To ensure safety, security, and transparency in transactions, many global organizations in many different industries have integrated Blockchain technology in their work. So what is Blockchain? How does Blockchain work? Let’s find out with GIG in the following article.
What is Blockchain?
Blockchain sounds complicated, but the core concept is quite simple. Blockchain is a type of database with a structure similar to a company’s accounting ledger, where money is closely monitored.
Blockchain technology: Blockchain is a ledger that records and re-encodes all transaction information; not only that, it is also an open and unlimited book. Data can be accessed by everyone on the same peer-to-peer network but cannot be changed. Even if part of the Blockchain system collapses, other computers and nodes will continue to protect information and keep the network running.
Features of Blockchain
Blockchain is Decentralized as well as an open ledger. Ledger is the record of the transactions done and because it is visible to everyone, therefore is called an open ledger. No individual or any organisation is incharge of the transactions.
Data stored in Blockchain is immutable and cannot be changed easily as explained above. Also the data is added to the block after it is approved by everyone in the network and thus allows secure transactions. If a transaction record has an error, it must be reverted by adding a new transaction and both transactions will be visible.
Blockchain provides a peer to peer network. This characteristic of Blockchain allows the transactions to involve only two parties, the sender and the receiver. Thus it removes the requirement of ‘third party authorisation’ because everyone in the network is themselves able to authorise the transactions.
Before one can execute a transaction, there must be agreement between all relevant parties that the transaction is valid. For example, if you’re registering the sale of a house, that house must belong to you or you won’t get agreement. This process is known as “consensus” and it helps keep inaccurate or potentially fraudulent transactions out of the database.
The types of transactions one can carry out are agreed between participants in advance and stored in the Blockchain as “smart contracts,” which helps give confidence that everyone is playing by the rules.
Unlike vulnerable websites which can be easily attacked despite security password, in a Blockchain, data is shared between multiple nodes without any central point, so it cannot be stolen.
Data is entirely secured thanks to encryption with private and public keys. Public keys are randomly generated as a long string and publicly shared. The private key, on the other hand, is used as a password to access users’ data.
How Blockchain works
In recent years, you may have noticed many businesses around the world integrating Blockchain technology. But how exactly does Blockchain technology work? Is this a significant change or a simple addition? The advancements of Blockchain are still young and have the potential to be revolutionary in the future; so, let’s begin demystifying this technology.
Blockchain is a combination of three leading technologies:
- Cryptographic keys
- A peer-to-peer network containing a shared ledger
- A means of computing, to store the transactions and records of the network
Cryptography keys consist of two keys – Private key and Public key. These keys help in performing successful transactions between two parties. Each individual has these two keys, which they use to produce a secure digital identity reference. This secured identity is the most important aspect of Blockchain technology. In the world of cryptocurrency, this identity is referred to as ‘digital signature’ and is used for authorizing and controlling transactions.
The digital signature is merged with the peer-to-peer network; a large number of individuals who act as authorities use the digital signature in order to reach a consensus on transactions, among other issues. When they authorize a deal, it is certified by a mathematical verification, which results in a successful secured transaction between the two network-connected parties. So to sum it up, Blockchain users employ cryptography keys to perform different types of digital interactions over the peer-to-peer network.
Advantages and Disadvantages of Blockchain
Advantages of Blockchain
Transactions on the blockchain network are approved by a network of thousands of computers. This removes almost all human involvement in the verification process, resulting in less human error and an accurate record of information.
Typically, consumers pay a bank to verify a transaction, a notary to sign a document, etc. Blockchain eliminates the need for third-party verification and, with it, their associated costs.
Blockchain does not store any of its information in a central location. Whenever a new block is added to the blockchain, every computer on the network updates its blockchain to reflect the change. That makes blockchain become more difficult to tamper with.
Transactions can be completed in as little as ten minutes and can be considered secure after just a few hours. This is particularly useful for cross-border trades, which usually take much longer because of time-zone issues and the fact that all parties must confirm payment processing.
Many blockchain networks operate as public databases, meaning that anyone with an internet connection can view a list of the network’s transaction history.
Although users can access details about transactions, they cannot access identifying information about the users making those transactions. That is, when a user makes public transactions, their unique code called a public key, is recorded on the blockchain, rather than their personal information.
Most blockchains are entirely open-source software. This means that anyone and everyone can view its code. This gives auditors the ability to review cryptocurrencies for security.
Disadvantages of Blockchain
Investors need to increase their responsibility to protect personal assets
One of blockchains and cryptocurrencies’ most significant advantages is also its biggest weakness. When you invest in public open-source blockchains by mining or buying cryptocurrencies and store it in your cryptocurrency wallet (your wallet is like your bank account, except only you can access it and have the passwords), only you control your money.
Even though public blockchains remain more efficient than traditional banking systems, decentralization comes at the cost of scalability. Trying to grow blockchain networks to global capacity, in turn, is the root cause of speed inefficiencies.
Blockchain technology is increasing and improving day by day and has a really bright future in the upcoming years. Subscribe to GIG Dollar to stay up to date with the latest news on blockchain, cryptocurrency, digital asset investment, etc.
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