In this digitized world, blockchain technology is one of the topics that will attract attention. 96% of financial experts believe that blockchain technology has already achieved mainstream adoption. But is blockchain related only to cryptocurrencies? Let’s find out in this beginner’s guide to blockchain technology.
What is Blockchain technology?
Blockchain is an immutable, distributed ledger used to record transactions and track assets across a network of computers, called nodes. It provides a secure method of storing information that prevents someone from changing, hacking, or misleading it. The blockchain has two main purposes for any business or process that is implemented: decentralization and disintermediation. Each node has a copy of the blockchain database, eliminating any single point of failure. All nodes validate transactions before storing them in blocks, eliminating the need for a central party. Transactions on a blockchain occur directly between nodes or network participants, eliminating the need for intermediaries.
Any business process that can benefit from decentralization can invoke blockchain utilities to their advantage to make the system faster, cheaper, more transparent, and more secure.
How does the blockchain work?
To understand how blockchain works, you need to know some of the basics of blockchain such as block work, peer-to-peer, mining, etc:
#Peer-to-peer transfers
Peer-to-peer (P2P) refers to the direct exchange of some asset (such as a digital currency) between individual parties without the involvement of a central authority or intermediary. In a peer-to-peer digital network, each user is essentially an equal owner and contributor to the network. This type of network can be used for almost any type of information or file sharing. Blockchain enables what P2P stands for: secure data transfer without intermediaries.
#Blocks
Blockchain technology stores transactional records in groups known as blocks. These blocks are connected to each other to form the ‘chain’. This type of storage is commonly known as a “digital ledger.” Every transaction in this ledger is authenticated and secured through a combination of cryptography, consensus mechanism, and digital signatures. There are restrictions on how data can be added. Once stored, it is almost impossible to change or delete it.
#Nodes
Nodes are computers connected to the network that store copies of the blockchain data and share the information with other nodes or computers. Users are not required to manage these processes on the nodes manually. Generally, they just need to download and run the blockchain software, and the rest is handled automatically.
#hash and nonce
Each block in a blockchain has its own unique identifier, a cryptographic “hash”. The hash not only protects the information within the block from anyone who does not have the required code, but also indicates the block’s position along the chain by identifying the previous block. The hash is a 256-bit number that is tied to the nonce.
A nonce is an arbitrary number used to distinguish the hash address of a block. It is a 32-bit integer. Hash codes are generated by a mathematical function that converts digital data into a string of numbers. If that information changes in any way, the hash code changes as well.
#Mining
A nonce generates the cryptographic hash when the first block in a chain is created. Once mined, the block data is considered signed and forever linked to the nonce and hash. Miners use the mining process to add new blocks to the chain. Miners use specialized software to solve the incredibly complex mathematical problem of generating an accepted hash. When a block is successfully mined, all nodes on the network accept the change and the miner is rewarded with newly mined coins.
#Cryptographic keys
Cryptographic keys are made up of a combination of two types of keys: private and public. These keys help complete successful transactions between two parties. Each participant has these two keys. They use these keys to generate a secure digital identity reference. The most important aspect of blockchain technology is your secure identity. This identity is known as a ‘digital signature’ in the world of cryptocurrencies and is used to authorize and control transactions through the use of cryptographic keys.
Blockchain technology use cases
Today we can imagine a world where contracts are embedded in digital code and stored in transparent shared databases that are protected from deletion, tampering, and review with the help of blockchain. Every deal, process, task, and payment in that world will have a digital record and signature that can be identified, validated, stored, and shared. Lawyers, brokers and bankers may no longer be required as intermediaries.
Blockchain technology has a wide range of real life use cases. From the healthcare sector to the education sector, blockchain technology has the potential to bring a revolution to our daily lives. For example, companies like Chronicled and Curisium offer blockchain-based systems through which various players in the health sector are optimizing their processes. These players include pharmaceutical companies, medical device OEMs, wholesalers, insurers, etc. Healthcare providers can authenticate their identities and track transactions for goods and services, as well as payment settlement details for those goods and services using blockchain technology.
This was just one use case for blockchain. Blockchain utilities expand beyond financial technology and healthcare. Sectors like education, supply chain, real estate, record keeping, gaming, voting, cloud storage, etc. can use blockchain utilities to their advantage. For example, Blockchain in manufacturing is expected to grow at a rate of 73% between 2022 and 2026. Currently, blockchain platforms and utilities like dApps, Defi, NFT, DAO, cryptocurrencies, etc. are writing the next chapter. Internet: Web3. Blockchain goes beyond cryptocurrencies, it is the new pillar of the digitized world.
This article was written by Saudamini Chandarana Bhat, editor of WazirX.
