Cryptocurrencies have come a long way since Bitcoin was first invented back in 2009. It had a humble beginning but not long after, it started to gain traction all over the world with third-world countries such as India joining in on the industry. However, it wouldn’t be at the height that it has today if it wasn’t for the blockchain.
From decentralization to providing secure, faster and cheaper transactions, blockchain plays a huge role in allowing the crypto industry to work the way it does today. If you’re eager to learn more, here are some of the basics that you should know:
What is blockchain?
Blockchain is the network that various cryptocurrencies run on. It’s mainly used to verify transactions and record data using cryptography. It’s decentralized, meaning that it’s not under a single authority but instead is accessible by everyone in the network.
This novel technology also acts as a public ledger where data is recorded permanently. Everyone in the network can view all the data but they can’t be edited in any way because it’s protected by algorithms.
To help give you an idea of what blockchain is, here are some terms that you need to know about:
Blockchain makes use of a peer-to-peer network or P2P for short. This means that every transaction made within the network will only involve the sender and the recipient. No central authority will be involved or needed to verify the transaction as well as charge miscellaneous fees.
The best way to describe hashing in the blockchain is to compare it to a fingerprint. Each block created in the network will be identified with its unique hash. This is one of the reasons why it would be impossible to tamper with information as altering a block would change the hash altogether.
Proof of work mechanism
The proof of work mechanism acts as the way how a consensus is reached within the network. How this works is that when a new block is added to the network, everyone in it will be notified about the latest addition.
When the majority agrees that everything is in order, then it will reach a consensus. This mechanism makes it possible for a network with no single authoritative figure to have an agreement.
How does blockchain work?
Using the ideas that were presented above, here’s a step by step process of how a transaction process goes on a blockchain network:
When a new transaction enters the blockchain, it will be transmitted to validator nodes around the world which are high-speed computers. These advanced computers are capable of solving advanced mathematical equations which is something that they need to do to validate a transaction.
Once the transactions have been confirmed, they will be grouped into blocks. Lastly, they will be chained together with the previous blocks which also contain permanent data thus forming the new blockchain.
Advantages of using blockchain
A rundown of the blockchain basics wouldn’t be complete without listing down its advantages. Here are some of the reasons why this technology is widely used in various cryptocurrencies:
One of the main concerns that people have about cryptocurrencies is how prone it is to tampering. Because blockchain involves a network of hundreds upon thousands of computers that verifies each transaction, it would be impossible to tamper with data stored in the network.
This also results in an accurate network where every data is free from human error such as double-spending.
Faster and cheaper transactions
Another huge benefit that draws people not only from India but from around the world to this technology is its ability to provide faster and cheaper transactions. Blockchain made it possible for people to transact with each other without the need for third parties.
This means that additional fees that you’ll usually spend when you opt for banks such as service charges and transaction fees will be eliminated.
Because transactions won’t have to go through various processes from middlemen, they will be significantly faster. It also helps that blockchain doesn’t operate under any office hours like banks.
Instead, they are available 24/7 making it more accessible for people to use it whether they be making local or cross-border transfers.
Blockchain has also made it possible for transactions to be confidential. Although blockchain is defined as a public ledger, it will still keep the two parties’ personal information private.
The information that the people in the network can access will only be limited to the transaction itself including the wallet addresses and the number of assets transferred. Aside from that, any identifying information will be concealed.
Blockchain technology doesn’t have anything to hide from its users. Everything, including its code, can be viewed by anyone from the network. This gives the people in the blockchain the power to make suggestions on how they think the platform itself could be improved. This suggestion will then be discussed and if the majority agrees, then it will be approved.
Having this kind of transparency also comes in handy when people are paranoid about the safety of their assets. By being able to view the network itself using a personal node or blockchain explorers, users can review different kinds of cryptocurrency transactions for security in real-time.
Where does blockchain go from here?
Blockchain is one of the most useful and advanced technological advancements available right now. Its use of hashing and proof of work mechanism makes it confidential and impossible to tamper with. These characteristics are the reasons why blockchain is starting to become more and more prevalent in society outside of cryptocurrencies.
Today, some companies in India and other countries use this technology to store medical records, transfer money, monitor supply chains and more. With its continuing success, we can’t wait to see what’s in store for blockchain.