A beginner’s guide to blockchain technology
In this digitalized world, blockchain technology is one of the topics that is guaranteed to turn heads. 96% of financial experts believe that blockchain technology has already achieved mainstream adoption. But is blockchain only related to cryptocurrency? 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 anyone from modifying, hacking or cheating it. The blockchain serves two main purposes for any business or process it is distributed to – decentralization and disintermediation. Each node has a copy of the blockchain database, which removes any single error point. All nodes validate the transactions before they are stored in blocks, eliminating the need for a central party. Transactions on a blockchain take place directly between nodes or network participants, which eliminates the need for intermediaries.
Any business process that can benefit from decentralization can invoke blockchain tools to its own advantage to make the system faster, economical, transparent and secure.
How does Blockchain work?
To understand how blockchain works, you need to know some of the basic principles of blockchain, such as blocks, peer-to-peer, mining, etc., work:
# Perto-to-node transfers
Peer-to-peer (P2P) refers to the direct exchange of some assets (such as digital currency) between individual parties without the involvement of a central government or an intermediary. In a digital peer-to-peer 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 the P2P advocate: secure data transfer without intermediaries.
#Blocks
Blockchain technology stores transaction records in groups known as blocks. These blocks are connected to each other to form the “chain”. This type of storage is often referred to as a “digital ledger”. Each transaction in this ledger is authenticated and secured via a combination of cryptography, consensus mechanism and digital signatures. There are restrictions on how data can be added. Once saved, it is almost impossible to change or delete it.
#Nodes
Nodes are networked computers that store copies of the blockchain data and share the information with other nodes or computers. Users are not required to manually manage these processes on nodes. In general, they only 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 in the block from anyone who does not have the necessary code, but it also indicates the position of the block along the chain by identifying the block that came before it. Hash is a 256-bit number associated with nonce.
A nonce is an arbitrary number used to separate 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 series of numbers. If this information changes in any way, the hash code will also change.
#Mining
A nonce generates the cryptographic hash when the first block in a chain is created. Once extracted, the data in the block is considered signed and forever linked to 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 extracted, the change of all network nodes is accepted, and the miner is rewarded with newly extracted coins.
#Cryptographic keys
Cryptographic keys consist 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 its secure identity. This identity is known as a “digital signature” in the world of cryptocurrency and is used to authorize and control transactions using cryptographic keys.
Use cases of blockchain technology
Today we can imagine a world where contracts are embedded in digital code and stored in transparent, shared databases that are protected against removal, tampering and revision using blockchain. Every agreement, 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 can no longer be required as intermediaries.
Blockchain technology has a wide range of real-life uses. From the health sector to the education sector, blockchain technology has the potential to bring revolution in our everyday lives. For example, companies such as Chronicled and Curisium offer blockchain-based systems where various players in the healthcare sector optimize their processes. These players include pharmaceutical companies, medical device OEMs, wholesalers, insurance companies, etc. Healthcare professionals can authenticate their identities and track transactions of goods and services, as well as payment settlement details for these goods and services using blockchain technology.
This was just a use case for blockchain. Blockchain’s tools extend beyond fintech and healthcare. Sectors such as education, supply chain, real estate, record keeping, games, voting, cloud storage, etc., can use blockchain tools to their advantage. For example, blockchain in production is expected to grow at a rate of 73% between 2022 and 2026. Currently, blockchain platforms and tools such as dApps, Defi, NFTs, DAOs, cryptocurrencies, etc. are writing the next chapter on the Internet – Web3. Blockchain is beyond cryptocurrencies, it is the new pillar of the digital world.
This article was written by Saudamini Chandarana Bhat, editor of WazirX.
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