Blockchain Technology Explained!
Presume you’re sendin
g money from your bank account to family or friends. You would use online banking to transfer the funds to the other person’s account number. Your bank updates the transaction records once the transaction is completed. It appears to be straightforward, doesn’t it? There is a potential problem that most of us overlook.
These types of transactions are easily tampered with. People who are aware of this truth are often hesitant to use these types of transactions, which has resulted in the evolution of third-party payment applications in recent years. However, it is precise because of this vulnerability that Blockchain technology was developed.
The blockchain is the technology that underlies bitcoin and other cryptocurrencies. It is a decentralized and distributed ledger that records transactions on multiple computers, making it virtually tamper-proof.
The blockchain consists of a series of blocks, each of which contains a list of transactions. When a new transaction is made, it is added to the most recent block in the chain. Each block also contains a unique code called a “hash” that links it to the previous block, creating a chain of blocks that cannot be altered.
One of the main benefits of blockchain technology is its ability to secure transactions without the need for a central authority. Because the ledger is decentralized and distributed across multiple computers, it is not controlled by any single entity and cannot be altered by any one person or group. This makes it an attractive option for people who want to transfer value without the need for intermediaries.
The information held in the blocks on the blockchain is encrypted by Bitcoin using the SHA-256 hashing algorithm. Simply explained, a 256-bit hexadecimal integer is used to encrypt transaction data that is stored in a block. All transactional information and details related to blocks before that block are contained in that number.
In addition to being used for bitcoin and other cryptocurrencies, the blockchain has the potential to revolutionize a wide range of industries, from finance and healthcare to supply chain management and voting systems. Its ability to secure and verify transactions makes it a promising technology for a variety of applications.
Why is Blockchain Popular?
Blockchain is a new technology with various advantages in an increasingly digital world:
1. Highly Secure
It employs a digital signature feature to conduct fraud-free transactions, making it impossible for other users to corrupt or change an individual’s data without a specific digital signature.
2. Decentralized System
Traditionally, transactions require the approval of regulatory authorities such as a government or bank; however, with Blockchain, transactions are done through the mutual consensus of users, resulting in smoother, safer, and faster transactions.
3. Automation Capability
It is programmable and can automatically generate systematic actions, events, and payments when the trigger criteria are met.
Types of Blockchain
It is programmable and can automatically generate systematic actions, events, and payments when the trigger criteria are met.
1. Private Blockchain Networks
Private blockchains operate on closed networks, and tend to work well for private businesses and organizations. Companies can use private blockchains to customize their accessibility and authorization preferences, parameters to the network, and other important security options. Only one authority manages a private blockchain network.
2. Public Blockchain Networks
Bitcoin and other cryptocurrencies originated from public blockchains, which also played a role in popularizing distributed ledger technology (DLT). Public blockchains also help to eliminate certain challenges and issues, such as security flaws and centralization. With DLT, data is distributed across a peer-to-peer network, rather than being stored in a single location. A consensus algorithm is used for verifying information authenticity; proof of stake (PoS) and proof of work (PoW) are two frequently used consensus methods.
3. Permissioned Blockchain Networks
Also sometimes known as hybrid blockchains, permissioned blockchain networks are private blockchains that allow special access for authorized individuals. Organizations typically set up these types of blockchains to get the best of both worlds, and it enables better structure when assigning who can participate in the network and in what transactions.
4. Consortium Blockchains
Similar to permissioned blockchains, consortium blockchains have both public and private components, except multiple organizations will manage a single consortium blockchain network. Although these types of blockchains can initially be more complex to set up, once they are running, they can offer better security. Additionally, consortium blockchains are optimal for collaboration with multiple organizations.
