What is Blockchain Technology and How Does it Work?
We can define the Blockchain as the core technology behind Bitcoin and several cryptocurrencies that promise some potential beyond digital currencies.
One of the most hyped innovations of the 21st century is Blockchain Technology. Generally, it was developed to support Bitcoin. With the passage of time, it is now empowering almost all cryptocurrencies.
In this article, we are going to discuss everything about the Blockchain and how it works.
What is Blockchain Technology?
A digital ledger of the transactions that is maintained by a large network of computers in such a way that can’t be hacked or altered is called the Blockchain.
This technology is very effective and useful because it allows individuals to communicate or deal with each other directly without any intermediary like banks or third-party persons or apps.
In the Cryptocurrency system, Blockchains are well known for maintaining a secure and decentralized record of transactions. It provides the security and reliability of the record of data without the need for any third-party app or authorization.
Blockchain, generally referred to as Distributed Ledger Technology (DLT), makes the history of any digital quality unalterable and clear by utilizing the localized network and Cryptanalytic hashing.
Importance of Blockchain
Blockchain is a technology that has revolutionized our tech industry. It is providing numberless facilities to a large number of people like reducing security risks, stamping out frauds, and also bringing transparency in a mountable way.
Blockchain became popular and powerful when it got associated with Cryptocurrency and NFTs.
Due to its convenience, it has become a managing solution for all the global and tech industries available. Blockchain is providing its services in almost all aspects.
Nowadays, we see Blockchain is responsible for securing health data, managing food chains, innovating gaming society, and many more. It is also very efficient in handling some large industries’ data and ownership on large scale.
Reasons Behind the Popularity of Blockchain
Blockchain is popular because of a lot of its features but it became more popular because of its Record-keeping feature that saves both the time and money of the users. Let us explain this,
The most important and crucial part of a business is the record-keeping of data and transactions. However, this type of information is handled in the houses or can be moved to some third parties like brokers or bankers, which may increase the time, cost, or both on the business.
Luckily, Blockchain saves both time and money and provides faster movement of transactions.
Being an emerging technology in society there are some other reasons behind its popularity that are explained below.
Blockchain uses a digital signature feature for fraud-free transactions. Without the specific digital signature of the individual, it makes it impossible to change or corrupt the data of a person.
Decentralization of System
For a single general transaction, you need the approval of some parties like Banks or the Government. But the transactions performed through the Blockchain are convenient, easy, safe, and less time-consuming.
Blockchain is customizable and can generate many programming actions, events, or payment changes when the time to trigger meets.
Basic Working of Blockchain Technology
Blockchain was first introduced in 1991 as a research project. In 2009, its concept was widely spread because of its application work with Bitcoin.
After 2009, due to the large use of Blockchain, it became the source of a lot of creations like the DeFi (Cryptocurrencies Decentralized finance) application and NFT (Non-Fungible Tokens).
The main purpose of the Blockchain is to be the general information of individuals, digital companies, or workers to be recorded or distributed but not to be edited.
In this way, the Blockchain becomes a foundation for the unchallengeable ledgers or a record of some individual company or transactions that can’t be altered, deleted, edited, or changed.
Let us discuss some of the working processes of Blockchain for understanding.
Transaction Process through Blockchain
We are going to discuss the transaction process through the Blockchain to learn this procedure conveniently.
- First, a new transaction is entered.
- Then the entered transaction is transmitted to a network of peer-to-peer computers widely spread across the world.
- After this, the network of computers solves the equations to confirm the validity of a transaction.
- When the validity of the transaction is confirmed, it is clustered together in blocks with other transactions.
- These blocks are then chained together that contain the long history of all permanent transactions.
- At last, the transaction is completed.
Here is the illustration for you to understand this process easily.
Features of Cryptocurrency
Generally, Blockchains are widely used to store the Cryptocurrency transactions history and many other things like legal contacts or product inventories.
The main features of Cryptocurrency are explained below.
- It has intrinsic value.
- It is the safe, secure, and fastest way to transfer value for little to no cost.
- Cryptocurrency has no physical form.
- It exists only on the immutable blockchain.
- Its features like total supply are decided upon by the majority of members of its network instead of any bank.
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Blockchain and Banks
Blockchain has been proven a disruptive strength in the department of Finance. There is a very big difference between both sectors. There are a lot of differences between the working of both Banks and Blockchains.
The working time of banks is limited while the Blockchain works all the time 24/7 or 365 days a year.
The transaction procedure of banks is time-consuming and can be expensive, but Blockchain transactions are very easy, safe, and less time taking. However, they are not costly at all.
From the above examples, we can see how different is the working of both platforms.
Pros and Cons of Blockchain
The pros of Blockchain are discussed below:
- Blockchain has one of the toughest security features. It is impossible to corrupt a blockchain because the information is shared and continually reunite by the millions of computers working. So, it has no single point of failure.
- Blockchain becomes the source of trust between the individual participants on a network. Once the blocks are confirmed, they are difficult to remove, change, or reversed.
- It is an effective source to remove the middlemen or third parties from the transactions and reduces the transaction cost.
- Blockchain transactions are much quicker than non-DLT-based systems. It is because they are often slow and not efficient.
- It is very flexible. There will be no problem if one node goes down because all the other nodes have copies of the Ledger.
The Cons are explained below:
- While joining the public Blockchains, there is the issue of ownership of that chip and who will be responsible for loss or when some problem arises.
- Data changing in the Blockchain is very difficult and requires a lot of hard work.
- To avoid losing money owners have to keep track of their private keys.
- There are some storage issues here, sometimes storage runs large over time. There is a risk of loss of some of the nodes. This happens when the ledger becomes too large for the users to download.
- In recent times, Blockchain is 51% suspected to be attacked.
- All these are specific attacks that are specially designed to take control of the block and change the data in the blocks.
Wrapping it up
The industry of Blockchain is very vast. It is very difficult to understand its aspects. But we did our best to provide you with pure information about Blockchain. Here is all our hard work in your hands. Hope you liked our work. If so, share it with others.