Blockchain is the record-keeping technology that is behind the revolutionary bitcoin network. It allows everyone to take part in a transaction to know when and what took place. For beginners, a blockchain contains a chain of blocks, which contains transaction details such as Date and Ownership.
With the blockchain, it’s very hard to tamper or backdate any information stored in it. The primary objective of the blockchain is to prevent duplication of records without using a central server.
“The blockchain does one thing: It replaces third-party trust with mathematical proof that something happened.” -Adam Draper
Blockchain is not bitcoin.
Understandably, if you are new, you might get confused; however, bitcoin is not blockchain as most beginners tend to assume. Blockchain is the technology that enables the operation of bitcoin. Bitcoin is a digital token that is powered by it.
The blockchain acts like a ledger that stores your digital token, Without blockchain, we wouldn’t have bitcoin.
The blockchain architecture.
Now that you have a basic idea about blockchain, you need to know that blockchain has a complex architecture that enables transactions to go smoothly. The essential components of the blockchain architecture include:
Blocks — The blockchain is made of blocks that are stored in a linear manner, such that the latest block is connected to the previous block, and of course the blocks contain the data.
Transactions — Transaction information includes the receiver, sender, and value. The information is similar to your transaction on your bank or credit card facility. However, the transaction takes place without a centralized authority.
Consensus — The consensus represents the technique in which a transaction is validated within the blockchain. Each blockchain has a consensus technique used during a transaction. For example, bitcoin uses Proof-of-Work (PoW), and Ethereum utilizes Proof-of-Stake (PoS), each come with their pros and cons.
Mining — An essential aspect of the blockchain network is the mining component. The mining takes place through spending computational unit or electricity work (depending on if it’s PoW or PoS) that solves complicated mathematical puzzles.
Besides these components, there are also other architectural elements of the blockchain, which include the consortium, public and private architectures.
How blockchain works.
The blockchain works in a simple way that allows transactions to take place transparently:
- An individual requests for a transaction, which might be records, contracts, cryptocurrency, or other information.
- The transaction the individual requested is broadcasted through a peer-to-peer network through the blockchain nodes.
- The network nodes validate the user’s status along with the transaction using verified algorithms.
- The transaction is completed immediately, a new block is included in the blockchain.
Why we need the blockchain?
Blockchain technology is popular for a couple of reasons:
Transparency — Since changes to the blockchain are publicly viewable to everyone involved in the transaction.
Unchangeable transactions — Transactions within the blockchain cannot be changed or removed from the network.
Fraud prevention — The concept of consensus and shared information prevents issues of embezzlement or fraud. It helps logistics-based industries to act as a monitoring mechanism to minimize costs, among other use cases.
Myths about blockchain
It is secure
It is immutable
It can solve every problem
It is high unscalable
Limitations of blockchain technology.
Low adoption
Slower transaction
Risk of error
Higher cost
Transaction cost and network speed
Smaller ledger
Summary
It’s good to have a basic knowledge about blockchain technology, especially if you want to venture into crypto, and although the blockchain industry is in its infancy stage, its main features make us think it’ll stick around for a while.
