Said, blockchain technology is a decentralized, distributed ledger that tracks the provenance of digital assets. The data on a blockchain can’t be changed by design, making it a real disruptor in industries like payments, cybersecurity, and healthcare. We will briefly talk about what is blockchain and how it works in the following.
What is blockchain?
Blockchain is a method of storing data that makes it difficult or impossible to alter, hack, or cheat.
Distributed Ledger Technology (DLT) is the decentralization of databases administered by various people. A blockchain is a digital log of duplicated transactions and distributed across the blockchain’s complete network of computer systems. Each block in the chain contains several transactions. Each time a new transaction happens within it, a record of that transaction is added to the ledger of each participant.
A simple analogy for explaining blockchain technology is to think of a group of people who wants to keep track of things. The group has strict regulations to ensure that everyone holds identical records about what occurs each day. Once data is collected and approved, altering it gets increasingly difficult as more documents are piled on top.
What is a block?
Every chain consists of multiple blocks, and each block has three fundamental elements:
- Some data in the block
- Hash
- The hash of the previous block
Each block contains records of some or all recent transactions, as well as a reference to the block before it, making it nearly impossible for a user to tamper with previously recorded transaction data, according to Bitcoin’s peer-to-peer verification system.
What is a chain?
There is a new blockchain, the first block is there, and we added the second and third blocks. In that case, block number 3 points to block number 2 and block number 2 points to block number 1. We call the first block the genesis block. The first block cannot point to the previous block because it’s the first one.
A successful chain must have four characteristics:
- Peer-to-peer (p2p) network
- Cryptography
- Consensus algorithm
- Punishment and reward scheme
Benefits of blockchain
- Trust
One of the most frequently mentioned advantages of it is enabling trust. Where trust is either non-existent or unproven, blockchain generates trust amongst multiple entities. As a result, these businesses are willing to engage in transactions or data sharing that they might not have done otherwise or that would have required the use of an intermediary. Early blockchain use cases demonstrated their worth by facilitating transactions between entities that did not have direct contacts but needed to share data or make payments. Bitcoin and cryptocurrencies, in general, are classic examples of how blockchain allows individuals who don’t know one other to trust one another.
- Improved security and privacy
The nature of blockchain can help businesses save money. Transaction processing becomes more efficient. It also simplifies reporting and auditing processes while reducing manual duties like data aggregation and amendment. According to experts, the ability of blockchain to streamline clearing and settlement translates directly into process cost savings.
- Speed
Blockchain can handle transactions substantially faster than traditional techniques since it eliminates intermediaries and replaces remaining human processes in transactions. In some situations, a transaction on the blockchain finishes in seconds or less. However, the speed with which a blockchain-based system can process transactions is dependent on many factors, including the size of each block of data and network traffic.
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