Blockchain technology, a term you may have heard when someone is talking about Bitcoin. You might have heard, that Bitcoin is a type of cryptocurrency and cryptocurrency is based on Blockchain technology. This technology not only makes these types of cryptocurrencies safer, but it also makes them easy to use. That is why Blockchain technology is thought to be the solution to our future money problems.
What is Blockchain technology?
To understand what Blockchain is, we are to discuss its humble start. Blockchain started as a Hash tree, known as Merkle tree named after the patent holder Ralph Merkle. Blockchain has been safe even for its humble beginnings.
Blockchain makes sure that data is not altered between transfers. It also makes sure that no false data is transferred. This is the base of Blockchain on which Satoshi Nakamoto built the modern cryptocurrency empire. He, or they, made Blockchain technology able to utilize peer to peer network. This made Blockchain safer and more reliable than ever.
To oversimplify Blockchain, we can probably say, it is built on blocks connected in chains.
For basics, these blocks are pieces of information.
How many types of Blockchain?
There are three types of data on a block.
- One type of information is about data of the transaction. It can be data that tells when the transaction was made, or its value or something related to it.
- The second type of information on the block is about the participants in the transaction. Blockchain assigns you a specific username, which identifies you as the participant in the transaction. That username is like a digital signature that helps blockchain distinguish you from other users.
- The third type of information on a block is about the block itself. This is a unique code assigned to a block, called hash. These types of information make it very difficult to outmaneuver Blockchain.
How is Blockchain working?
Working of Blockchain is very complex that is why it is very hard to break. But we will try to simplify the stuff for you in order to make it more approachable. First of all, a transaction occurs by adding a new block, with all of the above information, to existing Blockchain.
Let’s suppose you make a transaction with Bitcoins, you are actually adding a block to the existing Blockchain of Bitcoin. Your block is to be verified by the network of users in Blockchain. All the data on the block is verified by computers on this network. This verification is to validate that all the data you provided is accurate and the transaction is a legitimate one. This data includes transaction data, your digital signature and the digital signature of the vendor. After the validation of Block, it is likely to join many other blocks of similar nature. Still, there is a need to identify each block from the other. This is made sure by assigning a code to the block, or hash. A block is provided with two hash, one that is its own ash and the other one is of the next block added in the Blockchain.
If something was to happen and some block in Blockchain was corrupted, i.e. its hash was changed, the whole Blockchain will become invalid. Because each upcoming block stores its hash on the previous block, so one wrong entry of hash will make the whole Blockchain invalid and this is the advantage of Blockchain.
When a valid block is added to the Blockchain, it becomes public. You can see when, where and by whom the block was added to Blockchain. This ensures the transparency of data and thus makes it even more difficult to tamper with. But this transparency doesn’t mean that Blockchain is not private. You, a person who made a transaction, is not giving personal info. Only the digital signature is shown on block which limits personal attacks. This spread of data also makes sure that all the data is secure. When a computer is added to the Blockchain network, it gets a copy of the whole Blockchain. So there are potentially thousands, if not millions, of copies of Blockchain on a network. So for a hacker, it is not an easy task to hack every computer on the network. So blocks are safe from manipulation. More level of security is added by hashes. As we have mentioned that each block has its own unique hash and it also stores the hash of the next block. Now if I, a hacker, was to change information on a block, say block M. This change in information will alter the block M’s hash. But the old hash is still stored on the previous block. So it is necessary for me to alter the previous block’s hash. This will start a chain reaction that will not be easy and having thousands of copies of Blockchain makes it even worse for the hacker to change a block code. So the decentralized system makes Blockchain very safe from hackers and that is why Bitcoin is so high in demand.
The future money is most probably going to be based on Blockchain. Further applications may include any type of service that demands charges online. If a bank demands charges to transfer money, you may use Blockchain to transfer it for free. You want to transfer your academic records; Blockchain is a safe and easy way to do that. Basically, Blockchain has a vast application and we are just starting to realize this.