What Is Blockchain Technology: The Ultimate Guide.

Blockchain is one of the most leading technologies today when it comes to Cryptocurrency. It is literally the base of Cryptocurrency. Blockchain is what made Cryptocurrency possible. It is known for it's high-level security for transactions. Tyler Winkelvoss said,

"We have elected to put our money and faith in a mathematical framework that is free of politics and human error."

Blockchain is an innovative way to secure your details, be it any transaction or private information. So, let's get some information about blockchain technology.

Blockchain is a leading technology in the new world. With it's incredible security, it is the base of all cryptocurrencies.

Photo by André François McKenzie on Unsplash

What is Blockchain?

In general, Blockchain is a new way of storing digital files that is unique and transparent and these files can be replicated anywhere on the planet without ever being lost. Blockchain technology allows transactions and record-keeping to be updated anywhere in the world at any time. When the process works, all transaction records are stored on a peer-to-peer network and it can only be modified if all copies are updated simultaneously and all signatures can be verified. If this process goes wrong, there can be no change. What is Blockchain Technology Useful For? Blockchain Technology is used by Cryptocurrencies such as Ethereum, Bitcoin, and Litecoin.

The Origins of Blockchain Technology

Back in 2009, a person by the name Satoshi Nakamoto (a pseudonym for an unknown person) published a research paper that explained about Bitcoin (BTC). This was later renamed to the blockchain. Bitcoin is only one of the main blockchain technologies. There are many other possible uses for blockchain. For example, there are the likes of: Distributed network ledger, Machine-to-machine (M2M) transactions, Rip-off of counterfeit products, A way to make payments through an anonymous method, Safety from government and third-party interference, and Data security.

How Does Blockchain Work?

When you have read this article, you should now know what blockchain is, how it works, and a lot more.

How Does Blockchain Work?

There are two basic types of blockchain: Public and Private. Both have the same basic function of protecting users' data and preventing any sort of tampering with it. The difference is the accessibility of the data. If the data is accessible to all users, it is a public blockchain, and if the data is restrained to a specific user, it is called a private blockchain. Blockchain is a form of a decentralized database. This means that there is no centralized database. Instead, there are many small blocks in a chain that can be read by anyone. Each transaction is then added to one of these blocks. Users in a chain can also decide which nodes they want to join. If a user wants to add his/her transaction, it will go into a set of blocks that are distributed across the network.

Let's say you and your friends Anthony and John went to have dinner. You decide to split the bill among all three but Anthony and John don't have money with them. So, they promise to give you their money the next day. Now, let's observe a scenario where all of you are using the bank transfer method to send and receive money. Now, it might happen that some of your transactions are being observed by the bank or any third-party app. This is not good if you carry out important transactions online. To understand Blockchain better, let's have a look at how online payment works.

When you pay for something online, there are three main steps involved in the process:

• A request is sent by the receiving bank to the payment gateway.
• The payment gateway sends the request to your bank.
• Your bank transfers money to receiving bank after confirming the credentials.

Now, one of the most vulnerable points in this process is the payment gateway. If it is not secure enough, there are chances that a hacker might steal your credentials. Blockchain solves this problem. Let's have a look at how blockchain works.

Let's continue the problem discussed above. Anthony and James now give you money in the form of bitcoin. Each of them gives you three bitcoins. Now, as soon as they initiate their transactions, a block is formed for each of them on a decentralized network that consists of all the information about the transaction. Each block consists of the data, the hash of the block, and the hash of the previous block. Hash is a unique id for each block. Hash of the block changes if even one piece of information in the block is changed. Now, for the above problem, two blocks are created, one for Anthony and one for James. Each block takes a reference from the previous block in order to maintain the track of bitcoins you have. So, they are linked together using the hashes. This chain of blocks that just formed is called a ledger and is shared with the people on the network. Each person on the network can be referred to as a node.

Now let's see why this method is so secure. When a hacker will try to steal your credentials over the blockchain, he will alter the information in one of the blocks in the ledger. As stated above, the hash of the block changes if the information in it is changed. But, this step will be prohibited since the block ahead of the hacked block will no longer contain the hash of it's previous block. Also, since every block is shared with all the people in your network, other users will mark this change as invalid and prevent it from executing. To further enhance the security of this system, blockchain have something called Proof of Work. So, to hack your transactions, the person will have to change the hash information in all the blocks, share the changed blocks to all the nodes on your network, and change the Proof of Work for each block. Not to forget the high-security encryption protocol for each of the blocks! All these securities make it almost impossible to hack your transactions.

Uses of Blockchain:

Blockchain has a lot of uses. One of the most popular ones is cryptocurrency. It can be safely said that blockchain is the heart of every cryptocurrency. Along with cryptocurrency, there are a lot of applications of blockchain.

1) Digital Currencies and Payment Systems.

Blockchain is widely used to secure digital transactions. While traditionally done through the Bitcoin network, payment systems will probably remain the main use of the blockchain for a few more years. With the introduction of better blockchains such as Ethereum (which also supports payment systems), distributed digital payments are increasingly made easier, faster and cheaper. Blockchain gets rid of transaction fees. I have already stated above how blockchain secures transactions through the decentralized network.

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