A brief guide to Blockchain

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With how fast Web3 is growing and gaining prominence, the blockchain technology that powers it has become the talk of the town. It is one of the prominent innovations of this era, offering vast opportunities in various industries.

Due to transparency, traceability, immutability and decentralization, blockchain use cases and practical applications are increasing. From startups to enterprises, banks and government, everyone is allocating resources and funds to either invest in or adopt the technology to their industry.


What is Blockchain?

Blockchain was initially introduced by a group of researchers in 1991 but went unnoticed until 2008 when an unknown person re-introduced it by the pseudonym Satoshi Nakamoto. Nakamoto proposed blockchain technology to power a new digital cryptocurrency, Bitcoin.

A blockchain is a digital ledger that stores information or data in blocks linked together using cryptography. It is a database distributed among the nodes of a computer network. The data stored within each block is immutable and, thus, cannot be edited or deleted.

If anyone tries to tamper with the data, the whole blockchain will have been tampered with, which will then be invalid. Moreover, the data copied in each node of the network is also not easy to be damaged. As such, blockchain is the safest option for anyone to safeguard a document or a piece of information.

How does blockchain work?

A blockchain is a group of blocks linked together to form a chain. Each block consists of the following components:

  • Data - It can vary based on the blockchain type

  • Hash of the block - It is similar to a unique fingerprint

  • Hash of the previous block - It links the previous block with the new block.

The first block in the blockchain is called the genesis block, which does not have the previous block's hash.

A transaction between two parties is done using smart contracts that execute the transaction when certain pre-defined conditions are met.

Once a transaction is done, a new block is created. Each new block is validated and created using a consensus mechanism, which varies from one blockchain protocol to another. Bitcoin, for example, uses a Proof-of-Work consensus mechanism, while other protocols like Avalanche or Cardano use the Proof-of-Stake mechanism.

The creation process of a block can be briefly summarized in the following steps:

  1. A new transaction is entered.

  2. A network of peer-to-peer computers scattered worldwide processes the transaction.

  3. The consensus mechanism happens to verify the authenticity of the transaction.

  4. Once confirmed that it is a legitimate transaction, a block is created.

  5. This block is then connected to the last block of the chain.

  6. The transaction is completed.

Features of Blockchain 

Blockchain possesses various features. But, the prominent features of blockchain that makes it unique are:

Immutability

The distributed ledger technology is immutable that cannot be changed or deleted. Thus, data entered into a block remains the same over time, offering great benefit for auditing purposes.

Trust

As blockchain removes any rent-seeking middlemen from financial transactions and establishes a peer-to-peer interaction, you do not need to trust a third party blindly. Moreover, the consensus mechanism ensures the validity of the transaction.

Transparency

No fraudulent activities can occur in a blockchain network as the details of each transaction are shared amongst the parties involved. Anyone having access to the network can view the details.

Auditability

With the immutable nature of blockchain comes auditability. A bank or a financial institution that uses blockchain technology can directly access the chain to verify and audit the transaction without asking the users to send transaction reports.

Conclusion

Blockchain is one of the most breakthrough technologies of this era, possessing various newly found applications in numerous industries. Its benefits are continuously helping businesses adopt efficient security measures and better manage their system. Seeing how far it is reinventing the present ecosystem of various industries, everyone is looking up to the paradigm shift to Blockchain development

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