Table of Contents
What is Blockchain Technology?
Now, these are pretty big words to understand blockchain technology and they sound complex. So let us break them down and understand simultaneously.
What is Ledger-
A ledger is basically a collection of transactions or we can say it is a record of transactions that people have made.
Suppose Sundar paid $50 to Mukesh. or Joe paid Lily $10. Then this collection of transactions will be a ledger. It is a very simple and document kind of thing like this.
What is Immutable-
Immutable simply means Unchangeable. So here Ledger is Immutable that means the Ledger cannot be changed, ever.
Once a transaction is recorded it can never be undone. No one can ever change or alter the transactions made or amount sent or the receiver’s address.
So this is what we mean when we say that the Ledger is Immutable.
What does Distributed means-
Now Distributed means that this Ledger is not controlled by any single entity. Blockchain is Distributed Network and any given blockchain network is not controlled by a single entity but instead, is run by normal everyday people.
So after understanding these complex words we can say that-
The Blockchain is a system of recording information in such a way that makes it difficult or impossible to change, hack, or cheat the system.
Elements of Blockchain
The blockchain is a chain of blocks, so each block contains some pieces of information, we can relate that block to the ledger.
As we know that the ledger contains the record of transactions, in this case, the block contains some information, like- Transaction Data, Hash, Previous Hash, Timestamps, etc.
Now let us understand what they mean and what they actually do.
- Transaction Data – Transaction data can be any relevant information according to different use cases. Like in the case of bitcoin it can be transaction data just like sender and receiver details etc. So it may vary in different use cases.
- Hash – Hash is a unique cryptographic key. Whatever data we store in a block, there will be a hash code generated for that data for that particular block. Every hash is different from each other and is very secure. Hash is generated uniquely for every single data. Suppose you fed a piece of information – “I Love My Country”, now there, a unique hash will be generated for that block. So if you change that data from “I Love My Country” to “I Love My India”, then the hash will be changed for that block. Learn more about Hash-Hackernoon (Click here for another reference).
- Previous Hash – Now each block contains the hash of the previous block so that they can form a chain of blocks (shown in the figure below).
- Genesis Block – The first block does not contain the hash in the previous hash section as there is no block before the first block, and this block is known as the Genesis Block.
- Node – The blockchain is shared among all the users and the user is known as a Node, so we can say the user’s computer which is having the blockchain is known as a node. Or in simple words, we can say one who is holding the chain of the ledger is a node.
How Blockchain Works
Now we know some of the basic terminologies of blockchain, so let’s move to how the blockchain actually works.
Transaction in the blockchain is a combination of 4 basic pillars-
- Transaction Initialization
- Adding to Blockchain
- Transaction Initialization – When any (or some) person requests a transaction, the transaction initialization is triggered.
- Broadcasting – After that, the requested transaction is broadcasted to the network with the help of nodes.
- Validation – Now the nodes of the networks validate the transaction and user with the help of algorithms.
- Adding to Blockchain – Once the transaction is validated the new block is then added to the existing blockchain.
[Note: This is for complete beginners if you want to dive deeper into how blockchain works click here]
Now, it is considered secure because if someone wants to change the data, the hash of the block will change and the link to the next block will also be broken. Similarly, if the hash of the current block is changed then in the next block, the hash of the previous block will be also changed and this will continue further and the chain of blocks will be broken further.
Why should we use Blockchain
Let’s take an example of Facebook,
Facebook is a centralized entity and we all are depended on Facebook for our data. So the problem with the centralized entity is that your data is stored in any database and you do not have permission to access it directly so the person who has access to that, can easily change or manipulate your data.
To solve this problem we use a decentralized entity so that our data is shared among all the nodes and is hard to break.
As we know the data is secured in blocks using hashes, the blockchain is shared among all the nodes for double security.
Now every node has all the data and if someone tries to change that data, every node will be check for the authenticity of that change. Blockchain uses some Consensus Rules to make it more secure.
So in this way, if everyone has the data then no one can change that data as everyone will authenticate that change.
For new data, there will be some mathematical problems that have to be solved to add the block to the chain.
Obviously who will solve this problem will add the new block and will be rewarded for solving the problem, this process is known as Mining.
We will see it in a new article. In the next article, we will learn about other things about blockchain technology like Proof of Work and Consensus Protocols. Check out our other articles here.
Happy Reading – Happy Learning