Blockchain technology is the foundation of all cryptocurrencies. The algorithm allows consensus to be reached without third-party access. This review was created so that the Blockchain was explained.
Is Blockchain Technology the New Internet?
Blockchain-based bitcoin was published first by the developer under the nickname Satoshi Nakamoto. A blockchain transaction is distributed on the Internet, but not replicated. Initially, the concept was used to implement cryptocurrency, but then other blockchain projects appeared.
A blockchain database consists of blocks in the network. Technology users verify transactions. The process is called mining. After passing the test, all blocks are written into a single chain of Blockchain.
Miners thus earn money online. And the system cannot be hacked, because cryptography protected each public register.
- Definition of Blockchain track first appeared in 1991. To prevent documents from being falsified or framed retroactively, Stuart Haber and W. Scott Stornett suggested using blockchain distributed ledger. In 1992, the concept expanded to allow several documents to be combined into one core. But then the development of the project stopped
- Blockchain databases began to be used again only in 2004. Hal Finney proposed the Reusable world Proof Of Work system. This system can be considered the prototype and the first to implement digital currencies. Each token (coin) must be signed, and then can be sent to another owner
- The system of distribution turned out transparent. Stored blocks and chains could not be changed or duplicated. By the same principle, in 2008, Bitcoin blocks were created
Comprehension blockchain technology
The Blockchain revolution book says blockchain transactions may be represented not only for financial transactions or trading. Blockchain services can become a platform for safe utilize or stock of any types of property.
The blockchain industry is based on the use of decentralized distributed ledgers. Blockchain value is that each transaction has a timestamp, and all transactions are interconnected in a chain. Moreover, each track can be tracked by any participant in the system. It means that management is also carried out by all interested parties who have access to the addresses list.
To understand how Blockchain works, you need to imagine how information is transferred from one computer to another. At the same time, millions of other computers check this information and save a unique history of each record. If someone tries to make changes to a document, he will also have to correct millions of other records, which is not possible. The success of the solution is based on this principle.
…To solve this, we proposed a peer-to-peer network using proof-of-work to record a public history of transactions that quickly becomes computationally impractical for an attacker to change if honest nodes control a majority of CPU power.How to prevent double-spending (Bitcoin whitepaper, p.12 “Conclusion”)
Another bonus of blockchain transactions is the absence of fees. Maintaining a tech infrastructure has its own cost, but conducting a network transaction is free.
The efficiency of blockchain companies is that banking will cease to exist. Financial institutions will not be able to charge interest on transactions paid with debit and credit cards. Science allows a customer to buy a train ticket, order a taxi through the mobile application or book a hotel without resorting to the assist of intermediaries represented by banks.
The flow of records circulates between two parties to the transaction. Blockchain also allows you to spend minimal amounts without resorting to buying a subscription to the whole online magazine or TV channel. The viewer may pay separately for each article or series. With the advent of new Blockchain distributed ledger technology, banks, and the stock exchange market will be forced to change the principles of their work gradually.
How Does Blockchain Work?
Each new Blockchain can be schematically represented in the form of a table that duplicates many times. The data in the table is regularly updated, and all participants in the system have access to these updates.
The principle of the service is corresponding to Google Sheets. The document does not need to be transferred back and forth; both or several parties have access to it. All adjustments made are already synchronized and visible to all participants. There are several more reasons why crypto technology has gained popularity.
Before the blockchains of Bitcoin, the centralized system for storing money and making payments was mainly used. The client chose a service provider with a more reliable reputation and had to trust him.
This principle was used not only in cases of working with goods but also for processing any information. Besides, the client was forced to pay a certain percentage or commission for the services of an intermediary. This model is 100% implemented in banks and is called Client-Server. The simplest example of such a system is the search for information on Wikipedia. You enter a request, and the server returns a response.
The disadvantages of such a system are:
- Centralized data storage. It makes the main server easy prey for the hacker
- The system has to be temporarily blocked to update the information
- If a critical approach to the issue, then there is no guarantee that the owner of the order will be honest with you. He may appropriate or distribute any confidential information
In the case of a decentralized system, you can interact directly with another user, bypassing intermediaries. It was the main idea of Blockchain and Bitcoin. For example, if you want to send BTC to someone from your wallet, then enter the private key. The currency will be sent.
Blockchain transparency is causing many users doubts and disputes. Some participants in the system talk about full access to all transactions, others – about privacy. Both sides are right. The identity of the parties to the purchase is encrypted in a digital and alphanumeric code. Other users see only public addresses from which and to which a certain number of coins were sent.
Most commercial companies will not agree to use Blockchain for all of their financial transactions. In this case, any network user could track all the accounting statements. But the introduction of technology in logistics will eliminate the possibility of errors and losses.
Blockchain is immutable, which means that it is impossible to fake or reuse already written blocks. Such a function is achieved through the use of cryptographic hashing. Any length information at the entrance is transformed into an alphanumeric code of a certain length at the output.
In this case, the SHA-256 encryption algorithm was applied. Any amount of input information in the encrypted form will have a length of 256 bits.
If you make at least the slightest change in the input phrase, the digital code will change completely. It provides blockchain security.
Each block is associated with the previous one through a hash pointer. Thus a chain is formed. It means that with the smallest changes in one block, the whole chain will completely change.
Maintaining the Blockchain – Network and Nodes
A blockchain (such as Bitcoin) is supported by a peer-to-peer network, which consists of interconnected nodes. One node is a computer that accepts and transforms input. All nodes have equal rights, and the load is also distributed evenly.
Why do people use the peer-to-peer network?
The advantage of a peer-to-peer network is file sharing. The client-server model processes information much slower, especially in cases where there are more than two participants.
If one, or even several computers in a peer-to-peer network fails, you can continue to work using the other computers in the system. Such an algorithm of actions has become the basis of cryptocurrencies, for example, Bitcoins.
The use of networks and nodes in cryptocurrencies
The principle of creating an equal network is that each node has the same privileges when checking transactions using cryptocurrency. There is no hierarchy. The idea of decentralization allowed to abandon the administrative unit, which could affect the value of coins or inflation.
Each participant in the system can choose whether he wants to download to his computer:
- A shallow copy of the Blockchain or Light Client
- A full copy of the Blockchain (downloading may take several weeks)
- Check transactions and make money on it (to mine coins)
Who Will Use The Blockchain?
The technology eliminates intermediaries from financial transactions, allowing sellers and buyers to work directly with each other. Crypto enthusiasts implemented the project by creating different types of digital wallets. Such solutions also help to avoid checks:
- Know your customer
- Anti-money laundering
Now you do not need to provide your confidential data to the security service of banks and other financial organizations. All operations are secured.
Blockchain forms the basis for any cryptocurrency. Bitcoins, Litecoins and other alternative currencies do not depend on the stability of the bank and even state power. The processing of transactions, including international ones, is also significantly accelerated.
Distributed books allow you to code simple contracts that are executed under certain conditions. The currency that emphasizes this is Ethereum. The project is open source so that different developers can implement their ideas on this platform. Thus, it is possible to automate payments, deliveries of goods.
The financial sector will reach a new level, realizing the capabilities of the Blockchain at full capacity. Previously, people had to wait until the bank opened in the morning. And operations performed on Friday often reflected on the balance sheet only on Monday. Integration with the Blockchain will allow banks to work around the clock seven days a week. Besides, the time zone difference in international transactions will disappear.
The technology also proved to be useful when buying and selling real estate and other expensive objects. And consumers can save on insurance and paying commissions.
When creating video games, blockchain technology also gives bonuses:
- Full ownership of assets without a centralized server
- Transparency of the actions of all players
- Compatibility of all assets
- Any developer can integrate into the game
An example of the use of technology was CryptoKitties in 2017.
Suppliers and logistics companies can implement technology to reduce workflow. Also, a solution can guarantee the authenticity of products.
The introduction of crypto technologies in healthcare will allow you to permanently get rid of lost medical records, tests and other patient data. Also, confidential information will be impossible to obtain without the knowledge of the attending physician or patient.
The process of counting votes in elections can also be made 100% accurate and transparent, and also reduced staff costs to process the results.
Blockchain networks are divided into several types.
The public type does not restrict access to it any person. Each user on the Internet can make transactions or verify them. Public protocols include Bitcoin and Ethereum.
Pass to the private type is possible only at the invitation of network administrators.
The hybrid type ensures the confidentiality of data on nodes if they are not allowed. The Blockchain remains transparent, continuous, and secure. But the participants in the system decide who to invite to it and which blocks will be published.
Advantages and Disadvantages of Blockchain
The technological possibilities are almost endless, and the benefits from its use are more significant than the minuses.
- Accuracy of operations due to cryptographic verification of all incoming data
- Reduction of transaction costs due to the abolition of a third party or intermediaries
- Decentralization eliminates the possibility of hacking or theft of information
- Transactions are fast, anonymous and reliable
- The possibility of falsification of data, reuse of money, etc., is excluded
- The inevitable costs of energy (and hence finance) associated with the mining of coins (verification of transactions)
- System scaling problems (either a small number of transactions per second or a less decentralized network with the appearance of several central nodes)
- Use in illegal activities
What is blockchain technology? And What New Applications Will It Bring Us?
In addition to the advantages described above, blockchain technology is actively implemented by scientists in the form of decentralized applications. For example, the modern Internet in the future may earn according to a different scheme. Now all the data is stored in massive databases, and users’ computers and smartphones are configured only for reception.
Crypto enthusiasts want to make each device a repository of shared data that you can find on the Internet. And this data will be transferred between user gadgets. This way of storing digital information will help reduce hosting costs, bandwidth. It will also enable all Internet users (that is, almost all people) to earn money by storing and distributing data from their gadgets.
I am a crypto enthusiast. Bitcoin miner in 2013. AERGO Ambassador. I believe that blockchain technology is the future. My goal is to clarify the value of cryptocurrencies and blockchain in a free economy and security. I want to contribute to the implementation of these technologies in people’s lives through an explanation of the principles of its work.