Built on a peer-to-peer (P2P) topology, blockchain is a distributed ledger technology (DLT) that enables data to be stored on thousands of servers worldwide–thus allowing anyone on the network to see the entries of everyone else in near real time. Which makes it hard for one user to gain control of the network.
Google Doc is a simple analogy for understanding blockchain technology. If we build and exchange a document with a group of people the document is circulated instead of being copied or transferred. This provides a decentralized distribution chain, which also allows access to the document to everyone. No one is locked out waiting for updates from another party, although all changes to the document are reported in real time, making it completely transparent.
How Does Blockchain Work?
Blockchain is composed of three key concepts: blocks, nodes, and miners.
Every chain is made up of several blocks, and each block has three basic elements:
• The data in the block.
• A whole number of 32-bit named a nonce. When a block is created, the nonce is generated randomly which then generates a hash of the block header.
• The hash is a sum of 256 bits wedded to the nonce.
When the first block of a chain is generated, the cryptographic hash generates a nonce. The block data is considered to be signed and bound to the nonce and hash forever, unless it is mined.
Miners use a process called mining to create new blocks on the chain. The block has its own unique nonce and hash in a blockchain, but also references the hash of the previous block in the chain, so it's not easy to mine a block, particularly on big chains.
Miners are using special software to solve the incredibly complex math problem of finding a nonce that will produce an agreed hash. Because the nonce is only 32 bits and the hash is 256, there are about four billion possible combinations of nonce-hash that need to be mined before the correct one is found. When this happens, it is said that miners find the "golden nonce," and their block is attached to the chain.
Moving to any block in the chain earlier needs reminiscent of not just the block with the transition, but all the blocks that follow. That's why blockchain technology is incredibly hard to manipulate. Thinking about it is like "health in mathematics" because seeking golden nonce requires a huge amount of time and computational power.
When a block is successfully mined, all the nodes on the network accept the change and the miner gets financially rewarded.
Decentralization is one of the most important principles of blockchain technology. No single computer or entity is able to own the chain. Rather it is a distributed ledger through the nodes that are connected to the chain. Nodes can be any form of electronic device that carries copies of the blockchain and keeps the network running.
Each node has its own copy of the blockchain, and any newly mined block must be algorithmically accepted by the network to update, trust and check the chain. Because the blockchains are transparent, it is easy to check and display any move in the ledger. A unique alphanumeric identification number is given to each individual, showing their transactions.
Combining public information with a checks-and-balances system helps the blockchain preserve transparency and increases user trust. Essentially, through technology blockchains can be seen as the scalability of trust.
Key elements of a blockchain
• Distributed ledger technology
The distributed ledger and its permanent transaction record are open to all network participants. The transactions are reported only once with this shared ledger, avoiding the duplication of effort typical of traditional business networks.
• Records are immutable
No individual may modify or exploit a transaction after it is registered in the shared ledger. If there is an error in a transaction record, a new transaction must be inserted to correct the error, and both transactions will then be available.
• Smart contracts
A set of rules – called a smart contract – is stored on the blockchain to accelerate transactions, and automatically executed. A smart contract will specify requirements for transfers of corporate bonds, provide provisions to be paid for travel insurance and much more.
Blockchain and Cryptocurrency
In the last couple of years, cryptocurrency and blockchain became hot topics. While the two are often referred to in the same phrase and are clearly linked, one should never confuse the other. Blockchain is a sort of distributed ledger technology which forms the crypto-market backbone. It is the technology behind the vast array of currently in circulation cryptocurrencies. Nevertheless, its scope and area of operation are not limited to this. Blockchain can be used in different sectors and can have a wide range of applications. It is necessary to draw a clear line between these applications and cryptocurrencies which are just one particular blockchain technology application. Against this background, regulators need not be afraid to stifle innovation when tackling cryptocurrencies subject matter.
Blockchain for every Industry
Pros and Cons of Blockchain
Blockchain technology in a possible space for the future world that incorporates both centralized and decentralized models, could be quite complementary. The blockchain, like any new technology, is a concept that initially disrupts and, over time, may encourage the creation of a broader community that incorporates both the old way and the new innovation.
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