How blockchain technology works

Blockchain technology has changed the digital world by creating a decentralized, safe and transparent method for the recording of transactions. It is the underlying technology for cryptocurrencies such as Bitcoin, Ethereum and countless others, but its application goes far beyond the digital currencies. Blockchain from healthcare via supply chain management, finance and even coordination systems has the potential to revolutionize many industries. In this article we will examine what blockchain technology is, how it works and what different applications.

What is blockchain technology

In essence, a blockchain is a distributed ledger or a database that is shared using several computers or knots within a network. In contrast to conventional databases, which are managed by a central authority, blockchains work in a decentralized way, which means that no single company controls the entire network. This decentralization offers improved security, transparency and trust, which is particularly important in industries such as finance and supply chain management, in which precise recording is of essential importance.

Each transaction or data in a blockchain are summarized in a “block” that contains the transaction details, a time stamp and a clear identifier that is known as hash. These blocks are connected in chronological order to form a “chain” – hence the term blockchain.

Key features of blockchain:

In order to understand how blockchain works, it is important to know its defining properties:

Decentralization: In contrast to conventional systems in which a central authority manages data, blockchain distributes information about a network of computers (nodes). Each knot has a copy of the blockchain, and all participants have access to the same data to ensure transparency and reduce the risk of data manipulation.

Unexpection: As soon as a block is added to the chain, it cannot be changed or deleted without changing any subsequent block. This makes Blockchain an unchangeable ledger, ideal for the pursuit of transactions or data that require a permanent data record.

Transparency: All transactions on the blockchain are visible to everyone in the network. Public blockchains such as Bitcoin enable everyone to look at transaction stories, which creates a high degree of transparency.

Security: Blockchain uses advanced cryptographic techniques to secure data. Each block contains a clear hash that is generated from the block data, and all changes to the data would lead to a completely different hash. In addition, blocks are linked to cryptographic hashes, creating a safe chain.

Consensus mechanisms: In order to add a block to the blockchain, the participants must reach a consensus. This ensures that the network agrees to the validity of transactions. The joint consensus mechanisms include proof of work (Pow) and the proof of use (POS). Now that we have a fundamental understanding of what the blockchain technology is, let us dive as it actually works.

How blockchain works step-by-step coating

Initiation of a transaction:

Each blockchain begins with a transaction. In the case of Bitcoin, for example, a transaction can include a user who sends a certain amount of Bitcoin to another user. Each transaction is digitally signed by the sender digitally using your private key (a secure form of encryption) and transferred to the entire network for validation.

Transaction validation:

As soon as the transaction has been transmitted to the network, it must be validated. In public blockchains such as Bitcoin, this is done by a process called mining that uses a consensus mechanism such as the proof of work (Pow). In Pow, miners fight for the solution of complex mathematical puzzles, and the first to solve the puzzle can add the block to the blockchain.

Other blockchains can use different consensus mechanisms. For example, Ethereum moves towards a POSOF of Stake), in which validators are selected based on the amount of cryptocurrency that they have (stake) and not for computing power.

Block formation:

As soon as the transaction is validated, it is grouped with other validated transactions to form a block. Every block contains:

  • A list of validated transactions
  • A time temple
  • The hash of the previous block (to link the blocks together)
  • A unique cryptographic hash for the current block
  • This clear cryptographic hash is generated based on the data in the block. If data is changed in the block, the hash would change what the chain would break through and the network would draw attention to manipulation.

Consal mechanism and blockaddition:

The validated block is added to the blockchain by the consensus mechanism. This happens in the Pow when a miner successfully solves the cryptographic puzzle and transfers the solution for the network. In PoS, validators add the block as soon as it was selected due to their participation in the network.

As soon as the consensus has been reached, the block of the chain is added and the entire network updates its copy of the blockchain.

Unchangeability and security:

After the block has been added, it becomes part of the constant main register. The structure of the blockchain makes it extremely difficult to change or manipulate. In order to change a block, you would not only have to change this block, but also all the subsequent blocks and get control over more than 51% of the computing power of the network-a almost unsuitable performance in large, decentralized networks such as Bitcoin.

finality:

As soon as the block is added to the blockchain, the transaction is considered final. Depending on the blockchain, it can require several additional blocks (confirmations) before a transaction is fully confirmed. However, the unchangeability of the main register ensures that the transaction cannot be reversed or changed.

Types of blockchains:

how blockchain technology works

Public blockchains: These are open networks in which everyone can participate and take part in the examples. Examples are Bitcoin and Ethereum. Public blockchains are fully decentralized and support themselves for validation on consensus mechanisms such as Pow or POS.

Private blockchains: In contrast to public blockchains, private blockchains are limited to a certain group of participants, which are normally within a single organization. Private blockchains are faster and more efficient, but less decentralized. They are often used in industries such as finance, healthcare and supply chain management.

Consortium blockchains: These are a hybrid model between public and private blockchains, in which a selected group of participants controls the network. Consortium blockchains are often used by groups of organizations who need a common capacity, but want to keep a certain level of control over the network.

Application cases of blockchain technology:

The decentralized, safe and transparent nature of blockchain has led to its introduction in a variety of sectors:

Cryptocurrencies: The best known use of blockchain is the creation of cryptocurrencies such as Bitcoin, Ethereum and many others. Blockchain enables peer-to-peer transactions without the need for agents such as banks, reduce transaction costs and increase efficiency.

Supply Chain Management: Blockchain enables companies to follow the goods movement in real time from production to delivery. By creating an unchangeable recording of transactions, Blockchain can help reduce fraud, to ensure the product automatic activity and to improve the transparency of the supply chain.

Healthcare: Blockchain can be used in healthcare to safely store and share patients with patients. This can improve the efficiency of care and ensure that sensitive information is only accessible to authorized staff.

Vote: Blockchain offers a potential solution for safe, transparent and manipulation -proof voting systems. By using blockchain, voices can be recorded in an unchangeable general book, which reduces the risk of fraud and ensures that the results are correct.

Smart Contracts: Ethereum has introduced the concept of intelligent contracts that are carried out by contracts with the conditions of the agreement that were written directly to code. These contracts are carried out automatically when certain conditions are met, which eliminates the need for intermediaries such as lawyers or makers.

Financial services: Blockchain technology is used to improve various aspects of the financial sector from cross-border payments to trading settlements. Blockchain can increase transaction times, lower costs and transparency in financial transactions.

The future of blockchain technology:

While Blockchain already had profound effects on several industries, the full potential is still being examined. In the future we may see a widespread introduction of blockchain in areas such as Decentralized Finance (Defi), non-fungal token (NFTS) and decentralized autonomous organizations (DAOS). While the technology is developing, we can expect new innovations that further disturb traditional systems and create new opportunities for efficiency, security and transparency.

Conclusion:

Blockchain technology represents a paradigm shift in the opinion of data, security and decentralization. By creating a transparent, safe and unchangeable transactions, Blockchain has already demonstrated its value in the world of cryptocurrencies. But his potential goes far beyond the digital currencies. Blockchain is from health care to the delivery of chains and voting systems and has changed a wide range of industries in the coming years. Since companies and governments continue to research and implement blockchain solutions, we can expect more innovations and new applications to influence the future of technology and society. more info…