There are no simple definitions available over the web that can exactly explain what is blockchain technology. However, here’s an attempt to make you as well as the uninitiated to understand Blockchain. It is a technology that allows data to be stored and exchanged on a peer-to-peer (P2P) basis. It is used in a decentralized manner, which removes the need for intermediaries or third parties to validate transactions.
Blockchain emerged from the merger of two concepts;
Asymmetrical cryptography uses public and private keys to encrypt and decrypt data. The system is based on a public key that can be made available to all and allows encrypted data to be sent to a third party.
The third-party accesses the encrypted data via a paired private key. The public key is similar to a bank account number, which can be provided to anyone. The private key, which remains secret, acts as the password to the same bank account.
A distributed system is a series of independent computers (nodes) that connect to a network and can communicate with each other. It is similar to the Internet, which has no central node. Downtime for one server does not affect other users.
The blockchain network is a P2P distributed system. Information is shared among different users in a shared manner. The blockchain is open-ended and operates in a decentralized, ongoing manner, thanks to consensus algorithms (notably “proof-of-work” and “proof-of-stake”) which certify the information per block (unit). Users running these algorithms are known as miners. When a block gets validated, it is added to the blockchain and shared with the network. Blocks are connected to each other in such a way that if users wish to change one block, the entire blockchain must also be changed and that’s how blockchain becomes secure.
These two pillars (asymmetrical cryptography and distributed IT architecture) make it possible to create a secure environment. They establish a new basis for trust and enable new ways of data exchange, new types of transactions, and new forms of contracts.
The above figure is a representation of how the blockchain technology works during the completion of any transaction.
To understand it clearly, let’s take an example
Step 1. “A” wants to send money to “B”
Step 2. The transaction is represented as a block
Step 3. The block is broadcast to every node in the network
Step 4. Sufficient miners approve the transaction
Step 5. The transaction is added to Blockchain
Step 6. “B” receives the money
That is the basis of any transaction execution via a blockchain platform.
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