What is blockchain, how it works, and Why it matters?

Blockchain, in essence, is transformative in nature. It is a revolutionary way of handling data and transactions that are stored and managed. The importance of blockchain technology in business is so prominent because of its foundation, which is built on trust, immutability, and transparency.

With blockchain, the user records every transaction with details to track everything easily. Additionally, there are tons of other benefits of blockchain. Therefore, to further explore the topic, we have written this article on what blockchain technology is and how does it work. Therefore, let’s start with it.

What is Blockchain and How does it Work?

Blockchain technology is a decentralized and distributed digital ledger technology. It can record multiple transactions across computers, maintaining the integrity and security of the data.

The importance of blockchain technology in business is at par, and it was initially used to underpin cryptocurrencies like Bitcoin. However, its use cases have spread across a wide range of industries.

To understand what is blockchain and how does it work, first, we need to understand the different components associated with it. Secondly, review the process to grasp it fully.

Therefore, let’s start by understanding the different attributes of the process before understanding how blockchain works:

• Decentralization: Unlike traditional databases, where a single entity controls access, we have multiple nodes in the blockchain to validate and record transactions. This makes the blockchain database much more robust and less vulnerable to a single-point failure
• Transactions: Transactions are one of the most basic units of a blockchain. These transactions represent a wide range of data and not just financial ones. In every transaction, you get the information related to the sender, receiver, amount, and a digital signature attached to it for security purposes.
• Blocks: These are groups of transactions bundled together and given a unique identifier called a hash. The data within a block matter is also hashed
• Consensus Mechanism: To add a new block, the network needs to agree on the block’s validity. For this, the consensus mechanisms used are Proof of Work (PoW) and Proof of Stake (PoS)
• Chain: In a blockchain chain, each new block contains the previous block’s hash, which creates the chain. These chains are set in chronological order and are immutable on the network. Once a block is added to the chain, it is extremely difficult to alter the data in previous blocks.
• Security: The security of a blockchain is based on cryptography, where the transactions are secured using public and private keys. The immutability of the blockchain can only be achieved through function and consensus mechanisms, thereby making it resistant to fraud and tampering.
• Distribution and Transparency: It is distributed across multiple nodes. Therefore, it becomes transparent and accessible with all the necessary permissions

Now, let’s check the process of forming a blockchain:

Note: Want to learn how to build a blockchain app? Here’s an article to sort you out!

Step 1:

In this step, the transactions are grouped into blocks. Each of these blocks contains a timestamp containing a cryptographic hash of the previous block and the list of transactions that have happened.

Step 2:

At this step, the blocks are verified via a network participant. Therefore, whenever a new block is proposed, the participants available in the network validate it. It is important to note that this process varies depending on the type of blockchain.

Step 3:

After this, blocks are added to the blockchain once it is verified. This creates a chain of blocks where each block contains a previous block hash, making it difficult to tamper with. Additionally, it is important to note that any change on a block requires subsequent changes to the block itself.

Types of Blockchain

The different types of blockchain give options to its users, thereby elevating the importance of blockchain technology. There are primarily three types of blockchain that are available to use. Let’s check them out one by one:

1. Public Blockchain

These blockchains are open and don’t require permission. This means anyone can join the network, participate in it, and view the entire blockchain. They rely on consensus mechanisms such as Proof of Work (PoW) or Proof of Stake (PoS) to validate transactions. Some examples of public blockchain are Bitcoin and Ethereum.

2. Private Blockchain

In a private blockchain, access is restricted to a specific group of participants or organizations. Businesses often use these, and unlike public blockchains, they are even centralized with a designated authority or group of entities with control over the network. Some examples are Hyperledger Fabric and R3 Corda.

3. Consortium Blockchain

It is a semi-decentralized blockchain technology involving multiple organizations and entities working together to validate transactions and maintain the blockchain. The control access is by a consortium of organizations controlling both public and private blockchains. Examples of this type of blockchain are Quorum, Ethermint, Multichain, etc.

4. Use of Blockchain

The use of blockchain technology is multifaceted. To better understand, here we have mentioned some of the most common uses. Let’s check them out:

• For cryptocurrencies such as Bitcoin, Ethereum, etc.
• For creating smart contracts to automate a variety of tasks such as transferring assets, executing agreements, and voting
• In supply chain management to track the movement of goods throughout the supply chain
• In healthcare for storing and sharing medical records
• Creating a secure and transparent voting system

Some real-life examples of how blockchain is being used today are:

• Walmart uses it for tracking the movement of food
• Maersk is using it to streamline the shipping industry
• By IBM for creating a new type of digital identification system
• By Estonian government to store and share medical records

Business Benefits of Blockchain

Several business benefits of using blockchain increase the efficiency of a business. Therefore, let’s start:

• It provides enhanced security of data with integrity, reducing the risk of fraud & tampering, and cryptography
• It creates a transparent and unchangeable ledger for all types of transactions and makes it easy to trade the history of assets
• It helps in maintaining a transparent and unchangeable ledger of the transactions, thereby making it easy to trace the history of those transactions
• It helps in automation through smart contracts and eliminates intermediaries, reduces transaction cost, and speeds up processing while standardizing it at the same time
• It enables cross-border transactions, facilitating international trade, currency conversions, and transfer delays
• It helps in validating data and transactions through a consensus mechanism and is trustworthy because of its tamper-resistant nature

Aside from the benefits mentioned above, several others make blockchain a worthwhile investment. It caters to multiple use cases and provides scalable, compliant with regulations, and interoperable solutions.

Future Trends of Blockchain Technology

There are numerous future trends of blockchain technology that we can see aside from its nascent widespread popularity in catering to different industries. To further talk about it, some of the future trends we’ll see getting implemented are blockchain interoperability, NFT boom, stable coins, decentralized finance, sustainable blockchains, etc. These are most likely to capture the market and slowly become mainstream, at least for the tech-savvy audience. It will also open up various opportunities for the audience to provide their services innovatively.

Wrapping Up!

Blockchain has been revolutionary. Therefore, understanding what is blockchain and how does it work is pivotal for anyone who wants to create a reasonable solution. Additionally, several benefits make this technology fit for multiple use cases. With applications all over the place, we can unlock innovative opportunities. A blockchain is a technology that will continue to evolve and mature as time passes. It is already prominent and will continue to grow and develop in various sectors and industries.

FAQs:

Q 1. Why blockchain matters?

Ans. To answer the question “Why blockchain matters?”, there are several attributes of blockchain that makes it a technology to bank on such as:

• Transparency
• Elimination of intermediaries
• Higher efficiency of operations
• Globalization of services
• Verification of digital identities
• Multifaceted application for different industries

Q 2. Can you list some blockchain development companies?

Ans. Some of the top blockchain development companies are Appinventiv, Codezeroes, InvoBlox, etc. In order to check out the entire list of the top blockchain app development companies, click on the link provided.

Q 3. What are the different blockchain development services provided by development companies?

Ans. There are several blockchain development services provided by a development company. Let’s check them out:

• Blockchain consulting
• Smart contract development
• Custom blockchain development
• Cryptocurrency development
• DApp development
• Blockchain integration
• Tokenization services
• Blockchain education and training

Q 4. Can you list some prominent blockchain technology companies?

Ans. Some of the most prominent blockchain technology companies are:

• IBM
• Ripple
• Ethereum
• Binance
• Chainlink

Q 5. What is blockchain development?

Ans. Blockchain development refers to the process of designing, developing, and deploying a blockchain based software or application

Q 6. What is blockchain and why is it important?

Ans. Blockchain is a distributed ledger technology that records and verifies transactions. It is important because it provides a trustworthy and transparent way of conducting transactions without any intermediaries.

Q 7. What is the estimated blockchain app development cost?

Ans. There is no fixed blockchain app development cost that starts from a couple tens of thousands of dollars and can go up to several hundred thousands.

Q 8. Why do we need blockchain technology?

Ans. We need blockchain technology for security, transparency, decentralization, trust and accountability, efficiency, identity verification, etc.

Q 9. Why is blockchain important for cryptocurrency?

Ans. Blockchain is important for cryptocurrency because of the following reasons such as security, immutability, decentralization, transparency, etc.

Q 10. How to use blockchain technology?

Ans. There are several steps that are associated with using the blockchain technology such as:

• Identifying the use case
• Select the right blockchain platform
• Developing and deploying smart contracts for the transaction
• Setting up nodes and infrastructure
• Integration with the existing systems
• Designing the user interface
• Taking security measures
• Testing and quality assurance
• Handling regulatory compliance
• Monitoring and launching the application
• Educating the users
• Scaling and future enhancements
• Partnerships and building of ecosystem

Q 11. Why is blockchain popular?

Ans. Blockchain is popular because of its capability to provide better security, transparency, decentralization, trust and immutability, elimination of intermediaries, efficiency, globalization, etc.

Q 12. Can you explain the structure and design of blockchain?

Ans. In order to understand the structure and design of blockchain, there are certain elements that you need to learn about such as:

• Blocks
• Transactions
• Block header
• Block hash
• Blockchain network
• Consensus mechanism
• Smart contracts
• Node types
• Public and private keys
• Decentralization
• Cryptography
• Datastructure

Q 13. What are the business benefits of blockchain?

Ans. Some of the business benefits of blockchain are better security, transparency and accountability, decentralization, elimination of intermediaries, efficiency, globalization, supply chain management, etc.