So what exactly is Blockchain? We seem to have been hearing this term a lot during the past period but many of us don’t really know what it means.
Of course, it’s easy to simply google the term and read up on the matter. Most of the match results though, go very deep into the matter and a basic definition for the casual reader seems to be a rare commodity.
What is Blockchain?
Blockchain is a distributed decentralized Peer-to-Peer Network based ledger technology. It makes the records of any digital asset transparent and unchangeable, and it does so without involving any third-party intermediary.
Blockchain is most known for being the system that hosts cryptocurrency and the actual purpose of its creation in the first place, was hosting Bitcoin (the first ever Crypto currency).
So that was a very simply definition to give you a general idea of what Blockchain is all about.
How does it work?
So picture a couple of individuals within a Blockchain network and individual “A” wants to send money to individual “B”. This individual money exchange transaction is represented as a block within the network. This specific block which carries the data of this specific intended transaction is broadcasted (and hence made visible) to each node/host within the network. This however is only for transaction visibility purposes but not for approval.
The approval/verification of transactions is granted by specific members of the network known as “miners”. Once the transaction has been approved by a minimum number of miners, it is added to the chain of blocks of approved transactions (hence the name Blockchain) and that Blockchain is also public for all members of the network to see.
Mining is a very resource intense process and so, Miners must be in possessions of very powerful computers capable of consistently running these heavy operations. The reason mining requires massive computing power is because the mining process is basically solving complex math problems.
Miners ae in a sense competing to solve these problems and the miner who solves it first would be rewarded with an amount of Crypto currency.
The Below diagram shows a simple illustration of how the above example of a Blockchain transaction would typically work. Now picture several transactions taking place represented as blocks within the network and you get a “Blockchain” network.
Do not confuse Cryptocurrency with Blockchain
Because those two are so intertwined, it’s quite easy to confuse them for one another. So to clear this potential confusion, cryptocurrency is simply a type of digital currency, the most famous of which is Bitcoin.
Blockchain on the other hand, is the technology that allows cryptocurrency transactions to take place but it is not the currency itself.
What are the benefits of Blockchain?
- Immutability: Data within the Blockchain as mentioned earlier is unchangeable and that eliminates the possibility of any human tampering with the data meaning that the data integrity is 100% guaranteed.
- Transparency: The decentralized nature of Blockchain comes hand in hand with the absence of a centralized authority and that in turn, results in 100% transparency. For example, if you wire a bank transfer to someone, that transfer would have to go through the bank before it reaches the recipient. The bank here acts as the centralized authority (at which point transparency is absent, or limited at best). In Blockchain, the transfer would go directly (and publicly) from sender to receiver and the details of the transfer are available within the blocks of the Blockchain network.
- High availability: The decentralized nature of Blockchain means that it has no single point of failure. Should a member of the network go down, it does not impact the rest of the members of the network. For centralized networks though, if the center entity goes down (for example the system at a bank goes down), then all transaction going through that bank are impacted.
- High Security: One of the most important benefits of Blockchain, it is almost impossible to hack. This is basically because a potential hacker would need to hack every single block within the Blockchain network and for the hack to be successful, the hacker would need to solve the complex problems the miners had to solve and as we’ve already explained, it is already hard enough to solve a single problem, let alone the total number of blocks within the network.
There is so much more to be said on Blockchain and cryptocurrency and the intention of this article is not to provide you with a full understanding of the topic but rather to provide a basic intro for people who are new to the subject. The article is ideally a steppingstone for subsequently deepening one’s knowledge through other resources that are specialized on the subject for those who would like to learn more.
References:
Schematic Diagrams explaining How Blockchain Works | Download Scientific Diagram (researchgate.net)
What is Blockchain Technology, and How Does It Work? (blockchain-council.org)
