How Does The Blockchain Work? - Sourajit Saha

Tuesday, 5 December 2017

How Does The Blockchain Work?

The blockchain is one term a lot of us in the cryptocurrency world are familiar with. But the thing is, most people don't know what it is or how it works. What you'll see on most cryptocurrency websites about the blockchain is that it's some kind of ledger. Although this statement is true, there's more to the blockchain technology than just being a ledger. In this article, we are going to let you know everything you need to know about the blockchain technology and how it works. So fasten your seat belt as this is going to be an informative blockchain ride.

WHAT IS THE BLOCKCHAIN TECHNOLOGY?

As noted earlier, the blockchain is a ledger but not just any ledger. It is a decentralized, digital, and public ledger where you can view every cryptocurrency transaction. And since every new transaction is recorded and added to the blockchain in a chronological order, every market participant have the ability to know about the transactions happening on the digital market without the need for central recordkeeping.
How Does The Blockchain Work?

The blockchain technology was originally designed and developed to be the accounting method for BTC (bitcoin), but now, it is being used by a whole lot of other cryptocurrencies. The blockchain uses a technology known as Distributed Ledger Technology (DLT), which is why a lot of other commercial applications are able to use it for their own benefit too.

Although the blockchain technology (DLT) is currently being used to verify cryptocurrency transactions, it can also be used to insert and code any document into the blockchain. This means that the blockchain can be used to keep permanent documents that can neither be altered nor deleted. Also, it provides the whole community with the ability to verify the authenticity of the document instead of getting the authenticity through a single, centralized authority.

BLOCKCHAIN BREAKDOWN

The buildup of the blockchain starts with a single block. A block is the current part of a blockchain and it records all or some of the transactions that recently happened on the market. Now, once the block completes the recording of these transactions, it goes into the blockchain, staying there as a permanent database. For every new block that goes into the blockchain, a new one is created.

There are now loads of blocks in the blockchain and they are all connected to each other in a chronological, linear order. Every newly generated block contains a hash (or a part) of the previous one. This provides the blockchain with the ability to have the information, addresses, and transactions created by each and every user, right from the starting block to the one that's most recently completed.

With the way the blockchain was designed, none of these transactions can be deleted. Every single block is added through cryptography, thereby ensuring that no one has the ability to mess with them. The only thing that can be done with the data on these blocks is distribution, that is, the data can only be distributed but cannot be deleted or copied. However, since the blockchain is an ever-growing system, there has been speculations that it might cause problems regarding the synchronization and storing of data.

THE BLOCKCHAIN AND BITCOIN

The blockchain is basically the main technology behind the innovation of bitcoin. As we all know, bitcoin (or BTC) is a cryptocurrency that has no central authority. This means that the currency is not being regulated by a central bank, firm, or establishment. Instead, transactions and validations are dictated by the users (when person A pays for services or goods rendered to them by person B), thereby eliminating the need for store payments or a third party payment processor. This transaction between both users will be publicly recorded in a block, which when completed, will be added to the blockchain, where it will be verified and visible to other bitcoin users. Averagely, a new block is added to the blockchain every ten minutes through a process known as mining.

COMPONENTS OF THE BLOCKCHAIN
For the blockchain to become what it is to today, three main technologies were used. These technologies have been in existence before the creation of the blockchain, they were just not used for the blockchain purpose. So what exactly are these three elements that come together to make up the blockchain? They include:

a) Private Key Cryptography
b) A distributed network which has a ledger software that can be shared, and
c) A way to keep the record-keeping, transactions, and the entire blockchain itself safe (a network servicing protocol).

Let's take a closer look at each of these components so as to gain a better understanding of what we are talking about.

·        The Cryptographic Keys- This part of the blockchain technology provides users with a secure digital identity reference. This means that it provides each user with a combination of keys known as private and public keys. With these keys, the system can identify each user, making it know the owner of a particular account. With the combination of these keys, a user is in acquisition of a particularly useful digital signature. This digital signature, in turn, provides strong control of ownership.

·        The Distributed Network- Now, although the system can identify who owns an account, it still needs to be able to assign authorization from the owner so as to carry out transactions. This is where this technology comes in. The blockchain network is very large and for users to be able to determine where and who to transact with, the distributed network is needed. With the combination of the cryptographic keys, a series of digital interaction is created.

The process starts with the first user using their private key to make an announcement to the system that they want to transact with another user. The private key of person A is then attached to the public key of person B. Once this has been done, a block which will contain a timestamp, digital signature and other relevant information is broadcasted to every node in the networks.

·        The Network Servicing Protocol- The consensus of every node in the system is what determines the success of transactions and the creation of blocks. And for there to be a consensus of nodes, a process known as mining has to occur. Mining is a process that involves the coming together of different processing powers to sustain the growth and life of the blockchain. Miners are rewarded with the cryptocurrencies for their support.

Now the goal of this protocol is not only to ensure that the blockchain stays alive, it's also to remove the possibility of the same bitcoin being used in different transactions at the same time. That is why the nodes in the network create a history of each transactions and maintain them by solving different mathematical problems.

The miners simply vote with their processing power on whether to create valid new blocks or delete invalid blocks. The agreement on this vote leads to the creation of a new block, which is then added to the chain. This newly created block is then time stamped, and can also be used to store messages or data.

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Sourajit_Saha
Hi, I’m Sourajit Saha, An Online Marketer From Kolkata, India. I Have Been Blogging Since Last Quarter Of 2010. I Started Blogging As A Hobby, And Soon It Turned Into Passion And Later Profession. Click Here To Know More About Me!

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