What Is Blockchain And How It Works?
If you had paid a little bit of attention to the world of cryptocurrency, you must have heard of the term "Blockchain" which is commonly used by people while discussing the topic of cryptocurrency. So what the hell is blockchain? How does it work? Let's jump into it straight away and find answers to these questions.
To understand the concept of blockchain, let's take a case of how the transaction works in the world currently. Imagine A and her friend B are transferring money from one account to another account. In the current world scenario, A will have to first reach the bank and ask them to transfer the money to her friend B's account. On transferring the money from A's account to her friend B's account, the bank will keep an entry on the register of transactions. The entry needs to be updated on both, receiver(B) and sender(A), accounts in this case. But there is one issue with this process i.e, in this case, the transaction information can be manipulated easily and is prone to tampering. This is where the blockchain comes into the picture.
What is blockchain?
Blockchain is a distributed digital ledger, or a distributed means for recording data, that tracks every single transaction ever made. To understand in a simple manner, let's take an example of a Spreadsheet shared among the various network of computers and each computer has a copy of this spreadsheet. This spreadsheet holds information about the transactions or actions done by users. Now anyone can access this spreadsheet but no one can make changes to it. This is the basic concept of blockchain, the only difference is that instead of rows and columns in a spreadsheet, blockchain works with something called Block. A block is nothing but a collection of data. The data is added to the other block in the blockchain, by connecting it with other blocks in chronological order which results in the creation of a chain of blocks linked together. The first block in the Blockchain is known as Genesis Block.
Some important aspects of blockchain that makes it superior to traditional recording keeping systems are :
Distributed In Nature: Blockchain is a distributed ledger which means that the ledger is spread across the whole network which makes it difficult to manipulate or tamper.
Peer To Peer: There is no central authority that can control it. All peers interact with each other directly which eradicate the need for third party involvement.
Consensus: Consensus is the most important aspect of blockchain. Consensus gives blockchain the ability to update ledger via consensus. As we already stated that blockchain is not controlled by any central authority, hence any changes made to the blockchain are validated against particular criteria defined by the blockchain protocol and added to it only after a consensus is achieved among all the participating peers.
Add Only Property: Blockchain is practically immutable because data can only be added in the blockchain with chronological order which means that once data is added to the blockchain, it is almost impossible to change that data.
Security via Cryptography: Blockchain uses cryptography for the security services to make the ledger tamper-proof.
How does blockchain works?
Since we have some idea about blockchain now, let's jump into understanding how it works:
Step 1: A peer starts a transaction by first creating and then digitally signing it with its private key. A transaction can represent a number of operations in a blockchain. A transaction data normally consists of some transaction rules, the logic for transfer of value, validation information, source, and destination addresses.
Step 2: A transaction is forwarded to peers via a protocol called Gossip protocol for the process of validation which is based on preset criteria. Normally, more than one peer is required for verification.
Step 3: Once the validation is completed, the transaction is included in a block, which is then transferred onto the network. At this stage, the transaction is considered confirmed.
Step 4: The newly-created block is now a part of the ledger, and the next block links itself back to this block. Then, the transaction gets its second confirmation and the block gets its first confirmation.
Step 5: Transactions are then reconfirmed every time a new block is created. Normally, six confirmations in the network are required to consider the transaction completion.
Every single cryptocurrency out in the market is based on the working principle of blockchain but the usage of blockchain is not restricted to the idea of cryptocurrency, it can be used in a lot of different ways for example smart contract management, medical record-keeping, digital identification and many more.
We hope, after reading this post, you will have a better understanding of blockchain and will be enticed to research more about it.
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