A Comprehensive Guide to Blockchain: All there is to know about the Emerging Technology
A special form of distributed ledger technology made up of growing lists of accounts, called blocks, is known as the blockchain. These blocks are securely linked together by cryptography as discussed earlier in the article on cryptocurrency.
As a cryptocurrency trader, enthusiast, or stakeholder, you must have heard of the concept of blockchain technology when talking about cryptocurrencies. This might make you wonder what this means and makes the crypto space appear more complicated.
In this article, we’ll clear your doubt about blockchain technology as related to cryptocurrency. The technology is expected to grow and become easier to use in the coming years. Having said this, we need to know what it is and how it works, its usage types, and its significance.
Do well to share your opinion and any burning question you have in the comment area.
Blockchain Technology: An Overview
A blockchain is an open virtual ledger which uses its immutability feature to store and record data and transactions on a network of computers. The term “immutable” as used above represents the fact that the record cannot be altered or erased.
There are two key points you should take note of from the short but concise explanation of blockchain above.
1. Immutable: Immutable is the ability of a blockchain ledge to remain a permanent, unalterable, and ineradicable history of transactions. It is the key benefit of blockchain which makes it appealing to many and used by its users to invite more people.
The hard-to-change or not-possible-to-change feature makes it a trustworthy platform. You can count on its information to be authentic. It doesn’t alter records or erase them.
2. Decentralized: Decentralization remains one key feature that makes cryptocurrency, blockchain, web3, and related concepts appealing to many individuals across the globe. It simply refers to the transfer of control and decision-making from a centralized entity to a distributed network.
Fiat (traditional) currencies or financial institutions are controlled and managed by a single central authority which can be an individual, group, organization, or government. However, cryptocurrencies and the blockchain network are controlled and managed by diverse entities.
It’s so difficult to attack a blockchain network since it’s decentralized. The blocks of networks that make up the chain can be attacked individually, however.
Types of Blockchain: Private Public, and Permissioned Blockchain
A private blockchain is distinguished from its counterpart public blockchain by some degree of openness. According to Investopedia, a private blockchain is not decentralized and is distributed over a secured organization database.
To make it simpler, think of it as a website owned by a firm. The executive hosted the website but it’s made available to the employees. Once they need to make transactions, authenticate, or validate any changes in the blockchain; all they need is just the passcode. Hyperledger and Ripple are examples of private blockchain
On the other hand, the public blockchain is open and allows anyone to access it. It is as simple as its name implies, it’s open to all and constitutes most of the available blockchains presently. Anyone is free to join and participate in the activities going on in the blockchain network. Bitcoin and Ethereum are examples of a public blockchains.
Permissioned blockchains are sets of public and private blockchains that can be accessed by anyone given that the administrators permit them. If it is not clear yet, think of it as a WiFi that is available to just a set of people. Except you are given the ID or password for the WiFi, you won’t be able to access it. They are also known as hybrid blockchains or consortiums.
There is also the sidechain which is like a subordinate chain running parallel to the main chain. It allows users to send digital assets between blockchains.
How does the Blockchain work?
Being intrigued by its benevolent nature, some users have tagged blockchain as the “internet of value”. A blockchain allows anyone to publish anything on the internet from the corner of their room; at the same time making it available to anyone across the globe.
By simply sharing the blockchain file, a user can dish out value to every nook and cranny where it can be accessed. Yet, there is the possibility of creating a cryptographic key which allows you alone to edit your blockchain.
The combination of your private key and others’ public key makes it possible to transfer whatever is stored on the blockchain to them. The blockchain is a mechanism that records all transactions in a block and keeps track of them.
The owner’s digital signature is required for each transaction in this digital ledger. This signature establishes the validity of the transaction and prevents it from being altered. Thus, the data in the blockchain is very well protected.
The sequence of steps the blockchain takes to operate can vary based on the consensus processes employed. For instance, Proof of Work (PoW) is used by Bitcoin to validate transactions and add them to the blockchain.
You might be wondering what on earth PoW is again, here is a simple explanation of two important concepts in blockchain technology.
Proof-of-work and Proof-of-stake
Proof of stake, also referred to as PoS, is a method for obtaining distributed consensus on the blockchain of a cryptocurrency.
Proof of Stake (PoS) requires users to demonstrate ownership of a certain amount of cryptocurrency (their “stake” in the cryptocurrency) to claim the ability to validate additional blocks in the blockchain while also claiming the reward if one is available.
Proof of Work (PoW) requires users to run hash algorithms repeatedly or solve math puzzles using algorithms to validate electronic transactions.
There are now these blocks. Peercoin pioneered the usage of Proof of Stake. For instance, the Ethereum cryptocurrency will switch from Proof of Work (PoW) to Proof of Stake once it is fully operational (PoS).
Significance of blockchain technology: Why is it needed?
Blockchain has been in use in almost every sector of the economy. The data in the blockchain is very well protected. There are several significant reasons, according to some, to embrace blockchain technology. The following are some potential benefits of using blockchain:
· Clear and safe data
· Fast business deals
· Resistance to errors
· Cost-effective
· Peer-to-peer exchange
· Open-source
· Universal Banking
Final Thoughts
Founded by Satoshi Nakamoto, blockchain is a promising technology which is currently receiving millions of users daily. While the internet has been in use before the evolution of blockchain, the latter has come to stay.
It is presently beyond the normal trading platforms and exchanges we are seeing. It has extended to virtually every area of life. We now have blockchain games, decentralized finance, blockchain in healthcare, education, and non-fungible tokens, among several others.
It is also applied in NFT marketplaces, banking, automatic ad campaigns, tracking systems, a record of properties, and supply chains in marketing, among others. Remember that the top most significant is that you don’t need a central authority like banks to move your assets.
