve as a Platform
Cryptocurrencies were the first platform developed using blockchain technology. Now, people have moved from the idea of a platform to exchange cryptocurrencies to a platform for smart contracts. The term ‘smart contracts’ has become somewhat of a catch-all phrase, but the idea can actually be divided into several categories:
The ‘vending machine’ smart contracts coined in the 1990s by Nick Szabo. This is where machines engage after receiving an external input (a cryptocurrency), or else send a signal that triggers a blockchain activity.
Smart legal contracts, or Ricardian contracts. Much of the applications is the result of whatever the consenting parties to the contract agree to. So, a contract can be a mixed of verbal agreement, a written agreement, and now also some of the useful aspects of blockchains like timestamps, tokens, auditing, documents coordination or business logic.
The Ethereum smart contracts. These are programs which control blockchain assets, executed over interactions on the Ethereum blockchain. Ethereum itself is a platform for smart contract code.