Blockchain might not be a new word for you if you’re in the cryptocurrency world; you have heard the term at some point. We found out that many newbies who get into crypto get confused about what blockchain is; a lot get it mixed up with Blockchain.com, a financial service that deals with buying, storing, and trading Bitcoin. If you’re not sure what blockchain is, there’s no problem. That’s the purpose of this course – to help you understand many things in the cryptocurrency world.
As mentioned, the blockchain we’re talking about in this course is the system that deals with recording information in a way that makes it difficult or impossible for others to get access so as not to change, hack, or cheat the system.
Blockchain is a digital log of customers’ transactions that are duplicated and spread across a network; each block on the chain contains several transactions, and each time a new transaction is made, it reflects on the blockchain.
We could say blockchain is a distributed ledger technology in which transactions are recorded with an unchangeable cryptographic signature called a “Hash”. Bitcoin and Ethereum are constantly growing as many people own the coins, considerably improving their security.
Google Docs is an often-used analogy to explain what a blockchain is. When we create a new document and share it with people, the document is distributed and not copied or transferred. That creates a distribution chain that gives everyone access to the document at the same time, no one is waiting for changes from another party, and therefore all modifications done to the document are recorded in real-time. It also notifies you when someone changes a particular thing in the document, making everything transparent.
Of course, blockchain is more complicated than google docs, but this was just an illustration to help you understand how it works.
Blockchain, as we mentioned, is a database in which the data is encrypted and chained together to produce a single chronological source of truth.
Digital assets are distributed and not copied, creating a permanent record that cannot be changed without notifying those who have access to it, allowing real-time transparency.
Blockchain has been very promising and revolutionary because it helps reduce risk and fraud and brings transparency for myriad uses.
How Does Blockchain Work?
The whole objective of blockchain is to allow people who don’t trust each other to share valuable data securely, tamper-proof way. Blockchain consists of three important key concepts:
- The Blocks.
- The Nodes.
- The Miners.
1. The Blocks
This is made of several blocks, each comprising three basic elements.
- The Data in the Block.
- A nonce, which is a 32-bit number. A nonce is generated randomly when a block is created, generating a block header called a hash.
- Hash is known as the 256-bit number that is about nonce, and it has to begin with a large number of zeros.
A nonce helps generate the cryptographic hash when the first block of the chain is created. If it’s mined, then the data in the block is regarded as signed and irrecoverably linked to Nonce and Hash.
2. The Miners
The process of mining is being used here to create a new block in the chain. In a blockchain, every block has its nonce and hash. However, the hash of the previous block in the chain is also referenced.
Miners use special computer hardware and software to solve complex maths problems. It involves generating an acceptable hash using a nonce. There are always like four billion nonce-hash combinations to mine before finding the proper one; this is because the nonce is only 32 bits long and the hash is 256 bits long; when this happens, miners are considered to have found the “Golden Nonce”, and their block is added to the chain.
When a block is successfully mined, all the nodes in the network accept it, and the miner is rewarded financially.
3. The Nodes
Decentralization happens to be one of the most important concepts in blockchain technology. A single computer user or entity cannot own the chain; instead, the nodes connecting to the chain form a distributed ledger.
Nodes are any electrical equipment that saves copies of the blockchain and keeps the network running.
Every node has its copy of the blockchain, and for the chain to be updated, trusted, and confirmed, the network must approve any newly mined blocks algorithmically. Every action in the ledger can quickly be reviewed since blockchains are very transparent. Each participant is assigned a unique alphanumeric identification number, which is used to track their transactions.
Combining public information with a system of checks and balances helps the blockchain maintain a transparent standard and creates trust among its users.
In a nutshell, blockchains are the scalability of trust through technology.