What is Blockchain?
At it’s core, blockchain technology is a digital ledger that records every single transaction being made by anybody, anywhere in the world, in real-time. The cool thing about blockchain technology is that it is not owned by a single person or organization. Instead, it is a decentralized network of computers that work together to maintain a secure, transparent and tamper-proof record of all the transactions.
Blockchain technology works like a giant spreadsheet spread that is shared across millions of computers. Every time a single transaction occurs, it will be added to the spreadsheet, and every single computer in that network will be updated of the transaction. This thus creates a record of transactions that is completely transparent to all and impossible to alter or delete.
How does it work?
The key goal of blockchain technology is to provide a way for all information to be digitally recorded and accessible for all, while also restricting the tampering of these information. This technology revolutionizes how we share information and ensuring the validity of information.
Proof-of-Work (PoW)
The key concept of POW is “mining”. When a user initiates a transaction, it will be broadcasted to the entire network, and each mining computer must verify that the transaction is valid before it can be added to the blockchain. Once the transaction has been verified, it will be added to a group of other verified transactions to form a new block.
The mining process is a critical part of the transaction validation process as it allows new blocks to be added to the blockchain. In order to add a block to the blockchain, the mining computers will have to solve extremely complex mathematical problems. Once a mining computer solves a problem, the new block will be added to the blockchain. By doing so, the mining computer is verifying that all the transactions in that block is valid and can be trusted.
Each new block contains a list of verified transactions, along with a unique code called a “hash” that is generated by the mining computer. A hash is essentially a digital fingerprint that identifies the block and all of the transactions contained within it.
Proof-Of-Stake (PoS)
This is a relatively new consensus mechanism for the validation of transactions to be added onto the blockchain. It reduces the need for heavy computational work as it does not require the solving of complex mathematical problems.
In the PoS system, transaction validators are chosen based on the number of cryptocurrency tokens or coins they hold and are willing to “lock-up” as collateral. The more coins a validator stakes, the higher the chance they have to be chosen to validate the next block of transactions.
This way of validating transactions is seen as a more energy-efficient alternative because there is no need for expensive hardware or high electricity consumption to validate transactions.
Decentralized Nature of Blockchain Technology
Unlike traditional banking systems whereby there is a single central authority to control the entire system, the blockchain network is not owned by a single person or entity. By having a distributed network of validators for the blockchain, it makes it more resistant to attacks and failures, as if one validator goes down, the other validators are still able to maintain the integrity of the network.
Transparency
Tying in to the concept of decentralization, the beauty of blockchain technology is also the transparency it provides. As all participants of the network have an equal role in validating transactions, there is no need for a middleman to verify or settle disputes regarding the transactions. With each transaction validated and recorded by the network itself, it is much harder for anyone to manipulate the system or cheat the other participants.
An example where transparency is useful is when hacks occur in exchanges. When a certain non-fungible token (NFT) has been stolen and listed onto a marketplace, although it is difficult to recover that stolen NFT, it can still traced and the NFT will be flagged as stolen on the marketplace.
There are also various useful tools or websites that can be used to view transactions, such as Blockchain Explorer and Etherscan.
Security
Decentralization also makes blockchain technology much more secure. As there is no central point of control, there is no single point of failure that can be attacked or hacked. In order for the hacker to tamper with the blockchain, he or she will have to take control of a majority of the nodes in the network, which is very unlikely. Therefore, decentralization makes the blockchain a very secure and reliable system to store and transfer value and information.
Use Cases of Blockchain Technology
The potential use cases of blockchain technology are vast and varied. Over the years, we have seen blockchain being used for the creation of various new products, such as creating new forms of digital identity, supply chain management and even gaming.
One of the most promising use cases for blockchain technology is international payments. With the help of its decentralized nature, payments can be sent across borders without the need for intermediaries, which makes these transactions much faster and cheaper. This is also part of a new blockchain product known as Decentralized Finance (DeFi).
Another potential use case would be in the area of smart contracts. Smart contracts are essentially digital self-executing contracts that is stored on the blockchain, and when certain conditions are met, it will automatically carry out the tasks.
All in all, blockchain technology is a revolutionary technology that has paved the way for more cooler technology and products being made, such as Non-Fungible Tokens (NFTs), Decentralized Applications (dApps) and many more. While there are still challenges to be overcome, blockchain technology will definitely be here to stay and can be the future of information sharing.
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