Ever since cryptocurrencies came to public consciousness, almost everyone has heard of the term Blockchain Technology. It has been touted as the next big thing with some going to the extent of claiming that it’s the best invention since the internet. However, despite the hype, very few understand what it’s all about. Below we are going to explore it and shed some light on how blockchain technology works and what’s it all about.
Table of Contents
- What Is Blockchain Technology?
- Components That Makeup Blockchain Technology
- Features Of The Blockchain Technology
- Other Sectors Where The Blockchain Technology Can Be Used
What Is Blockchain Technology?
It’s a digital diary that is almost impossible to forge. The technology is revolutionary in that it makes it possible to distribute digital information in a way that it can’t be copied. The blockchain is made up of blocks that are linked together using cryptography. Each block is made up of transaction data, a time stamp and a cryptographic hash of the block that came before it.
So, simply put, Blockchain Technology is an openly distributed ledger that is used to record transactions between two different parties. The records are done efficiently and permanently.
Components That Makeup Blockchain Technology
It’s important to understand that the Blockchain Technology is made up of three technologies. None of the technologies is new however it’s the way in which they were combined and applied that brought about the distributed ledger technology.
These three technologies include:
- Private key cryptography
- There is a distributed network that uses a shared ledger
- An incentive to account for the network transactions and keep records that are related to the system.
Cryptographic keys help two individuals who want to transact online. Both hold a set of keys, one private and the other public. Cryptography makes it possible to combine these two keys and generate a secure digital identity as a reference point.
A secure identity is the first significant component of the distributed ledger technology. The two keys help generate a digital signature that serves as a useful tool used to certify and control ownership.
The generated digital signature from the cryptographic key element combines with a distributed network component. The Blockchain Technology operates as a vast network of individual nodes that play the role of validators. One of their functions is to reach consensus on various things such as transactions.
The validation process is approved by applying mathematical verification which makes the network secure. So by combining the distributed network with cryptographic keys, the blockchain makes it possible for many different types of digital interactions.
Confirming and validating transactions is one of the most critical aspects of Blockchain Technology. Using the example of two individuals who wish to transact online and each is equipped with a private and public key, the tech allows individual A to use his/her private key to attach details about the transaction to the public key of individual B.
This information combines to form part of a block. The block also holds a digital signature, a time stamp and any other relevant information about the transaction.
This block is then broadcasted across the entire blockchain network to all the other nodes which proceed to validate the transaction.
The whole process of sending information across the network and validating blocks requires substantial amounts of computing power. To ensure that individuals are willing to dedicate their computers to engage in this endeavor, a reward system is used as an incentive.
Through being offered a reward, which is usually in the form of cryptocurrency, individuals are motivated to dedicate a portion of their computing power to help with validation and verification of blocks.
Blockchain transaction overview
Features Of The Blockchain Technology
Durable And Robust
One unique feature of the Blockchain Technology is its built-in robustness that resembles that of the internet. Blocks of information that are identical are stored across the network in a way that any single entity can’t control them. Also, in a way that there is no single point of failure.
One famous product of Blockchain Technology is Bitcoin. Ever since its invention in 2008 the network has run without any significant disruption. The only problems that have been experienced by the Bitcoin blockchain have come from mismanagement or due to hacking. Demonstrating human error or bad intentions have been the cause of the problems and not the shortcomings of the underlying concept.
Being likened to the internet is also good for the blockchain since for almost 30 years the internet has proved to be durable.
Transparency And Incorruptible
The Blockchain network is designed to live in a state of consensus. It automatically checks with itself after a given period. Which provides a self-auditing ecosystem that reconciles every transaction that occurs within a set period. By doing this, data is transparently embedded within the whole network and its public.
Also, the data cannot be corrupted. To alter any piece of information on the network will require one to use a massive amount of computing power so that they can override the entire network which in most cases is almost impossible.
A Network Of Nodes
Blockchain Technology consists of a network of nodes. A node is a computer that is connected to the entire network using a client. Its sole purpose is to validate and verify transactions.
In the case of Bitcoin, each node competes with other nodes to solve computational puzzles (Validate and verify transactions), and in turn, it’s rewarded with Bitcoins.
The Bitcoin network was the first application of the three technologies we looked at above that led to the birth of the Blockchain Technology. Since its birth over ten years ago, many other potential uses of the technology have been realized.
Other Sectors Where The Blockchain Technology Can Be Used
Distributed ledgers have made it possible to code simple contracts that execute after specified conditions have been met. Already platforms like Ethereum and NEO are using smart contracts to leverage the power of the blockchain.
This works using smart contracts. Thanks to the blockchain it’s possible to submit an insurance claim online and receive an automatic instant payout. So far, AXA, a French insurance company is an excellent example of a company that is offering its services using the distributed ledger technology.
Internet of Things (IoT)
IoT is made up of various physical devices and objects that are linked together using software, sensors, actuators, and network connectivity. These features help these objects and devices to collect and exchange data which is ideal for smart contracts and the blockchain.
Smart contracts can be used to improve election polls significantly. So far, some apps exist that try to offer this solution. They include the likes of Follow My Vote, Blockchain Voting Machine and TIVI. These apps promise to eliminate fraud while at the same time providing transparency and ensuring the votes stay anonymous.
Supply Chain Auditing
There is a growing need from consumers to know if the ethical claims made by companies about their products are accurate. The blockchain makes it easy to verify that the back stories of the products we buy are true. The blockchain adds an element of transparency through the use of time stamping of dates and locations. One company that is offering such services for a range of goods is UK based Provenance.
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