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The rise of Blockchain Technology is visible on an exponential level. It is becoming the most popular technology over the last few years.
There are plenty of changes visible in every industry because of the advent of blockchain technology. Several people find it pretty challenging to understand blockchain because of the technical terms. Here you will get a better idea about it in simple terms.
What is Blockchain?
Blockchain is often referred to as Distributed Ledger Technology (DLT), which uses decentralization and cryptographic hashing. It is a peer-to-peer system of distributed ledger for storing data and allowing the users to make transactions without a centralized authority. So, there is no single system to control everything.
There is a copy of the entire distributed ledger with every member of the network. There is a linear chain of blocks where every block is connected with the previous one to form a blockchain. Now, how does this connection occur? Every block consists of four components:
- Data – The information that you wish to store securely in any of the blocks.
- Hash – Hash is a unique identifier that is assigned to every block.
- Previous Block’s Hash – The previous block’s hash value is necessary to construct the next block.
- Meta Data – The set of data to describe the data present in the block, such as block number or timestamp.
Now, let us understand this technical definition of blockchain with a simple example.
Think about a common ledger where the company records its profits. If someone is changing or tampering with the values in the ledger, then there could be huge losses to the company. Even if you switch to a digital ledger, there are chances that the person might hack the digital ledger and tamper it. So, what can you do?
You can implement the blockchain system. Blockchain is a system where it will be practically impossible to alter any data or tamper with it. There is public access provided to all the users in the network to ensure the system’s integrity.
Blockchain is an immutable distributed digital ledger for recording transactions. The feature of immutability makes the ledger accurate and trustworthy. Other than that, the system remains protected from network attacks because of the property of distribution.
Every transaction made on the blockchain is stored in a “block.” No one person can make any changes to the blocks, which adds up to the security of the blockchain system.
Let us understand more about the concepts of blockchain by understanding its working.
How does the Blockchain System Work?
The whole point behind building the blockchain system is to allow people to share valuable data or make transactions securely, even with people they don’t trust. So, it’s like a trustworthy system for people without any centralized authority.
There are three essential concepts of blockchain to understand its working: blocks, miners, and nodes.
There are multiple blocks in every chain. Now, you can consider every block as a page in the ledger, and the three basic elements of any block are:
- Data present in the block.
- A nonce, which is a 32-bit whole number generated randomly during the creation of a block. Later on, a block header hash is also generated by the nonce.
- There is a 256-bit number called hash, which is combined with the nonce. The only condition here is that the hash should be very small with a large number of zeroes in the beginning.
The nonce generates a cryptographic hash during the creation of the first block. Now, the data present in that particular block remains tied to the nonce and hash forever until it gets mined.
Miners are involved in the process of mining for creating new blocks in the blockchain. There is a unique hash and nonce for every block, along with the previous block’s hash references. This makes it pretty difficult for the miners to mine a block. The process becomes much complex when a miner is dealing with large chains.
The miner needs to solve the math problem for finding a nonce that can generate an accepted hash. As nonce is only 32 bits, but hash is 256, there are approximately four billion combinations possible for nonce-hash. Once a miner goes through such a large amount of combinations, the right one can be found. Once it’s located, that particular miner’s calculation is adhered to, and the block is added to the chain.
If any hacker wants to manipulate the data on a particular block, they need to re-mine that block and the blocks coming after it. This is the reason it is practically impossible to manipulate the records of a blockchain. There is an enormous requirement of computing power and time to find the right nonce-hash combination.
Once the block is mined successfully, every node will accept the change and add the block to the network. The miner is financially rewarded for building the block and adding it to the chain.
Decentralization is the central concept behind blockchain technology. Blockchain follows the idea of a distributed ledger that is connected with the entire chain through nodes. There is no single organization or authority that can gain control over the whole chain of blocks. Blockchain is the best way to enhance scalability and build trust through the use of technology.
Blockchain is a completely transparent system where you can view every action in the ledger. Nodes maintain a copy of the blockchain to keep the entire chain functioning smoothly. Whenever a new block is mined, the network algorithmically approves it to get it updated, trusted and verified in the chain. Every participant in the network has their identification number to represent their transactions in the ledger.
Now, let us understand a bit about the history of blockchain to get an idea about its foundation.
History of Blockchain
Blockchain is a new technology, but some elements of this concept have existed for a long time. Certain notable events resulted in the foundation of blockchain technology. Let us get a brief timeline of such significant events.
- Bitcoin, which is a peer-to-peer electronic cash system, was published by Satoshi Nakamoto.
- There was a first successful Bitcoin (BTC) transaction between Satoshi Nakamoto and computer scientist Hal Finney.
- Laszlo Hanycez, a Florida-based programmer, completed the first official purchase through the use of Bitcoin. He purchased two Papa John’s Pizzas by transferring 10,000 BTC’s worth $60 at that time. Currently, they are worth $438 million.
- Currently, the official market cap of Bitcoin is $830 billion.
- Several organizations like Wikileaks, Electronic Frontier Foundation, and many others started accepting Bitcoin as donations.
- Bitcoin developer Vitalik Buterin launched the Bitcoin Magazine.
- In the popular television show ‘The Good Wife,’ blockchain and cryptocurrency were mentioned for the first time. So, this was the first introduction of blockchain to pop culture.
- The market cap of Bitcoin surpassed $1 billion.
- For the first time, the price of BTC reached more than $100.
- Vitalik Buterin published a paper named “Ethereum Project” to suggest that there can be several other applications of blockchain other than Bitcoin.
- Companies like Overstock.com, The D Las Vegas Hotel, and the famous Gaming company Zynga started accepting payments through Bitcoin.
- PayPal announced an integration of their systems with Bitcoin.
- A group of more than 200 blockchain firms came together as a group named R3 to find new ways for implementing blockchain in different sectors.
- The Ethereum Project of Buterin successfully gained crowdfunding through the Initial Coin Offering (ICO) to raise more than $18 million. This was the most significant event in blockchain history as it opened up new avenues for blockchain technology.
- There are more than 100,000 merchants accepting payments through BTC.
- NASDAQ and San-Fransico blockchain companies get together to test the technology to trade shares in private companies.
- IBM being the tech giant, announces a blockchain strategy for better cloud-based business solutions.
- Blockchain and cryptocurrency get legalized in Japan.
- The price of BTC reaches over $1000 for the first time.
- The market cap of cryptocurrency crosses $150 billion.
- Dubai government announced that they will be blockchain-powered by 2020.
- BTC prices reach their all-time high at $19,783.21.
- Jamie Dimon, the CEO of JP Morgan, stated that he believes in a future with blockchain technology. This gave the blockchain system a vote of confidence from the entire Wall Street.
- Giant banks like Barclays and Citi signed up for the blockchain-based banking platform developed by IBM.
- Facebook committed to starting a blockchain group and hinting that there is a possibility of Facebook’s own cryptocurrency coming up any time in the future.
- The creation of Bakkt – a digital wallet company for crypto trading, was announced by the New York Stock Exchange (NYSE).
- The president of China, Ji Xinping, publicly embraced blockchain technology while the Central Bank of China announced that they were working on creating their own cryptocurrency.
- The CEO of Twitter & Square, Jack Dorsey, announced that they would be hiring blockchain engineers in Square to work on some future plans in the crypto industry.
- Buying, selling, and holding cryptocurrencies became possible on PayPal.
- “Sand Dollar” became the world’s first central bank digital currency that the Bahamas launched.
- By the end of 2020, Bitcoin was able to rise to the level of $30,000.
- During the COVID-19 scenario, blockchain technology became the most important one for storing patient information and research data.
Blockchain is not only about Bitcoin. Even though Bitcoin was the reason behind the immense popularity of blockchain in the earlier years, now, there is so much more to it. Currently, there are plenty of applications of blockchain technology in various sectors.
Blockchain is building the foundation for the future. Its use is visible not only in cryptocurrency or banking sectors, but if you notice, it is widely used in plenty of fields. With digitization, everything is getting digital, and blockchain is the key to making it possible. So, if you are thinking about making your career in the field of blockchain technology, then this is the perfect time for you to begin exploring it.
Next, read about the 9 Good Resources to Learn blockchain.