Have you ever used blockchain technology? Even if you haven’t, you probably have heard of blockchain and cryptocurrencies like Bitcoin. Tech and financial experts never stop talking about blockchain; it is a technology that shocked the Internet world. Blockchain was first used to keep records of bitcoin transactions because it allows every bitcoin user to access these records. But today, blockchain has been used in different industries, and more corporations are using blockchain to enhance transparency and security of data.
Blockchain is the technology that makes cryptocurrencies possible. With the future of money lying in digital currencies, blockchain is here to stay. Anyone interested in buying cryptocurrencies or using blockchain to manage corporation ledgers will need to have a clear understanding of blockchain.
What Is Blockchain Technology?
To understand blockchain technology, we should start from the term of blockchain. Directly, a block plus a chain is a blockchain. Block refers to the partial data stored in public database and multiple blocks form a chain.
The data stored in blocks is digital records of information, including:
- The information about transaction events, like date, time and amount;
- The information about involved people in the process of transaction;
- The information that specializes the block.
Therefore, blockchain is a virtual and public record of all digital transactions in a safe and transparent way. Data on transactions is captured in an interconnected computer network (block) owned and operated by users on the chain.
We can understand blockchain technology in an easy way. Think about Google Docs. When an online document is established and shared with others, all receivers can access and edit the document at once without the hassle of emailing back and forth. If someone adds or deletes something, then everyone sees the change in real time. In the decentralized database of blockchain, anyone can add information like they do in Google Docs, but no one can edit the transaction once it’s in place.
Google Docs is not technically a blockchain, but it does help understand how blockchain technology works by drawing an analogy between them.
Blockchain has the following features:
- Digital assets or data are distributed, not copied or transferred.
- Digital assets or data is decentralized and can be real-time visited.
- Any change in digital assets or data can be seen by all users within the same community.
At the very beginning, blockchain was developed for financial transactions. However, the technology is quickly taking over other industries, especially in accounts where it is used to record transactions. Blockchain technology has more promising than most of the cryptocurrencies that have come up.
How does Blockchain Technology Work?
The running of blockchain relies on three elements: blocks, nodes and miners.
Each chain consists of multiple blocks and each block contains three fundamental elements:
- Nonce. A nonce is a 32-bit whole number and randomly generated.
- Hash. Hash is a 256-bit number combined with nonce.
When the first block of a chain is established, cryptographic hash will be generated by nonce. The data will be recognized as signed unless it is dug out (mined) and forever combined with nonce and hash.
Miners create new blocks on the chain through mining.
On blockchain, each block has its own nonce and hash, and quotes the hash in previous block. Therefore, it’s not an easy job to dig out a block, which is especially true on large chain.
Miners figure out complicated math problem based on a special software and try to find a nonce that can accept hash. Because a nonce has 32 bits and hash 256 bits, about 4 billion nonce-hash combinations must be dig out until a correct one is found. Whenever that happens, it means miners find the “golden nonce” and their block is added to the chain.
If any block in the chain needs to be modified, the modified block should be remined and all the after-mining blocks should be mined again. That means huge amounts of algorithms must be used. Therefore, blockchain technology is quite complicated.
Whenever a block has been successfully mined out, all the nodes on the chain receive this change and miners are paid for their work.
One of the key concepts in blockchain technology is decentralization. Blockchain doesn’t work based on a single computer or a router, and it is distributed on nodes. A node can be any electronic device that can protect blockchain transcript and plays a role of network.
Each node has its own blockchain transcript. Algorithms are used to mine new blocks in the network to upgrade the whole chain. Due to its transparency, each change in each block can be easily inspected and checked. Each participator has a unique indicator in alphabet and number to indicate their responsibilities.
How Does Blockchain Benefit Us?
One of the advantages of blockchain is transparency. Blockchain technology is open source in nature. This means developers from around the world and blockchain users can modify the technology as they see fit. However, blockchain is unique because users are not able to modify logged data.
Due to the large number of users on the network, a user will notice when logged data is modified, and this makes it incredibly challenging to alter any registered data.
Even though blockchain technology is open-source, there is no single user who can manipulate the network. This helps with the security of the data stored on the network. On the blockchain network, when one node performs a function, this function must be replicated and agreed on other nodes before the action becomes alive. As a result, a single user — say a single hacked computer — cannot take down the whole blockchain network.
Each user can visit the content on blockchain and users can also set their PC as a node to be connected with blockchain network. As a result, their PC will receive a transcript of blockchain. Whenever a new block is added, the whole chain will be automatically upgraded. This works like your Twitter notification. As soon as one of your followers publishes a new tweet, all the followers will receive his or her tweet at the same time.
3. Convenience and Cost Effectiveness
Blockchain has brought so much convenience to most industries. You get all the records in one place, and no one can manipulate the records.
Blockchain has ensured reduced transaction cost. The network is not only fast but also allows business-to-business and peer-to-peer transactions without the need for a bank or any other financial institution. When the middleman is out of the picture, the cost of transactions is reduced.
The blockchain-based transactions are completed through the authorization of thousands or millions of computers. As a result, almost all manual participations are cut in the process of verification and manual errors are greatly reduced. Even if a mistake is made on a computer, it just occurs on a transcript of a blockchain. If a hacker wants to spread this mistake to other parts of a blockchain, at least 51% of the computers on the chain must make the same mistake. Obviously, it’s impossible.
A transaction through third party usually takes a couple of days. Yes, banks work on weekdays but blockchain 7/24. Blockchain-based transactions can be done within a couple of minutes. That is an obvious advantage in cross-border transactions.
What the future will be like with Blockchain Technology？
1. More Decentralization.
Centralized data systems are conventional — most large corporations still used centralized data systems and servers. Even though these corporations have taken the necessary measures to keep their data safe, the centralized data systems are still hackers’ attractive targets. Once the systems are hacked, all operations of the corporations will break down.
Blockchain technology offers a solution to the centralized data problem. On the blockchain network, every node holds the same data as all the other nodes. This means that if one node breaks down, it will not affect the entire network.
Decentralization is beneficial since corporations are less prone to data loss and data breaches. In the future, data on blockchain network will become more decentralized as corporations seek to keep data safe and accessible at all times. Up to now, blockchain-based decentralized VPN has been developed to become a handy tool to guard your data’s security and users’ privacy.
2. Transparency Across all Industries
More industries are using blockchain technology. With blockchain technology, anyone within the network can access a record of transactions. This fosters transparency. In a large corporation, different departments, especially accounts and finance, can adopt blockchain to enhance transparency.
In the future, there will be quick settlements of transactions as more people adopt blockchain for their financial transactions. Even better, the blockchain technology gets better with each passing day, making it more effective and faster.
In supply chain, suppliers can record the sources of their purchased materials by using blockchain. As a result, corporations can verify products’ authenticity and some labels such as organic.
Whether you are interested in cryptocurrencies or not, knowledge of the blockchain system will help you navigate different industries. Whether you are running a small business or a large corporation, using blockchain technology will help make operations more efficient. Learn more today!