Bitcoin and Blockchain are two words that are being tossed about a lot these days. Many people believe that Bitcoin and Blockchain are some things when in actuality they are not. Bitcoin is a digital currency, whereas Blockchain is a technology that enables you to move digital currency from one individual to another individual. However, Blockchain is not just limited to that, you can create your application or receive funds for your startup and can do many other things. First, we need to understand what blockchain is and how does it work? [हिंदी में पढ़ें]
Blockchain FAQ: Everything you need to know
What is a Blockchain?
Blockchain is an open-source technology that stores information in a digital format in distributed database across networks of computers that is impossible to cheat or hack. Information is immutable and anyone can access the details at any time. In Blockchain technology there is no central authority so . Anyone in the network can add the data but cannot be deleted or altered further. Usually, the blockchain stores the data in terms of blocks, and those blocks are linked together like a chain and will be encrypted for security. To validate the transaction here Blockchain uses a proof of Work Mechanism.
What is Distributed Ledger Technology (DLT)?
Distributed ledger technology (DLT) is a digital system for recording the transaction of assets in which the transactions and their details are recorded in multiple places at the same time. Unlike traditional databases, distributed ledgers have no central data store or administration functionality.
What kind of Data can Blockchain store?
Blockchain technlogy is alreday been used in following areas:
- Secure sharing of medical data
- NFT marketplaces
- Music royalties tracking
- Cross-border payments
- Real-time IoT operating systems
- Personal identity security
- Anti-money laundering tracking system
- Supply chain and logistics monitoring
- Voting mechanism
- Advertising insights
- Original content creation
- Cryptocurrency exchange
- Real estate processing platform
What are the three important concepts involved in a Blockchain?
Blockchain has 3 important concepts- Blocks, Nodes and Miners.
What is a Block?
Every chain has multiple blocks. Normally a block consists of-
- Data- in the block
- Hash- 256-bit number wedded to the nonce. It must start with a huge number of zeroes.
- Nonce-32-bit whole number called a nonce. It is randomly generated when a block is created, which then generates a block header hash.
What do you mean by the concept of ‘Miners’?
Miners create new blocks on the chain through a process called mining. In a blockchain every block has its unique nonce and hash but also references the hash of the previous block in the chain, so mining a block isn’t easy, especially on large chains. Miners use special software to solve the complex math problem of finding a nonce that generates an accepted hash.
Because the nonce is only 32 bits and the hash is 256, there are roughly 4 billion possible nonce-hash combinations that must be mined before the right one is found. When that happens, miners are said to have found the “golden nonce” and their block is added to the chain. When a block is successfully mined, the change is accepted by all of the nodes on the network and the miner is rewarded financially.
What are ‘Nodes’?
Nodes can be any kind of electronic device that maintains copies of the blockchain and keeps the network functioning. Every node has its copy of the blockchain and the network must algorithmically approve any newly mined block for the chain to be updated, trusted, and verified.
Since blockchains are transparent, every action in the ledger can be easily checked and viewed. Each participant is given a unique alphanumeric identification number that shows their transactions. Combining public information with a system of checks and balances helps the blockchain maintain integrity and creates trust among users. Essentially, blockchain can be thought of as the scalability of trust via technology.
Key features of a Blockchain
- Decentralized- No central authority to monitor, instead, all your activities will be stored in a public distributed ledger.
- Enhanced Security- All the information on the Blockchain is hashed cryptographically that is the network will hide the input data through the mathematical puzzles.
- Distributed Ledgers- All information about the transaction and participants are distributed to every node in the blockchain network.
- Consensus Algorithm- This Consensus Algorithm is responsible for verifying the transaction, balance, and signature.
How does Blockchain work?
Initially, the node starts a transaction by signing it with a private key via cryptography. Once the transaction is validated it is included in blocks called the genesis block. The new block will become a part of the ledger.
Whenever the new block is added, the transaction will be reconfirmed. 6 confirmations are required in a network to consider the transaction final.