Blockchain Technology

What is Blockchain Technology?

We all have heard the term blockchain in the context of bitcoin and many of us misinterpret both to be synonyms, but blockchain and bitcoin are not the same they are completely different terms. Bitcoin is a type of cryptocurrency on the other hand blockchain is the technology behind it.

Basically, Blockchain is a Distributed Ledger Technology or in simple words, it is a type of database like other databases but the major difference between blockchain and other databases is that the data stored in traditional databases is in the form of tables on the other hand data stored in a blockchain ledger is in blocks which are connected to each other to form a chain of blocks hence the name ‘Blockchain’. So, to brief about blockchain- It is a Distributed Ledger Technology which is based on a peer-to-peer topology that allows data to be stored on thousands of servers and is transparent over the network, so every time a change made to it is visible to each and everyone over the network. Hence it provides more secure and real-time access to the digital assets for everyone on the network.

How does it work?

To understand the working of blockchain it is first important to understand its structure, blockchain consists of three main components i.e. blocks, miners (mining process), and nodes. And a block further contains three basic components i.e. data, nonce (a 32-bit number), and hash (a 256-bit number). The nonce is generated as a block is created which then generates a block header hash. When the first block of the chain is created, its cryptographic hash is generated. A blockchain contains multiple blocks and each block contains a cryptographic hash of its previous block.

Let's take an example to understand its working:- Consider a scenario where blockchain technology is used to complete the daily transactional process. A person ‘A’ requested for a transaction, this transaction is represented as a block. This block is then broadcast to every Node in the network.

Here let's understand what are Nodes- To maintain decentralization in the system it is important that the blockchain is transparent over the network. To do so the chain is connected with nodes so that everyone on the network can access the copy of the blockchain. Nodes can be any electronic device that has its own copy of the blockchain and as a new block is mined its automatically updated in the node.

Now, after the block is broadcast to the nodes in the network it is validated by a process called mining. Here miners come into the role, several miners compete to solve a complex mathematical problem based on a cryptographic hash algorithm. The solution found is known as ‘proof-of-work’. Whoever is first to solve the block receives a reward. When the block has solved the transaction contained by it is considered as confirmed. As soon as the block is validated by the miner it is added to the blockchain and the transaction requested by person ‘A’ is completed.

Applications of Blockchain Technology

It is now known to us that blockchain technology is majorly used in cryptocurrency. But, apart from it, a new concept of Ethereum Blockchain came to light in late 2013. This has allowed developers to create tokens that can represent any digital asset like audio files, medical records, tickets, etc. This has broadened the potential of blockchain to grow in various other sectors whether it may be the media, government, or health sector. In fact, many healthcare companies at present are ongoing with blockchain technology due to its convincing results.

At present, blockchain technology has not covered a maximum portion of the global market due to its heavy cost and complexity. But it seems to have great potential to grow in the near future with the continuous advancement in technology.

References: Builtin.com, DEV.to, Wikipedia.