What is Blockchain and how it is used?
What is a blockchain?
Cryptocurrencies like Bitcoin and Ethereum are powered by a technology called the blockchain. At its most basic, a blockchain is a list of transactions that anyone can view and verify.
The Bitcoin blockchain, for example, contains a record of every time someone sent or received a bitcoin. Cryptocurrencies and the blockchain technology that powers them make it possible to transfer value online without the need for a middleman like a bank or credit card.
Let's get into detail:-
The term “blockchain” comes from two connected words that describe how it works – block & chain.
Each “block” is a piece of data, a record that needs to be processed with cryptography. This block consists of transaction data, a timestamp, and the previous block’s hash. It’s the fundamental element of every blockchain. And the “chain” is the network of computers that process these blocks. The records are not stored on one central server, but they are sent through a peer-to-peer network. Every machine that is involved in cryptographic computing of the blocks is a part of a distributed ledger that copies the transactions between blocks in real-time.
A simple analogy for understanding blockchain technology is a Google Doc. When we create a document and share it with a group of people, the document is distributed instead of copied or transferred. This creates a decentralized distribution chain that gives everyone access to the document at the same time. No one is locked out awaiting changes from another party, while all modifications to the doc are being recorded in real-time, making changes completely transparent.
How does blockchain work?
Blockchains are shared databases. Each party on a blockchain has access to the entire database and its complete history. No single party controls the data or information. Every party can verify each transaction against its copy of the blockchain, making it nearly impossible to forge records. The result is a trustworthy system without third parties that’s suitable for all transactions involving assets, goods, money, or content.
The technologies used for blockchains today go by many names — distributed ledger technolLT, permissioned ledgers, and others — but they all have their roots in key concepts developed for Bitcoin beginning in 2008. The common thread among these technologies is that they decentralize trust.
“Once there is consensus, the block is added to the chain, and the underlying transactions are recorded in the distributed ledger." “Blocks are securely linked together, forming a secure digital chain from the beginning of the ledger to the present.”
Transactions are typically secured using cryptography, meaning the nodes need to solve complex mathematical equations to process a transaction.
Types of blockchain
Each type has a slightly different use case and fits into a slightly different area of business operations. Two of the most popular types are:-
Public blockchains, which are entirely decentralized and transparent, and
Private blockchains can be centralized but still provide some advantages over other data storage systems.
There is also a third type of blockchain called a consortium blockchain, in which multiple organizations share access to one blockchain platform.
How is Blockchain used?
Blockchain technology is used for many different purposes.
Cryptocurrency
The most common use of blockchain today is as the backbone of cryptocurrencies, like Bitcoin or Ethereum. When people buy, exchange, or spend cryptocurrency, the transactions are recorded on a blockchain. The more people use cryptocurrency, the more widespread blockchain could become.
Asset Transfer
Blockchain can also be used to record and transfer the ownership of different assets. This is currently very popular with digital assets like NFTs, a representation of ownership of digital art and videos.
Supply chain Monitoring
Supply chains involve a massive number of information, especially as goods go from one part of the world to the other. With traditional data storage methods, it can be hard to trace the source of problems, like which vendor's poor-quality goods came from. Storing this information on the blockchain would make it easier to go back and monitor the supply chain.
Smart Contracts
Another blockchain innovation is self-executing contracts commonly called “smart contracts.”
These digital contracts are enacted automatically once conditions are met. For instance, a payment for a good might be released instantly once the buyer and seller have met all specified parameters for a deal.
