What is Blockchain Technology?
A blockchain is a chain of chronological blocks. It is not a company, nor is it an app, but rather an entirely new way of documenting data on the internet. It gives internet users the ability to create value and authenticates digital information .
Technically, it is a decentralized , distributed and public digital ledger that is used to record transactions across many computers, so that any involved record cannot be altered retroactively, without the alteration of all subsequent blocks. Blockchain was invented by a person (or group of unknown people) using the name Satoshi Nakamoto in 2008 to serve as the public transaction ledger of the cryptocurrency bitcoin.
The very primitive form of the blockchain was the hash tree, also known as a Merkle tree . The blockchain is maintained by a peer-to-peer network . The network is a collection of nodes which are interconnected to one another. Nodes are individual computers which take in input and performs a function on them and gives an output. A block in a blockchain is a collection of data. The first block in the Blockchain is called Genesis Block. Blocks hold batches of valid transactions that are hashed and encoded into a Merkle tree. Each block includes the cryptographic hash of the prior block in the blockchain, linking the two. The linked blocks form a chain. This iterative process confirms the integrity of the previous block, all the way back to the original genesis block.
Three main properties of Blockchain Technology which has helped it gain widespread acclaim are as follows:
Decentralization: No central authority to control or manipulate it. Blockchain creates a shared system of record among business network members, eliminating the need to reconcile disparate ledgers. All participant talks to each other directly.
Transparency: Each member of the network must have access privileges. Information is shared only on a need-to-know basis. In doing so, their computer receives a copy of the blockchain that is updated automatically whenever a new block is added, sort of like a Facebook News Feed that live updates whenever a new status is posted.
Immutability: Consensus is required from all members and all validated transactions are permanently recorded. Even a system administrator can't delete a transaction.
How does blockchain work?
- A node starts a transaction by first creating and then digitally signing it with its private key (created via cryptography). As each transaction occurs and the parties agree to its details then it's encoded into a block of digital data and uniquely signed or identified. Each block is identified via a cryptographic hash and timestamp.
- A transaction is propagated (flooded) by using a flooding protocol, called Gossip protocol, to peers that validate the transaction based on preset criteria. The newly created block is verified by thousands, perhaps millions of computers distributed around the net. Each block is connected to the one before and after it — creating an irreversible, immutable blockchain. The verified block is added to a chain, which is stored across the net, creating not just a unique record, but a unique record with a unique history.
- The newly created block now becomes part of the ledger, and the next block links itself cryptographically back to this block. Blocks are chained together, preventing any block from being altered or a block being inserted between two existing blocks. Falsifying a single record would mean falsifying the entire chain in millions of instances. That is virtually impossible.
- Transactions are then reconfirmed every time a new block is created. Usually, six confirmations in the a network are required to consider the transaction final. The Bitcoin Network is the first successful implementation of blockchain technology.
Types of Blockchains
- Public Blockchain
- Private Blockchain
- Hybrid Blockchain
Public blockchain: allow anyone to contribute data to the ledger with all participants possessing an identical copy of the ledger.
Private Blockchain: only allow invited participants to join the network. These networks are controlled by either a single or series of designated network administrators.
Hybrid Blockchain: considered to be semi-decentralized and employ characteristics of both public and private blockchains.