What is Blockchain?

Blockchain technology might not be a household name just yet, but it's one of the hottest topics around at the moment. It has been described as the "next big thing" by pretty much everyone in tech, and for a good reason: it is having a significant impact on everything from banking to government, with the potential to change how we live our lives.

Nowadays, people are actively studying and understanding Blockchain, how it works, its purpose, and its utility. So let's dig deeper into the future!

Overview

In the past, transactions were recorded in the ledger, and only relevant people had access. In blockchain technology, the ledger can be accessed by a group of people who all are part of the ledger and whose transactions have been recorded in the ledger, thus maintaining transparency.

These groups of people with access to a particular ledger are called networks. The network commonly shares the blockchain ledger, with no one having a master copy of it.

A simplified overview of the blockchain ecosystem would be that a blockchain ledger is shared among the nodes forming a network. In addition, there is a consensus protocol to decide who can enter the network.

What Exactly is Blockchain

Here is how we can define Blockchain:

Blockchain technology is essentially a public ledger system that records transactions between two parties efficiently without requiring intermediaries.

Blockchain eliminates single points of failure through its decentralized nature and provides immutable data storage. In layman's terms, any transaction, account, or payment can be tracked on the blockchain network.

History of Blockchain

Blockchain technology was first outlined in 1991 by Stuart Haber and W. Scott Stornetta, two mathematicians who wanted to implement a system where document timestamps could not be tampered with.

In the late 1990s, Cypherpunk Nick Szabo proposed using a blockchain to secure a digital payments system known as bit gold. However, it was never implemented. The concept was reintroduced by Satoshi Nakamoto in 2008 when he published his white paper Bitcoin: A Peer-to-Peer Electronic Cash System.

Components of Blockchain

Before understanding how blockchain technology works, let's know about its components.

Distributed Ledger Technology (DLT)

Distributed Ledger Technology describes the shared ledger that allows anybody in the network to view and record transactions. Since everyone uses the same ledger, transactions only need to be recorded once, saving time and effort.

Immutable Records

It means that entries, transactions, and records cannot be altered. If there is a fault in any transaction, the correct transaction can be included, and both transactions will be visible to the network.

Smart Contracts

Smart contracts make transactions efficient and effective. These digital contracts contain "If/then/when..." statements written as codes, and when a specified condition is met, the required action occurs.

For instance, if a ticket needs to be issued, the smart contract would verify that the relevant terms and conditions have been fulfilled. Once the system is confident that the requirements have been completed, the ticket will be issued, and the transaction will occur.

How does Blockchain Work?

As the name Blockchain suggests, it can be inferred that there are two components - block and chain.

Each transaction that happens is recorded as a block. Each block is securely connected to the next to prevent any changes to the chain, such as inserting a new block. A block also shows when the data was recorded and stored, which is critical to know in case of any transaction.

These transactions or blocks form an irreversible chronological chain, making the blockchain ledger immutable, thus making it impossible to manipulate the data.

The Purpose of Blockchain

Blockchain Technology, also called Distributed Ledger Technology (DLT), indicates that the primary purpose of introducing blockchains is to create transparency.

Blockchain technology aims to create a distributed ledger that records transactions across multiple nodes. Blockchains are decentralized networks that eliminate the need for intermediaries in data transfer. Consensus is what keeps a blockchain network running. Cryptography achieves consensus, ensuring secure record-keeping and the immutability of information stored in each block. Immutability assures that no one can change the data under any circumstances. Therefore, if an error occurs, the most effective way to correct it is to enter the transaction. Then both transactions will be visible on the network.

The primary purposes of Blockchain are summarized with the help of two words - Transparency and Security.

Types of Blockchain Networks

We learned from the previous section that the ledger is distributed among a network, so let's examine the different types of blockchain networks:

Public Blockchain Networks

As the name implies, anyone can join public networks. The most visible example of this network is Bitcoin. This network has an incentive mechanism to encourage new participants to join.

One major downside of this network is that it requires significant computational power to maintain the ledger across the web.

Private Blockchain Networks

Private blockchains operate on closed networks and work well for privately owned businesses and organizations. Only one authority manages a private blockchain network. Companies can use private blockchains to customize their accessibility and authorization preferences, network parameters, and other important security options.

Permissioned Blockchain Network

This works as a kind of filter and decides who can enter a network and for which transactions. The people are allowed to enter the network for certain transactions only. An invitation or permission is required to join the network. Both public and private networks can be permissioned.

Consortium Blockchains

A consortium blockchain is used when multiple organizations maintain the blockchain. Different organizations access different parts of the blockchain. They share the responsibility to maintain the blockchain.

The main organizations of the network decide who can record or access the data.

Blockchain and Cryptocurrencies

Since cryptocurrencies run on blockchain technology, Blockchain and Cryptocurrency are closely related. Through this digital ledger - Blockchain - all transaction databases are maintained, thus providing data ownership to the user.

As a result, the terms cryptocurrency and Blockchain are often used interchangeably. This is because, even though blockchain technology was introduced many years ago, it was brought into the spotlight with the introduction of blockchain. It is evident from the name that cryptocurrency is a currency related to the finance industry, while Blockchain offers solutions to blockchain industries.

Cryptocurrencies run on blockchain technology, so avoid using the terms interchangeably.

What is a Blockchain wallet?

A blockchain wallet is a digital wallet that can manage the balance of crypto-assets such as bitcoin, ether, etc. It allows transfers of cryptocurrencies blockchains and converts cryptocurrency into local currency. The blockchain wallet charges a dynamic transaction fee based on factors such as transaction size.

Once created, the wallet is linked to the user's contact details and may only be accessed using a unique password. The user must enter their username and password to access the money in the wallet.

There are many different types of wallets out there, and they each offer different levels of security. The most secure wallets offer security and anonymity features, allowing users to access their money securely and anonymously. However, not all wallets are safe. Many people have had their identities stolen after using unreliable wallets. When buying cryptocurrency, make sure you know what you are buying before accessing your funds.

Is Blockchain safe? Can Blockchain be hacked?

Despite Blockchain's immutable and distributed ledger system, hacking and fraud can still occur. Hackers use four main ways to attack the blockchain system:

Phishing Attacks

This type of attack defines a situation when fraudsters ask for a user's credentials through an email designed to look as if coming from a legitimate source. Once the user provides the credentials, he can suffer huge lossesBlockchainattacks

HacBlockchainis difficult as it iBlockchain'sd. Therefore, the same procedure has to be applied to every computer. However, extracting data while passed to the Internet Service Provider is easy and looks normal, so it doesn't get caught easily. So, hackers hack the data when it's moving to the ISP.

Sybil attacks

To attack, hackers create multiple fake network identities to flood and crash the system.

51% attacks

Mining requires a high amount of computing power. However, if the hacker or group of hackers manages to achieve more than 50% of the network's mining power, the hacker can manipulate the ledger. Private blockchains are not at risk of 51% attacks.

Although there have been attacks in the past, and they can still happen, there is no need to worry as there are enterprise blockchain solutions to safeguard your business from these attacks.

Wrapping Up

Blockchain is a digital ledger that is shared among a network and is inflexible, meaning changes cannot be made by anyone, not even the network administrator.