It is omnipresent in almost every sector no its not cryptocurrency, its driving the world crazy no its not the last Marvel movie, newspapers and magazines are flooded with articles on this naa its not a celebrity could you guess it right?
Its blockchain. Yes, the same word you hear at least hundred times in a day cos the hype. The same concept your colleague tried explaining you but your mind zoned out!! The same thing that every financial expert, developer, tech enthusiast is talking about.
But you lowkey wished for a concise, and super simple explanation right. Well then you are here at the right place. This blog interlinks some real life examples to explain the meaning of blockchain.
We will also explore some other concepts like its structure, transaction procedure and real life use cases so without further ado let's dive in...
Blockchain in simplest form is a digital ledger that records transactions. The only difference between a blockchain and a personal ledger is the security check thing. A blockchain conducts multiple security checks before allowing the miner to make changes in the individual block.
It will verify signatures, will ask the miner to solve the hash code, will cross verify the data thereafter it enables the changes to its system. A blockchain’s tight security ensures that no hacking, no cheating takes place within the network.
Blockchain keeps a record of transactions from the past and has a specific place to record future transactions. It is a digital database, a secure peer-to-peer network that puts the safety of transactions in the limelight.
As the blockchain is a database millions of people can store their data on it. Bitcoin and Ethereum are some popular cryptocurrencies that use the “blockchain” network for recording transactions.
Blockchain is a decentralized platform i.e. the power to make changes lie with the people. Blockchain network is free from government control.
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You can watch this video for a crisp explanation on blockchain.
As more and more people join the network the transaction becomes more secure. Before understanding how a transaction takes place inside a blockchain network let’s first learn about the key components of blockchain.
4 Components of a Blockchain Network
In literal sense blocks are the base of a blockchain. Blocks contain records of the past transactions and have segments reserved to save the data for future transactions.
A block represents the past and future. Different blocks on a blockchain network are interlinked via a chain. Each time the hash code on the previous block is solved it gives way to the new block.
A block on a blockchain network consists of hash codes, root hash of merkle tree, and nonce. Miners solve complex hash codes in order to stimulate change in a blockchain network. New blocks can only be added after solving the codes.
Blocks inside a blockchain network are connected to each other. Multiple blocks that are joined together form a chain of blocks.
Blockchains are huge!!! and they store a million records. Nodes are the devices that store these huge amounts of data. Computers, laptops, and big servers function as nodes. All the nodes in a blockchain network are linked together.
Nodes contain the entire history of a blockchain network. Full nodes are like school attendance registers; they keep a track of every transaction, i.e. which block is being added, which block is giving way to the new one.
Nodes verify the signatures, double check the answer of the hash code after authenticating the details, and it adds a new block to the blockchain network. Nodes can stay both online and offline.
Nodes also check the validity of the block of transactions. They can also be used to broadcast the transaction history.
Selective blockchain networks have master nodes. Master nodes are more capable than normal nodes.They are in an active mode (24*7). Master nodes facilitate voting events, and foresee other events in a blockchain network.
These nodes take up more memory than the normal nodes; their main task is to maintain an equilibrium between the blocks.
Master nodes are not responsible for adding new blocks to the blockchain network. They facilitate other changes inside a network. Bitcoin, Ethereum, Dash are some cryptocurrencies that have masternodes.
They are some big servers that undertake a zillion tasks except the authentication of blocks.
Components of a blockchain
Transaction Process in a Blockchain network
(Please note Euromoney learning is used as a reference for this section)
Blockchain is a decentralized, highly secure system. Blockchains have always been associated with cryptocurrencies, as the digital currencies use a blockchain network for their authentication, the entire transactional process is complex.
Following are the steps that are followed for adding new blocks on the blockchain networks:-
Authenticating the transaction
This is the first step that takes place in the process. Authenticating a transaction is an important step that forms the building block. Although blockchain networks are free from government control, the transactions are still authenticated using cryptographic keys.
Users are required to enter “passwords” for proceeding with the transactions. Cryptographic keys provide access to the account and wallet system. These keys work like unique passwords and serve the purpose of strengthening security.
Authorising the transaction
Post transaction agreement, the blocks are authorised prior to their addition in the blockchain network. Public blockchains follow the voting process. Before finally letting a block in, a message is sent to different blockchains in the public network.
When the majority of nodes agree for the new transaction a new block is thus added. The main owners of the blockchain network verify the transactions via “proof of work”. Proof of work refers to the cash rewards that owners of the blockchain provide miners for solving the hash code.
Proof of Work
For moving forward with this step miners are required to solve the complex mathematical problem. Computers with high computational powers are used for solving complex problems. This entire process of solving the problem is known as mining.
Mining is the key to unlock the entry of a new block in the database system. Miners are the people who perform mining. The mining process is extremely excruciating for the miners, but the ones who perform it well get rewards in bitcoin.
A group of miners collectively share their rewards that they have obtained via solving the mathematical problems. As the network size increases it becomes even more difficult to add blocks. The equation keeps on expanding in size and further validation keeps getting complex too.
Every new block is then validated multiple times before making them a part of the chain.
The monopoly soon starts taking in and a lot of blocks are refrained from entering. Power of mining also becomes concentrated in the hands of a few.
Staking the Cryptocurrency in the Proof of Stake
Only the ones with cryptocurrency can make the changes. Staking the cryptocurrency is the last step in the transaction process. In this step, the users who are willing to make changes to the blockchain network must hold any specific cryptocurrency.
Proof of Stake eradicates the need for proof of work. Mining takes a back seat when this step is put in action. Users can make changes without solving the complex tasks. It also helps in saving energy.
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Transaction process in a blockchain network
4 Applications of Blockchain
Blockchain is a technology that can refine the working system of multiple industries. Blockchain’s use cases can be connected with the real estate, healthcare and banking sectors.
Banks are built on a centralized system and are more prone to cyberattacks. Banking sector can maximize security by using blockchain. As the system is decentralized it is less prone to cyberattacks, blockchain can also be used to maintain a digital record of transactions via smart contracts.
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Its smart contracts can also be used to track a patient's progress in real time. It will save the time spent in maintaining records. BurstIQ, Medicalchain, Factum, Guardtime are some healthcare companies that are using blockchain technology for enhancing patient care.
Blockchain will reduce the possibilities of fraud it can further provide a secure network for transactions. The trading system will be made more secure using blockchain networks.
Real Estate:- Blockchain’s ledger system is undoubtedly foolproof. It is just the perfect way to safeguard the transactions. Republic, SafeWire, Vairt and Real IT are some blockchain based companies that are combining the use of blockchain to give a push to transactions.
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Major blockchain based companies use smart contracts to keep a tab on rental agreements, property lease, and renting homes.
“The Blockchain is going to change everything more than the Internet has”- Brock Pierce
Long gone are the days when blockchain was only associated with cryptocurrencies. Now the world is recognizing the “power of decentralization”, what started from cryptocurrencies is slowly stretching itself to reach every sector.
The best thing about blockchain is the power shift, from governments to people. Blockchains are being hailed as the revolution, the driving force behind a major change and what not. The mini blocks of the blockchain hold the key to a world of countless possibilities.