Blockchain : What You Need to Know

What is Blockchain Technology?

First, let’s break down blockchain as a concept.

To understand blockchain, think of a ledger where transactions are recorded. Whenever money is sent from one account to another, it is recorded in the ledger for everyone to see.

The blockchain is a digital version of this “ledger” accessible to the public.

The term “blockchain” is derived from how these digital ledgers operate.

A blockchain is a digital ledger that records information in a way that makes it difficult for participants to alter or cheat the system.

Using cryptocurrencies as an example, once a transaction is initiated on the network, it is added to a “block” field with other similar transactions. A block is a data structure that permanently stores transaction data in a blockchain.

A group of validators then verify this block through a process called blockchain mining to ensure that there are no frauds or duplicates. Once this is complete, the validators then “chain” this block of transactions to other blocks in the network to create a block-like layer.

Another feature is that blockchain transactions are immutable records, which means they are tamper-proof and can only be uploaded once. This makes it difficult for transaction history to be doctored by an entity.

Most importantly, blockchain technology uses highly sophisticated algorithms (smart contracts) to speed up processes and increase efficiency. These self-executing codes follow preset parameters and metrics in validating transactions and the authenticity of information added to the blockchain.

The underlying narrative pushing the spontaneous growth of blockchain technology lies in its decentralised nature. By this, value and asset transfer are on a user-to-user or peer-to-peer (P2P) basis. This feature eliminates intermediaries like established financial institutions who frequently interfere in business processes.

Instead, users can complete transactions amongst themselves, thereby saving bank costs, cutting through bogus red-tape, and fast-tracking the business execution process.

How Does Blockchain Work?

Essentially, all blockchain types operate in a similar manner. They rely on miners – dedicated individuals who verify transaction blocks and add them to the blockchains individually. These miners work with sophisticated hardware and software, and their work is critical to the functionality of a blockchain.

Transactions are recorded as data blocks. This data usually contains brief descriptions of what the transaction is about. For instance, cryptocurrency transactions usually include details about the parties involved, the transaction size, and more.

A validator adds the new block to an existing block on the network to form a chain. Once this chain is formed, it becomes impossible to alter or add new blocks in between.

Each new block automatically verifies the authenticity of the previous one, leading to a level of trust often lacking in the conventional financial space.

This architecture renders the blockchain immutable or unchangeable by an external entity.

Blockchain process: