Introduction
Bitcoin is more popular than Blockchain. Although one of the most well-known applications of blockchain technology is Bitcoin, Blockchain is capable of much more.
It’s possibly one of the most disruptive inventions in recent years and might drastically alter how we live.
In a nutshell, Bitcoin and Blockchain have a relationship that is comparable to email and the Internet. You require access to the Internet in order to send and receive emails.
In a similar vein, blockchain technology is required to use in cryptocurrency.
Understanding blockchain technology better might change how you perceive the bitcoin market. You can then choose your industry investments more wisely.
In this blog, we will discuss –
- What is Blockchain technology?
- How Does a Blockchain Secure Itself?
- Why is Blockchain Revolutionary?
Blockchain Technology Basics
Without using an intermediary, you can send emails, texts, images, and videos straight to other people. You can maintain trust with people in this way, regardless of where they are in the world.
Despite this development, completing a financial transaction still requires trusting a third party. Blockchain technology, however, poses a grave threat to this system.
Blockchain technology basics can be understood by looking at a traditional database managed by a single entity.
When a transaction is made, it is verified by the entity and then added to the database. The problem with this system is that it is centralized, which means that the entity has complete control over the database and can manipulate it for its benefit.
How does Blockchain work?
With blockchain technology, each transaction is verified by the network of computers that make up the Blockchain. This verification process is called consensus.
Once a transaction is verified, it is added to the Blockchain and cannot be altered or deleted. This makes blockchain technology much more secure than a traditional database.
There are two main types of blockchain technology: permissionless and permissioned. Permissionless blockchains are public; anyone can join the network and participate in the verification process.
Permissioned blockchains are private, and only certain people or organizations can join the network.
Blockchain technology can be used to create a variety of applications. Some of the most popular applications of blockchain technology include cryptocurrency, smart contracts, and supply chain management.
Envision a comprehensive system of impervious digital ledgers that can be configured to record and monitor not only money transactions but almost anything of value.
The Blockchain can keep track of things like voting, land titles, and even medical information. This shared, distributed, and immutable ledger keeps track of all previous transactions beginning with transaction 1.
It creates a climate of transparency, accountability, and trust.
How does Blockchain store data?
Blocks are the units used by Blockchain to store information. To create a continuous line, these blocks are sequentially connected.
Each block resembles a page in a record book or ledger.
There are three primary components to each block:
- Data: Depending on how the Blockchain will be used, different types of data will be used. For instance, in Bitcoin, a block’s data comprises information on a transaction’s sender, receiver, number of coins, etc.
- Hash: Blockchain hashes resemble a fingerprint or signature. It is always unique and serves to identify a block and all of its contents.
- Previous block’s hash: This component is exactly what a blockchain is made of! The chain becomes incredibly secure because each block contains the information from the previous block.
The hashes and the data are unique to each block, but they can still be tampered with. The following section lays out some ways blockchains secure themselves.
How Blockchain secures itself?
Blockchain technology is often described as being “self-securing” due to the fact that it is decentralized and distributed.
This means that there is no central point of control or authority over the network; instead, it is maintained by a network of computers (nodes) that all have a copy of the Blockchain.
The Blockchain is secured through a consensus mechanism, which means that all of the nodes in the network must agree on the current state of the Blockchain in order for it to be valid.
This consensus mechanism is what allows the Blockchain to be resistant to tampering or modification, as any changes to the Blockchain would need to be made by a majority of nodes in the network.
Hashing
Hashing is how a blockchain secures itself. The hash of a block changes when it is modified within a blockchain.
The subsequent block, which beforehand referenced the hash of the preceding block, is now considered invalid.
In actuality, altering a single block invalidates all succeeding blocks. The Blockchain is made secure thanks to this configuration.
Hashing alone, however, cannot stop tampering. That’s because modern computers are incredibly quick and can calculate millions of hashes in a single second.
Technically, a hacker might alter the hash of a particular block, calculate and alter all the hashes of the succeeding blocks, and then conceal their alteration.
proof-of-work
Blockchains contain extra security measures like proof-of-work and peer-to-peer distribution in addition to hashes because of this.
Block construction is slowed down by a method known as proof-of-work (PoW). For instance, calculating the requisite PoW and adding a new block to the chain both take around ten minutes in the case of Bitcoin.
Because if you mess with one block, you have to mess with all the subsequent blocks, this timeline makes it very difficult to change a block.
Decentralization
Blockchains can safeguard themselves in a third way by being dispersed. The chain is managed decentralized via blockchains.
They substitute a peer-to-peer (P2P) network instead. Everyone is welcome to join public blockchains like the one used by Bitcoin.
A validator or node is the name given to each node in the network. Anyone who joins the network receives a complete copy of the Blockchain. The node can then confirm that everything is still in working condition.
The transformative nature of Blockchain
Here are three key distinctions between blockchain and existing database solutions.
Blockchain & data tampering
An electronic ledger of all cryptocurrency transactions is known as a blockchain. It keeps expanding when fresh blocks of recordings are added to it as “finished” chunks.
Each block includes transaction information, a timestamp, and a cryptographic hash of the one before it.
Bitcoin nodes use the Blockchain to distinguish between valid Bitcoin transactions and attempts to spend coins that have already been spent elsewhere.
Because Blockchain is a distributed database, it is incredibly difficult to tamper with. If someone were to try and change a transaction that has already been recorded in a block, they would need to change that block’s hash.
However, doing so would also change the hash of the block after it and all subsequent blocks. Bitcoin miners would then quickly spot the invalid block and reject it. This makes it nearly impossible to tamper with Bitcoin transactions.
However, the Zencash blockchain attack, for example, was a successful 51 percent attack, and it cost the Zencash team $200,000 to repay users.
Mona.co did the same thing in March of 2018, also successfully attacking the Blockchain for a short time. Both these examples underline the need for a decentralized cryptocurrency exchange for better security against blockchain attacks.
How Blockchain creates trust in the data?
The key feature that allows Blockchain to create trust in the data is its decentralized nature. By being decentralized, Blockchain removes the need for a central authority to oversee and manage the data.
This means that the data is not controlled by any one person or organization, and it is not subject to any single point of failure.
Blockchain is also transparent, meaning that all of the data is available for anyone to see. This transparency helps to create trust in the data, as it is not possible for anyone to manipulate or tamper with the data without everyone else being aware of it.
Finally, Blockchain is immutable, meaning that once data has been added to the Blockchain, it cannot be changed or removed. This immutability helps to ensure the data is accurate and trustworthy, as it cannot be tampered with after the fact.
Elimination of Centralized third parties in Blockchain
One of the advantages of blockchain technology is that it can help to reduce or eliminate the need for centralized third parties.
This is because blockchains can provide a decentralized and tamper-resistant way to store data and conduct transactions.
This means that there is no need for a central authority to oversee and manage the Blockchain, as it can be managed by the network of users.
This can help to reduce costs and increase efficiency, as well as improve security and transparency.
An example, A company that wants to use blockchain technology to conduct its business would not need to use a centralized third party such as a bank to oversee and manage the transactions.
Instead, the company could use a decentralized blockchain to store the data and conduct the transactions.
This would reduce the costs and increase the efficiency of the company’s operations.
Another example is, A group of people who want to use blockchain technology to create a shared database that would not need to use a centralized third party such as a server to host the database. Instead, they could use a decentralized blockchain to store the data.
This would improve the security and transparency of the database, as well as reduce the costs of maintaining it.
What are the four types of Blockchains?
Public, Private, Consortium, and Hybrid.
What are the five key components of a blockchain system?
A blockchain system has five key components: a distributed ledger, a consensus mechanism, a peer-to-peer network, a cryptographic algorithm, and a user interface.
Blockchain example
A supply chain management system could use blockchain technology to track the movement of goods and materials throughout the supply chain. The system could also be used to track the provenance of goods and materials, ensuring that they are sourced from ethical and sustainable suppliers.
Use of blockchain technology
There are many potential uses for blockchain technology. Here are 10 examples:
- Cryptocurrencies
- Smart contracts
- Supply chain management
- Identity management
- Voting
- Crowdfunding
- Equity trading
- Royalty management
- Gun tracking
- Data management