What is Blockchain?
1.What is centralization?Most of the digital apps we use today are run by some kind of corporation. From banks to social networks, all of these applications can be described as “centralized”.
Centralization is defined as the control of an activity, process or organization by a single authority. Cyber attacks and corporate misuse of users' personal information are just a few examples of how data centralization poses a threat to our privacy and the integrity of our personal information.
So how can we develop an infrastructure/network to transfer, store and record anything of value, be it financial transactions or users' personal data? – The answer is Blockchain technology.
2.What is Blockchain technology?Blockchain is a decentralized database of permanent chronologically stored records that are updated and maintained by thousands of connected computers. This technology is also commonly known as Distributed Ledger Technology (DLT) or distributed ledger technology.
In other words, Blockchain is a database distributed in thousands of computers that store, record and transfer data in a decentralized way. Whether banks or governments, no single authority controls the data on a blockchain.
3.Who invented Blockchain technology?Blockchain technology was first conceived by Stuart Haber and W. Scott Stornetta in 1991. They introduced a blockchain-based system for securing documents using cryptography and timestamps.
However, it was Satoshi Nakamoto who introduced blockchain to the world, or rather made it popular, by introducing Bitcoin in 2009.
What's really fascinating is that Satoshi Nakamoto is actually a pseudonym. No one is sure if he is a person or a group of people. In any case, Satoshi Nakamoto has credited the work of S. Haber and WS Stornetta on the Bitcoin whitepaper (a whitepaper is a detailed report on a specific topic).
4.How does the blockchain work?In a Blockchain network, data is timestamped and stored in a set of digital blocks. These blocks are chained/linked together using cryptographic hashes (think of this as block fingerprints). Since each block is connected to the next block, a change to one block will change all subsequent blocks.
5.How is data managed in a Blockchain?As mentioned above, all the digital applications that you use and to which you entrust your personal information are managed by companies. These companies store and manage this data for you and give you access to it.
There are two main problems behind this:
- Companies can exploit your personal data for profit.
- Your personal data is not secure as it is stored on centralized servers that are vulnerable to attacks and hacks .
In other words, no central power controls the blockchain. Instead, each computer (node) in the blockchain network stores an up-to-date copy of the blockchain. This means that if hackers attempt to manipulate the blockchain, they must simultaneously attack all blocks in succession until their target block; which is impossible.
These nodes, also known as “ miners ”, are tasked with updating and maintaining data on the blockchain. Miners solve cryptographic puzzles set by the blockchain protocol to validate data and update or add new blocks to the blockchain.
To maintain the integrity of the network, miners with the native cryptocurrency are incentivized for honest block validation.
6.How do transactions work on a Blockchain?
AuthenticationTo verify ownership of the digital value, the Blockchain uses public and private key cryptography. These keys are strings of alphanumeric characters.
Think of the public key as the recipient's address and the private key as your account password to access your account. A combination of these keys creates the digital signature of a transaction. The private key authenticates your ownership of the asset you are sending through the blockchain, while the public key determines the next owner of the asset.
AuthorizationThe next step is to validate the transactions. Once you digitally sign your blockchain transaction, it is sent to an unconfirmed transaction pool: mempool .
The mining nodes or miners collect transactions from the mempool and group them into a block solving the cryptographic problem (complex mathematical equation) established by the blockchain protocol. Once the miner solves the cryptographic puzzle, the verified block containing the digital signatures, timestamp, hash history, and other relevant information is transmitted to all nodes in the blockchain network.
checkBlockchains work on a consensus model. In order for a block to be added to the blockchain, a majority of the nodes must agree that it is a valid block.
If the majority of miners reach the same solution as the transmitted block, the block is timestamped and added to the blockchain. The miner who transmitted the block is rewarded with the native cryptocurrency in exchange for the computing power spent solving the cryptographic puzzle.
7.Why is Blockchain technology so secure?A blockchain stores all records permanently. Which means that every transaction that takes place on the network is recorded and stored on the blockchain. Additionally, blockchain data is timestamped, leaving a well-documented record of activity.
8.Much more than a cryptocurrency networkBlockchain has revolutionized the way we store and track data. Eliminate data management, improve security and reduce costs.
The launch of Bitcoin in 2009 introduced the use of Blockchain technology for the transfer of digital value between peers. Since then, Blockchain has been used primarily as a cryptocurrency network. However, this has become much more than a means to transfer value. In 2005, Ethereum introduced smart contracts, which are programmable scripts that live on the blockchain.
Smart contracts allow developers to implement decentralized applications on the blockchain (DApps). With smart contracts, developers can implement various applications, including games, financial applications, crowdfunding, accounting, healthcare management, and decentralized finance (DeFi) applications.
Blockchain technology is not something only used by startups or new companies. Even traditional big names like Goldman Sachs, Visa, Deloitte and IBM, to name a few, are now using this technology. The Hyperledger Project developing Ethereum-based business solutions includes more than 50 companies, including Microsoft, JPMorgan, Visa, and Walmart.
ConclutionBlockchain has changed the way data travels over the internet. It has eliminated intermediaries, returning control to the users.
In the past, no one would have imagined that you could transfer money directly to anyone in the world without intermediaries. However, blockchain made this peer-to-peer transfer possible. Today, Blockchain supports a trillion dollar cryptocurrency industry.
Blockchain also gave rise to decentralized finance (DeFi), which are financial applications on the blockchain. Currently, the DeFi space has over $42 billion in total value locked (TVL).
Furthermore, the Blockchain is home to hundreds of decentralized applications (DApps) such as gaming, supply chain management, data management, and much more.
Blockchain technology is truly the future of the internet and data management. We invite you to continue learning and familiarizing yourself with this technology and review our other posts on cryptocurrencies.