In short words, blockchain is a decentralised, distributed ledger that records a digital asset. Owing to decentralisation and cryptographic hashing, it is transparent and cannot be altered. Blocks of information can merely be added to the existing information, thereby forming a chain. This is how this technology got the name 'blockchain'.
 
The owner's digital signature authorises every transaction made on a blockchain. It validates the transaction and secures it against corruption. This makes all the information on a blockchain very secure.
 

What is Blockchain Technology?

 
Think of blockchain as a shared Google Doc. The document does not get copied or distributed to each user when it is shared among multiple users. Instead, it creates a decentralised distribution chain that allows many parties to access it simultaneously. However, blockchain differs from a Google Doc because while everyone can see the information and add to it, no one can change or modify any existing information.
 
Through this example, you can understand three features of blockchain technology.
 
  1. Digital assets are distributed instead of getting copied or transferred
  2. The asset is decentralised and allows real-time access to all relevant information
  3. A transparent ledger containing all changes maintains the integrity of the document, making the digital asset trustworthy.
 
A common misconception today is that blockchain and Bitcoin are synonyms and can be used interchangeably. Blockchain is the primary technology that supports various applications across industries like manufacturing, supply chain etc. Meanwhile, Bitcoin is a cryptocurrency that is dependent on blockchain for its existence.
 

Advantages of Blockchain

 
Currency exchange works in a reasonably straightforward way. If you need to send money to your friends, you log in to your online banking platform. You then transfer the funds to the other person by entering their account number. When the transaction is complete, your bank updates its records to reflect the transaction.
 
There are many security threats to online banking transactions. People who are aware of this danger stay away from these transactions, leading to a decentralised ledger's formation and popularity.
 
Keeping records of transactions and data is a crucial part of the business. Small firms and organisations handle these transactions themselves, but they outsource this responsibility as they grow in scale. Bankers, brokers, and lawyers take care of these transactions, but this increases each transaction's time taken and costs. Blockchain facilitates easy movement of funds and cuts out any extra charges. This is why blockchain is popular today,
 

There are three main advantages to using blockchain.

  1. Highly secure: Blockchain uses a digital signature to conduct safe and secure transactions. This digital signature makes it impossible for anyone to corrupt, delete or modify any information block without using that specific digital signature.
  2. Decentralised system: Banks and financial institutions require regulatory authorities' approval so that transactions can be authorised and validated. On the other hand, all transactions on the blockchain are conducted with all users' mutual agreement, which results in smoother, safer and faster transactions.
  3. Automation-ready: Blockchain is programmable and can automatically generate actions, events, and payments in response to a trigger.
 

How does Blockchain work? Blocks, Nodes and Miners

 
Blockchain technology combines three leading technologies.
 
  1. Cryptographic keys
  2. A P2P network
  3. A digital ledger that stores transactions and records
 
There are two types of cryptographic keys - public keys and private keys. Both keys are used to carry out transactions successfully. Each user has both keys which they used to create a secure digital identity. This identity is known as the digital signature. It is a fundamental part of blockchain technology and authorises all your transactions.
 
Your digital signature is then merged with the existing P2P network. Any transaction you make is authenticated by a mathematical verification, which results in a successful, secure transaction.
 

The Transaction Process

Hash encryptions:

Blockchain technology relies mainly on the SHA256 algorithm to keep your data secure. Your public key (the sender's address), the receiver's address and your private key details are encrypted and shared via this algorithm. This encrypted information is called hash encryption and is added to the blockchain post verification.
 

The four headers:

Every block of information contains four headers. These are:
 
  • Previous hash: Location of the last block.
  • Transaction details: All necessary information for your transaction.
  • Nonce: A unique number allotted during encryption.
  • Hash address: The three headers above are transmitted through a hashing algorithm. The result is a 256-bit, 64-character value known as the 'hash address'. It is also known as the hash of the block.

Mining and Miners:

The process of adding transactional details to the existing public ledger is known as mining. Miners use this process to create new blocks along the chain. They use advanced software to find the 'golden nonce'. A nonce is 32 bits while the hash is 256 bits. It means about four billion nonce-hash combinations must be mined before finding the right one known as the golden nonce. Once this nonce is mined, only then is the miners' block added to the chain.
Changing to a block higher in the chain requires re-mining the changing block and all the blocks after it. This makes it extremely difficult to manipulate blockchain technology.
When a block is mined successfully, all the nodes on the P2P network accept the change and reward the miner financially.
 

The Future of Blockchain Technology

 
Blockchain is challenging the status quo of innovation by allowing organisations like Facebook to experiment with technology like P2P energy distribution and a decentralised form of news media. Blockchain was first heard of back in 2008, but its definition is still evolving. Its uses are also growing beyond cryptocurrencies as blockchain has limitless applications across industries. From securely sharing medical records to tracking intellectual property to fraud detection, the world is paying more attention to blockchain technology.
 
If you want to take up blockchain technology as a career, now is the best time to start. You can easily get certified through an online training program that will give you the necessary knowledge and skills to become a blockchain expert. Start your learning journey today with Koenig Solutions.
Armin Vans
Archer Charles has top education industry knowledge with 4 years of experience. Being a passionate blogger also does blogging on the technology niche.

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