Understanding Blockchain Technology
Blockchain technology is a decentralized, distributed ledger that stores the record of ownership of digital assets. Any data stored on blockchain is unable to be modified, making the technology a legitimate disruptor for industries like payments, cybersecurity and healthcare.
What Is Blockchain?
Blockchain is an immutable digital ledger that enables secure transactions across a peer-to-peer network. It records, stores and verifies data using decentralized techniques to eliminate the need for third parties, like banks or governments. Every transaction is recorded, then stored in a block on the blockchain. Each block is encrypted for protection and chained to the preceding block — hence, “blockchain” — establishing a code-based chronological order. This means that, without consensus of a network, data stored on a blockchain cannot be deleted or modified. These new-age databases act as a single source of truth and, among an interconnected network of computers, facilitate trustless and transparent data exchange.
Apart from moving cryptocurrencies from one wallet to the next, blockchain technology is an emerging technology with wide-ranging application potential, from preventing fraudulent banking and supply-chain bottlenecks to safeguarding medical records.
Why Is Blockchain Important?
Blockchain is a revolutionary technology because it helps reduce security risks, stamp out fraud and bring transparency in a scalable way.
Popularized by its association with cryptocurrency and NFTs, blockchain technology has since evolved to become a management solution for all types of global industries. Today you can find blockchain technology providing transparency for the food supply chain, securing healthcare data, innovating gaming and changing how we handle data and ownership on a large scale.
How Does Blockchain Work?
Blockchains are distributed data-management systems that record every single exchange between their users. These immutable digital documents use several techniques to create a trustless, intermediary-free system.
Let’s start with the blocks. Each block contains stored data, as well as its own unique alphanumeric code, called a hash. These cryptographically generated codes can be thought of as a digital fingerprint. They play a role in linking blocks together, as new blocks are generated from the previous block’s hash code, thus creating a chronological sequence, as well as tamper proofing. Any manipulation to these codes outputs an entirely different string of gibberish, making it easy for participants to spot and reject misfit blocks.
Another key feature to the inner workings of blockchain is decentralization. In lieu of a centralized entity, blockchains distribute control across a peer-to-peer network made up of interconnected computers, or nodes. These nodes are in constant communication with one another, keeping the digital ledger up-to-date. So when a transaction is taking place among two peers, all nodes take part in validating the transaction using consensus mechanisms. These built-in protocols keep all in-network nodes in agreement on a single data set. No blocks can be added to the blockchain until it is verified and has reached consensus. Luckily, this step has been sped up with the advent of smart contracts, which are self-executing programs coded into a blockchain that automate the verification process.
Once a transaction is recorded, it’s considered permanent. Blockchains are one-way operations in that there are no reversible actions. This immutability is part of creating transparency across the network and a trustworthy record of all activities on the blockchain.
Blockchain Decentralization
One of the most important concepts in blockchain technology is decentralization. No one computer or organization can own the chain. Instead, it is a distributed ledger via the nodes connected to the chain. Blockchain nodes can be any kind of electronic device that maintains copies of the chain and keeps the network functioning.
Every node has its own copy of the blockchain and the network must algorithmically approve any newly mined block for the chain to be updated, trusted and verified. Since blockchains are transparent, every action in the ledger can be easily checked and viewed, creating inherent blockchain security. Each participant is given a unique alphanumeric identification number that shows their transactions.
Combining public information with a system of checks-and-balances helps the blockchain maintain integrity and creates trust among users. Essentially, blockchains can be thought of as the scalability of trust via technology.