Do you want to know about the blockchain technical explanation? Do you have enough guts to know about the ultimate game behind it? In a blockchain, information is recorded such that it cannot be altered, hacked, or manipulated.
A complete network of computers on the blockchain is essentially a digital record of transactions that is replicated and disseminated.
When a transaction occurs on the blockchain, the transaction is recorded in the ledgers of all participants, and each person has a copy of that ledger. Multi-participant distributed database management is known as Distributed Ledger Technology (DLT) (DLT).
Blockchain is a distributed ledger technology (DLT) that uses a cryptographic signature known as a hash to record transactions.
- Unlike traditional databases, blockchains store data in blocks, which are connected through cryptography, making them a unique sort of shared database.
- A new block is created for each new piece of information. To keep things in chronological order, the blocks are joined together once they’ve been filled with data.
- The most popular blockchain application so far has been as a transactional ledger; however other sorts of information may be recorded.
- To ensure that no single person or organization has influence over Bitcoin’s blockchain, the technology is deployed in a decentralized manner.
- The data placed into a decentralized blockchain is immutable, which implies that it cannot be changed. Because of the open nature of Bitcoin, all transactions are available to everyone who has access to the blockchain.
Blockchain Technical Explanation
In a computer network, a blockchain is a distributed database or ledger. A blockchain serves as a digital database for storing data. Cryptocurrency systems like Bitcoin rely on blockchains to keep track of transactions in a safe and decentralized manner. A blockchain’s novelty is that it ensures the integrity and security of a data record without the need for a trusted third party, hence creating trust.
The data structure of a blockchain differs significantly from that of a traditional database. A blockchain organizes data into blocks, each containing a specific collection of data. A chain of data known as the blockchain is created when a block is filled and connected to the preceding block. The additional information that follows that newly added block is compiled into a new block, which will subsequently be added to the chain once it is full.
The data in a database is often organized into tables, but the data in a blockchain is organized into chunks (blocks) linked together. When implemented in a decentralized manner, this data structure creates an irreversible chronology of data. When a block is filled, it becomes a permanent part of this timeline and cannot be changed. A block is added to the chain and given a specific time stamp.
How Does A Blockchain Work?
Digital information may be recorded and disseminated yet cannot be altered using blockchain technology. That’s why it’s so important to have blockchains in place to ensure that transactions are recorded in an immutable ledger. Because of this, blockchains are also referred to as a distributed ledger technology (DLT).
It’s possible to have 10,000 computers running a database that contains all of a company’s customers’ account information.
These computers are all housed in a single warehouse facility, and this corporation has complete authority over all of them and the information they hold.
There is, however, one point of failure in this system. Is there anything that would happen if the power went out at that location? Suppose there’s a problem with the Internet connection. What if it all goes up in flames? Suppose an evildoer erases everything with the press of a single key? The data is either lost or damaged in any situation.
Using a blockchain, you may distribute the database’s data among several network nodes in different regions.
Additionally, if a bad actor attempts to modify data in one database node, the other nodes will not be affected and therefore prohibit them from doing so. This generates redundancy and ensures the integrity of the data contained within. Because all other nodes would cross-reference each other, it would be easy to identify the node that tampered with Bitcoin’s record of transactions.
Using this technique, it is possible to establish a clear and precise sequence of occurrences. When all of the information in the network is protected, no one node has access to it.
There is no way to undo the information and history of a bitcoin transaction because of this. Many more kinds of information may be stored on the blockchain in addition to transactions, including legal contracts, state IDs, and a business’ goods inventory.
A majority of the decentralised network’s computer power would be required to approve new additions or records to a block.
Consensus mechanisms such as proof of work (PoW) or proof of stake (PoS) are used to ensure that bad actors cannot validate fraudulent transactions or double-spends on blockchains (PoS). Even if no single node is in control, consensus may still be reached thanks to these processes.
There are two ways to observe transactions on the Bitcoin network: either running your own node or by utilising blockchain explorers that allow anybody to see transactions taking place in real time. As new blocks are verified and added to the chain, each node’s copy of the chain is updated. As a result, it’s possible to keep tabs on Bitcoin’s whereabouts at all times.
For example, Bitcoin exchanges have been hacked in the past, resulting in the loss of everyone’s Bitcoins. Even if the hacker is completely anonymous, the stolen Bitcoins may be tracked out. This information would be available if some of the stolen Bitcoins were transferred or spent someplace.
Bitcoin blockchain records, as well as those of most other digital currencies, are encrypted. This implies that only the record’s owner may decode it and learn its contents, such as its owner’s name (using a public-private key pair). As a result, blockchain users may maintain their anonymity while still benefiting from increased openness.
Is Blockchain Secure?
It’s possible to establish decentralised security and trust using blockchain technology in a variety of ways. First, new blocks are always kept in chronological order and in a logical sequence. They are always appended to the “end” of the blockchain, in other words.
Changing the contents of a block after it has been appended to the end of the blockchain is nearly impossible unless the majority of the network agrees to do so.
As a result of this, each block has its own hash, as well as a hash of the preceding block, as well as the previously mentioned timestamp.
A mathematical function transforms digital data into a string of numbers and letters to produce hash codes. The hash code will be altered if the data is changed in any manner.
Suppose a hacker, who operates a node on a blockchain network, intends to manipulate the blockchain and steal bitcoin from everyone else. No one else’s copy will be in sync if they change their own copy.
That hacker’s version of the chain will be rejected as invalid if everyone else cross-checks their copies against each other.
Successfully carrying out such a hack requires controlling or altering at least 51% of the copies of the blockchain at the same time in order to achieve the desired outcome.
They’d have to rewrite all the blocks because they’d have different timestamps and hash codes.
As numerous bitcoin networks develop in size and speed, the cost to pull off such a feat is likely impossibly high. Even if successful, this would be highly costly and ineffective.
It would be impossible to go unnoticed if such a major change were made to the blockchain. Network participants would then hard fork from the chain in question to a fresh, unaffected version.
This would make the attack futile, as the bad actor would have ownership of a worthless asset as a result of this.
If the bad guy tried to assault the next Bitcoin fork, the same thing would happen. Participating in the network is more lucrative than assaulting it because of its design.
Bitcoin vs. Blockchain
This idea for a system where document timestamps could not be manipulated with was initially proposed in 1991 by Stuart Haber and W. Scott Stornetta. However, blockchain didn’t have its first real-world use until over two decades later, in January 2009, with the debut of Bitcoin.
A blockchain is the foundation of the Bitcoin protocol. Bitcoin’s pseudonymous inventor, Satoshi Nakamoto, described it as “a new electronic cash system that is totally peer-to-peer, with no trusted third party” in a research paper introducing the digital currency.
To put it another way, Bitcoin only utilises blockchain to keep track of transactions, but the technology could theoretically be used to store unlimited amount of data pieces. There are a variety of ways in which this might take place, including transactions, votes in elections, goods inventories, state identifications, titles to properties, and more.
In addition to documenting transactions, tens of thousands of initiatives are currently exploring for ways to use blockchains to benefit society as a whole—for example, as a secure means to vote in democratic elections.
The immutability of the blockchain means that fraudulent voting will be far more difficult to perpetrate in the future. It is possible that each citizen of a country might receive their own cryptocurrency or token as part of the voting process.
With this system, voters might cast their ballots by sending their tokens or crypto to a specified wallet address for each candidate.
Because of blockchain’s transparency and traceability, there would be no need for human vote counting, and any tampering with physical ballots would be impossible.
Blockchain vs. Banks
With regards to the financial industry, blockchains have been hailed as a disruptive force, particularly in the areas of payments and banking. Decentralized blockchains and banks, on the other hand, are very different.
Let’s look at how the banking system varies from Bitcoin’s implementation of blockchain to see how it’s similar to it.
How Are Blockchains Used?
Coin transactions are recorded in “blocks” on the Bitcoin blockchain, as we’ve learned. On the blockchain, there are currently more than 10,000 additional cryptocurrencies. On closer examination, it becomes clear that blockchain can be trusted to store information about a wide range of transactions.
Walmart, Pfizer, AIG, Siemens, Unilever, and a slew of other corporations have already implemented blockchain. When it comes to food goods, IBM has established a blockchain called Food Trust to track their journey.
Do you know why? E. coli, salmonella, and listeria outbreaks have occurred several times in the food sector, as well as the inadvertent introduction of hazardous elements into food. In the past, it has taken weeks to identify the source of outbreaks or the illness-causing agent in the food consumed by the affected population.
The use of blockchain enables food manufacturers to follow a product’s journey from the point of origin to each stop along the way, all the way to delivery. If a meal is determined to be tainted, the path it took to get there may be tracked back to the point where it was harvested.
These firms can now now see everything else that has come into contact with them, which means that problems may be identified far more quickly, perhaps saving lives in the process. This is only one example of how blockchain may be used in the real world, and there are countless others.
Banking and Finance
The banking industry may profit the most from incorporating blockchain technology into its operations. On business days, banks and other financial institutions are only open for business.
A check deposit at 6pm on Friday may not be available until Monday morning, so you may have to wait a few days before you see the money in your account. Regardless of whether or not you deposit during business hours, the transaction may take up to three days to be verified owing to the high amount of transactions banks must process each and every day. Whereas Blockchain is always on.
With the introduction of blockchain technology inside banks, customers may expect their transactions to be completed as quickly as 10 minutes—essentially the time it takes to add a block to the blockchain.
With blockchain technology, banks have the ability to transfer payments more swiftly and securely across organisations. This means that your money will be locked while you wait for the settlement and clearing procedure in the stock market, which can take up to three days (or more if you’re trading overseas).
Even a few days in transit may be costly and risky for banks because of the large quantities involved.
Bitcoin and other cryptocurrencies are built on a technology known as blockchain. The Federal Reserve is in charge of the US currency. A user’s data and cash are in the hands of their bank or government under this central authority structure.
The personal information of a customer is jeopardised if their bank is breached. The value of the client’s money may be jeopardised if their bank fails or if they reside in a nation with an unstable government. Taxpayer money was used to bail out numerous failing banks in 2008. These are the concerns that sparked the creation of Bitcoin.
For Bitcoin and other cryptocurrencies to run without a central authority, blockchain spreads its activities over a large network of computers.
As a result, not only is the potential for loss minimised, but so are the associated processing and transaction costs. For people who live in countries with unstable currencies or financial infrastructures, this money can help them to have access to a bigger network of persons and organisations with whom they can conduct business, both locally and globally.
For those without state identity, using bitcoin wallets for savings accounts or as a method of payment is very significant.
The governments of certain nations may be ripped apart by conflict or lack the infrastructure to be able to give a means of identification. Citizens of these nations may not be able to access savings or brokerage accounts, which means they have no secure place to save their money.
Patients’ medical records may be stored securely using blockchain technology. It is possible to save medical records on the blockchain, which gives patients with proof and assurance that the record cannot be altered…. A private key might be used to encrypt and preserve these personal health records on the blockchain, limiting who has access to them and so protecting their privacy.
If you’ve ever visited your local Recorder’s Office, you know how time consuming and inefficient the procedure is for documenting property rights.
A tangible deed must now be handed to a government employee at the local recording office, where it is manually put into the county’s central database and public index. The public index must be matched with claims to the property in a property dispute.
An inaccuracy can make it more difficult to monitor the ownership of a piece of property, making this procedure expensive and time-consuming.
In the future, blockchain technology might eliminate the need to scan papers and locate actual files in a local recording office. Owners can have confidence that their deed is correct and permanently documented if it is kept and validated on the blockchain.
In war-torn nations or locations with little or no government or banking infrastructure, and certainly no Recorder’s Office, proving property title can be practically difficult.
Transparent and unambiguous histories of property ownership might be constructed if a group of people living in this region used blockchain technology.
A smart contract is a piece of computer code that may be inserted into the blockchain in order to expedite, verify, or negotiate the terms of a contract. Users agree to the terms of a smart contract before it can be activated. There are several requirements that must be fulfilled before agreement may be fulfilled.
Let’s say a prospective renter wants to use a smart contract to lease an apartment. After receiving the security deposit, the landlord will provide the renter with a code to enter the flat.
Both the renter and the landlord would transmit their respective shares of the agreement to the smart contract, which would keep onto and automatically swap the door code for the security deposit on the date that the lease begins. The smart contract returns the security deposit if the landlord does not give the door code by the lease date. The employment of a notary, a third-party mediator, or an attorney would no longer be necessary, saving both money and time.
Suppliers may utilise blockchain to track the provenance of commodities they’ve acquired, as seen in the IBM Food Trust example. There are several common labels, such as “Organic,” “Local,” and Fair Trade, that may be verified by this method.
Blockchain is rapidly being used by the food sector to trace food’s course and safety from farm to user, according to Forbes.
A modern voting system might benefit from the usage of blockchain technology, as previously stated. Election fraud may be eliminated and voter turnout increased via blockchain voting, as demonstrated in the November 2018 midterm elections in West Virginia.
In this approach, it would be practically difficult to tamper with the results of the voting process. It would also reduce the number of people needed to run an election and provide officials with almost quick results using the blockchain network. Recounts would be unnecessary, and there would be no serious risk of electoral fraud.
Pros And Cons Of Blockchain
Despite its intricacy, the decentralised record-keeping potential of blockchain is virtually limitless. Beyond the above-mentioned benefits of improved user privacy and increased security, blockchain technology may have a wide range of uses. However, there are some drawbacks.
- The removal of human error from the verification process increases accuracy.
- Eliminating the need for third-party verification can save money.
- Decentralized systems are more difficult to manipulate.
- A safe and effective way to do business
- Technology that is open and accessible.
- Gives inhabitants of nations with unstable or weak governments an alternative banking option and a means to protect their personal information.
- The mining of bitcoins entails a significant technological investment.
- Transactions per second that are slow
- Illegal past, even on the dark web, of usage
- Jurisdictional regulation differs and is still a matter of debate.
- Limitations in terms of available storage
Benefits Of Blockchains
Accuracy Of The Chain
Blockchain transactions are validated by thousands of computers. As a result, there are less opportunities for human mistake, and the data that is recorded is more accurate.
Errors in computations would only affect one blockchain copy, regardless of how many computers are on the network. Bitcoin’s network is so huge and growing that it would be nearly impossible for the error to spread throughout the whole blockchain unless at least 51 percent of its machines made it.
When a customer wants to verify a transaction, a notary or a minister usually charges a fee. There is no longer a need for third-party verification and the related fees that come with it, thanks to blockchain technology.
When customers pay with a credit card, for example, the bank or payment processing company charges a modest fee to the business owner. While Bitcoin does not have a central authority, it does not charge transaction fees and has a low transaction volume.
You can’t find a central repository for blockchain data. A copy of the blockchain is then made and distributed among a large number of machines. Every time a new block is uploaded to the blockchain, every computer in the network automatically updates its blockchain to reflect the new data.
It is more difficult to tamper with information that is dispersed throughout a network rather than stored in a single database. A single copy of the blockchain, rather than the whole network, would be compromised if a hacker gained access to it.
It might take up to a few days for transactions made through a central authority to be finalised. It is possible that you will not see any money in your account until Monday morning if you try to deposit a check on Friday evening.
Blockchain, on the other hand, works around the clock, seven days a week, and 365 days a year, unlike financial institutions that function during business hours. As little as 10 minutes is required, and transactions can be trusted for up to 24 hours.
Because of time zone differences and the fact that all parties must confirm payment processing, cross-border trades tend to take longer.