After the advent of Internet, blockchain technology is something out-of-the-box, catching people’s attention. It was first conceptualized by a person or a group of people under the name “Satoshi Nakamoto” in the year 2008 for its very first application “Bitcoin”.
Understanding the working of blockchain in technical terms is quite a difficult task. Let us understand the concept in simple terms. But before that, we need to see why the blockchain was invented.
Also Read: What is Cryptocurrency, Blockchain & Bitcoin Mining?
Purpose of Blockchain
The world was in a dying need of a reliable and secure transaction channel after the multiple failures of digital currency. The transfers using bank take a lot of time and come with a high transaction fee. People required a transaction system which is quick, secure and does not charge high for transaction. A system which eliminates the flaws of both traditional banking system and other digital currency.
The main hurdle was the central authority concept which took time for verification and as there is only one single authority among large number of users, it takes much time for the transaction to process. Hence, we needed a network which is decentralized. Analysing all these problems, a white paper was released by Satoshi Nakamoto with the very first occurrence of blockchain technology.
How does it work?
You’ll be speculating, being decentralized, quick and secure, how does this technology work? Well, all your answers are explained herewith.
A Distributed Ledger
Let’s first understand about the decentralization concept. There is no central authority in this technology. Then how do the nodes communicate? It’s simple, they broadcast the message to the entire network. The transaction is accomplished only when all the nodes in the network give a thumbs up. It keeps the records of each and every transaction happened till date.
Requires less time
For the transaction to get accomplished, there are specialized programmers called “Miners” who solve the mathematical puzzle in order to add the transaction to the block. All the transaction occurred at the same time are added to a single block. A new block is added every 10 minutes and thus you can imagine the speed at which every transaction is carried out. This way a series of blocks is formed and hence the name “Blockchain”.
Protected from hackers
As there is no central authority, hacker cannot crash down the entire network by hacking a single computer. Here the data is distributed over all the nodes connected to the network. Hence, even if a single node shuts down, it does not have any effect on the network.
For example…
If John wants to transfer 50 BTC to Joanna, then he’ll broadcast the message to all the nodes in the network. Here each node will have a pair of private key and public key. The private key is used to encrypt the message by sender and the public key is used to decrypt the message by receiver. The private key is confidential and only known to the sender. Whereas the public key is shared with the receiver. After successful verification and computation, when the transaction is added to the block, all the nodes will updated their respective ledger by deducting 50 BTC from John’s balance and increasing the same in Joanna’s balance.
The blockchain uses Secure Hash Algorithm (SHA) for computation.
Also Read: What is the Present and Future of Blockchain Technology?
Final Words
To conclude, blockchain technology holds the potential to keep this new invention alive. Its current major application is bitcoin and other cryptocurrency, but many governments, banks and financial institutions have shown interest in implementing blockchain technology for other purposes as well.
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