As Bitcoin and blockchain continue to grow and become more user-friendly, the onus is on you to learn this evolving technology so you’re prepared for the future. If you are new to blockchain, then this is the right place for you! In this blog, you will learn what a blockchain is, how a blockchain works and why it’s so important.
WHAT IS BLOCKCHAIN TECHNOLOGY?
Blockchain is the technology that enables the existence of cryptocurrency (among other things!). It’s a structure that stores transactional records, also known as blocks, in several parts, and when connected forms a “chain,” in a network of peer-to-peer nodes. This storage is referred to as a ‘digital ledger.’ Every transaction in this ledger is authorised by the digital signature of the owner, which authenticates the transaction and safeguards it from tampering. This makes the information the digital ledger contains highly secure.
This may be a bit confusing so let’s look at it in simpler words. The digital ledger is like a Google spreadsheet, in which transactional records are stored based on actual purchases. The spreadsheet is shared among numerous computers in a network. The great thing is that anybody can see the data, but they can’t corrupt it.
HOW DOES BLOCKCHAIN WORK?
Blockchain is a combination of three technologies:
- Cryptographic keys
- A peer-to-peer network containing a shared ledger
- A means of computing, to store the transactions and records of the network
Cryptography keys consist of two keys – A public key and a private key. These keys help in performing successful transactions between two parties. Each individual has these two keys, which they use to produce a secure digital identity reference. This secured identity is the most important aspect of Blockchain technology. In the world of cryptocurrency, this identity is referred to as a ‘digital signature’ and is used for authorising and controlling transactions.
The digital signature is merged with the peer-to-peer network; a large number of individuals who act as authorities use the digital signature in order to reach a consensus on transactions, among other issues. When they authorise a transaction, it is certified by a mathematical verification, which results in a successful secured transaction between the two network-connected parties.
WHY IS IT SO IMPORTANT?
There are a lot of advantages to using the blockchain network. Let’s take a look:
Accuracy of the chain - Transactions that are part of the blockchain have to be approved by thousands of computers. This removes all human involvement in the verification process, which means there are fewer human errors, as well as a more accurate record of information. What happens if one of the computers in the network makes a mistake? The error would only be in one copy of the blockchain and for it to spread, at least 51% of the network would need to have the same mistake, which is highly unlikely. The incorrect entry would then simply be discarded and the consensus ledger would continue.
Eliminating the need for third-party verifiers - Blockchain data is decentralised, which means that it is not stored in a central location but instead copied and spread across a vast network of computers. This makes it very hard for anyone to tamper with the data as they would need access to all of the networks to fully compromise it.
No access to identifying information - although anyone with an internet connection can see the list of the network's transaction history and access details about transactions, no one can access identifying information about the users that are making those transactions.
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