- January 6, 2022
- Posted by: admin
- Category: Learn
UNDERSTANDING BLOCKCHAIN: If you’ve ever tried investing in cryptocurrency, you must have heard people talking about blockchain technology. It must have sounded new and confusing to your ears. However, blockchain technology is not a novel idea and has been around for quite a while.
A blockchain, also called Distributed Ledger Technology (DLT), can be defined as a distributed database shared amongst different nodes in a computer to expedite the process of recording transactions and tracking assets. The information recorded is stored in digital formats.
UNDERSTANDING BLOCKCHAIN AND HOW IT WORKS
Blockchain is gaining traction because of its role in maintaining secured and decentralized records of transactions in cryptocurrency. Because of blockchain, the chances of fraud in the crypto space are significantly reduced. It also eliminates the need for a third party in any transaction that uses the technology.
How blockchains work – UNDERSTANDING BLOCKCHAIN
Blockchain technology has usually been compared to the typical database because they perform the same functions, even though the latter is more complex than the other. However, the significant difference between blockchain and a regular database is how the data is structured. In a blockchain, information is collected in groups, called blocks. Each block holds a certain amount of information depending on its storage capacity.
Whenever a block becomes filled up with information, the block is closed and linked to other filled blocks, hence the “chain.” This is how the name of the technology, “blockchain,” was formed. And just like that, another block is opened and filled with information, closed, and linked to others. It is continuous and has no end.
On the other hand, in a typical database, data are collected in tables, and no two tables are linked even though they have the same title. The interconnection between several blocks in blockchain technology makes it unique and widely accepted. Also, when blockchain is utilized in a decentralized manner, filled blocks are set in stone to become part of a timeline of data that is irreversible.
Elements of blockchain
There are three critical elements of a blockchain, and they are discussed below;
- Distributed ledger: This technology gives all network participants access to the permanent transaction records in the shared ledger. To resolve the issue of duplication associated with traditional business networks, the shared ledger records transactions only once.
- Immutable records: The records of blockchain are “immutable” in the sense that no participant can change the transaction after it has been recorded in the shared ledger. If there’s an error incident, a new transaction must be included to reverse the error by any chance. Even after error reversal, both transactions will remain in the record.
- Smart contracts: Smart contracts are a set of instructions stored in the blockchain. These smart contracts are executed automatically to define conditions for bond transfers and many more.
Types of blockchain
- Public blockchains: Public blockchains are the most popular types of blockchains. They are decentralized and provide unlimited access to users that want to check for the accuracy of the transaction. Typical examples are the Bitcoin (BTC) and Ethereum (ETH) blockchains.
- Private Blockchain: As the name implies, private blockchains cannot be accessed publicly. Because of access restrictions, individuals that want to participate must first request permission from the main administrator of the system. Examples include Ripple (XRP) and Hyperledger.
- Sidechains: A sidechain runs parallel to the main chain. It improves scalability and efficacy by allowing users to transfer digital assets from one blockchain to another. A typical example is a liquid network.
- Hybrid blockchains: Hybrid blockchains combines public and private blockchains. That means it contains both centralized and decentralized features like private and public blockchains, respectively. Examples include R3, Energy Web, and Foundation.
One of the primary reasons why blockchain continues to remain relevant is the security it offers. All blocks stored on a blockchain have their unique code alongside the unique code of the block before it. So much so that if anyone tampers with the information contained in a block, the code changes. However, the code of the next block remains the same, making it impossible for discrepancies to go unnoticed. For this reason, the transaction records of blockchains are often called “immutable.”
Other features of blockchain that make the technology outstanding include accuracy, reduction of costs, decentralization, efficient transactions, and transparency.
The longer blockchain remains relevant in our daily lives, the more practical applications are discovered. The primary practical applications are in bitcoin, NFTs, and other cryptocurrencies. Even more, in business, engineering, and other areas, blockchain continues to gain more ground by providing ease, accuracy, efficiency, and security to their operations. Hopefully, blockchain will be explored and implemented in other areas in the near future. To read more on cryptocurrencies and NFTs, visit croft financial.
UNDERSTANDING BLOCKCHAIN AND HOW IT WORKS