16 June 2020
If you search the term “blockchain” you will find that it is described as a decentralized distributed ledger used to record the provenance of digital assets. Naturally, any beginner in the world of blockchain and cryptocurrencies would find this definition way too complex. That is why we are going to break down the basics of what makes blockchain so popular and secure, how it works, and what it is used for.
Often called the DLT or Distributed Ledger Technology, blockchain uses decentralization concept and cryptographic hashing to make digital assets unalterable and transparent. To make it even simpler, this technology relies on a decentralized distribution chain giving all user an access to assets & data simultaneously and in real time. The term decentralized refers to the fact that there is no central body of authority that controls blockchain.
Instead, the whole network is controlled by a team of volunteer coders from around the globe. The easiest way to describe blockchain is to compare it to a Google Doc file. Just like in Google Doc, all changes and modifications in the blockchain are made in real time and everyone has access to them without having to wait for third-party approval.
All digital assets on the blockchain are distributed without being copied, which increases the security and transparency of blockchain transactions. In that way, using blockchain can reduce the risk of fraud that is common in online transactions.
How It Works
The easiest way to understand blockchain is to divide it into three components: blocks, nodes & miners. Every blockchain has multiple blocks and there are 3 basic elements in each block. These include the data in the block, a 32-bit whole number known as a nonce and the hash, which is a 256-bit number. The hash is wedded to the randomly generated nonce.
Once a block of chain is created, the nonce role is to generate the cryptographic hash. All data in that block is considered signed and it is going to be tied to the nonce as well as the hash, unless it gets mined. That’s where the concept of miners comes to play. The term “miners” refers to coders who take time to create new blocks on the chain.
This is done through complex computing procedures with the goal to solve a math problem to find the nonce that generates a specific hash. Given that a nonce is only thirty two (32) bit, whereas the hash is two fifty six (256) bit, there could numerous combinations (around four billion)between nonce and hash. Each of them must be mined before you come across the right one.
The right combination is called the golden nonce and, once a miner finds the golden nonce, that piece of block is then added to the chain. This system takes time and plenty of computing power, which makes blockchain almost impossible to alter. Moreover, once a block is successfully mined after rigorous computation, the change within the blockchain must be accepted by all nodes in the network.
If the change is accepted, the miner gets the well-deserved financial reward. This system of mining blockchain is what makes the entire network so secure and difficult to tamper with. Since every change has to be accepted by the entire network, all blockchain transactions remain transparent, whereas the end user on the blockchain cannot be traced.
What is Blockchain Used for?
Lastly, we must cover the most important factor related to blockchain and that’s its use in the world. Generally speaking, blockchain technology is used to create all sorts of transparent data storing ledgers, as it provides a reliable and untraceable environment perfect for data protection. Since no one can steal or manipulate the data on the blockchain, this technology can be used for scalable data storage solutions.
Moreover, blockchain is commonly used as a base for monetary transactions executed with cryptocurrencies, also known as the modern, digital money. Cryptocurrencies such as bitcoin that are based on the blockchain technology are considered far more secure and reliable than fiat currencies when used online. Blockchain technology has also enabled the use of smart contracts, which is a whole new concept that must be understood separately.
This technology is also used for transparent verification of information, proof of provenance, as well as distributed cloud storage. However, the main use of blockchain centers on cryptocurrencies and mining of bitcoin as one of the most established digital coins.