What is blockchain technology?
Blockchain, sometimes referred to as distributed ledger technology (DLT), makes the history of any digital asset immutable and transparent through the use of decentralization and cryptographic hashing.
Google Doc is a simple analogy for understanding blockchain technology. When we create a document and share it with a group of people, the document is distributed rather than copied or transferred. This creates a decentralized distribution chain so that everyone can access the document at the same time. No one is locked waiting for changes from another party, and all modifications to documents are recorded in real time, making changes completely transparent. Of course, blockchain is more complex than a Google Doc, but the analogy is apt because it illustrates three key ideas of the technology:
Blockchain Explained: A Quick Overview
Digital assets are distributed, not copied or transferred.
Assets are decentralized, allowing full real-time access.
A transparent change ledger preserves the integrity of documentation, thereby building trust in the asset.
Blockchain is a particularly promising and revolutionary technology as it helps reduce risk, eliminate fraud and bring transparency to a variety of uses in a scalable way.
How does blockchain work?
The whole purpose of using blockchain is to allow people (especially people who don’t trust each other) to share valuable data in a secure, tamper-proof way. — MIT Technology Review Blockchain consists of three important concepts: blocks, nodes, and miners.
Building blocks
Each chain contains multiple blocks, and each block has three basic elements: the data in that block. A 32-bit integer, called a random number. The nonce is randomly generated when a block is created, and the block header hash is then generated. The hash is a 256-bit number bound to a random number. It must start with a lot of zeros (i.e., very small).
When the first block of the chain is created, a cryptographic hash is generated from a random number. Unless mined, the data in the block is considered signed and is forever associated with the nonce and hash.
Miner
Miners create new blocks on the chain through a process called mining. In a blockchain, each block has its own unique nonce and hash, but also references the hash of the previous block in the chain, so mining a block is not easy, especially on large chains.
Miners use special software to solve an incredibly complex mathematical problem of finding random numbers that generate an acceptable hash. Because the nonce is only 32 bits and the hash is 256, approximately 4 billion possible random hash combinations must be mined before the correct hash is found. When this happens, miners are said to have found the “golden nonce” and added their block to the chain.
Making changes to any block earlier in the chain requires remining not only the block with the change, but also all subsequent blocks. This is why manipulating blockchain technology is so difficult. Consider this “mathematically safe” because finding the golden random number requires
It requires a lot of time and computing power. After a block is successfully mined, the change will be accepted by all nodes on the network and the miner will receive a financial reward.
Number of nodes
One of the most important concepts in blockchain technology is decentralization. No computer or organization can own the chain. Instead, it is a distributed ledger through nodes connected to the chain. Nodes can be any type of electronic device that maintains a copy of the blockchain and keeps the network functioning properly.
Each node has its own copy of the blockchain, and the network must algorithmically approve any newly mined blocks to update, trust, and verify the chain. Since blockchain is transparent, every action in the ledger can be easily inspected and viewed. Each participant will be given a unique alphanumeric identification number to identify their transactions.
Combining public information with a system of checks and balances helps the blockchain maintain integrity and build trust among users. In essence, blockchain can be thought of as enabling scalability of trust through technology.
