What is blockchain technology and how does it work? A Comprehensive Guide For 2022

13 Jan 2021

Introduction

If you are from banking, cryptocurrency or investing background you must have probably come across this word quite often. Over the last 10 years “Blockchain” has been the record-keeping technology behind Bitcoin network. The word Blockchain may seem complicated but its core concept is really quite simple. It is a precise type of database. Read on further to apprehend what is a blockchain and how is it helpful in today’s dynamic environment.

Definition of blockchain
What is blockchain and how does it work?
Uses of blockchain:
History of blockchain

1) Definition of blockchain

Blockchain is a scheme in which documentation of transactions made in any cryptocurrency is upheld across numerous computers that are linked in a peer-to-peer (P2P) network. It is a digital record of all transactions done.

2) What is blockchain and how does it work?

History of blockchain – Blockchain began to emerge as a real-world technology option in 2016-17 and is poised to transform IT in a similar way open-source software did about a twenty-five years ago. Blockchain still has a long way to go and will likely take many years to become a more efficient and low-cost way to share data and information between private and open business networks. Blockchain is a distributed ledger technology (DLT) which allows data to be stored on thousands of servers globally simultaneously allowing anyone on the grid see everyone else’s records.

Let us understand how is blockchain different from traditional database models.

Traditional Database:

A traditional database is a type of data structure that is used to store information. It is a structured collection or storage of data that can store new data and retrieve old data. A database management system organises data stored in a database. The database administrator can change the data stored. The client-server network architecture is used to implement a database.

What is a blockchain?

A blockchain is a dynamic collection of records known as blocks that are connected via encryption. Each block has the previous block’s cryptographic hash, a timestamp, and transaction information. By design, data modification is not supported. It enables decentralised control and reduces the possibility of data tampering by third parties with proper system access.

Now that we’ve understood what is blockchain analysis let’s see how does it work. Each digital transaction or record in a blockchain programming is called a block. When one block is completed, it forms a secure unique code that ties it to the next transaction or block. Blockchain is an architectural principle, not one thing. It is a store of records that is cryptographically secured by default, distributed and completely replicated as well as decentralized in its own form.

In a blockchain, each node has evidence of the information that has been stockpiled on the blockchain since it’s setting up or inception. For Bitcoin, the information entered in a blockchain represents the entire history of all Bitcoin transactions done up to date. The history of dealings in each block that structure Bitcoin’s blockchain is unalterable.

Blockchain analysis is a blend of three leading technologies:

Cryptographic keys: This technology is categorised into public key and private key, which help perform successful dealings between two parties. Each individual is provided with two keys which they can use create a secure digital identity reference. This is the most important aspect of blockchain technology – secured identity.
A P2P network which contains a stored ledger: Peer-to-peer network refers to several individuals who use the digital signature by acting as authorities to reach a consensus on transactions, among other various issues.
Lastly means of computing: To store records and transactions of the network.

3) Uses of blockchain:

Blockchain’s prime application is Bitcoin and the prime reason why blockchain technology was developed. It has helped many people in financial services such as digital wallets. It has allowed micro-payments and has provided microloans to people in less ideal economic circumstances, thereby leading a new life in the economy of the world. Blockchain renders a significant advantage to those organisations and people located in areas with scarce resources and widespread corruption permitting them to escape the trickeries of third-party intermediaries who are unreliable.

Blockchain is being observed by an organization called ‘Follow My Vote’ in the area of Politics. This organization is trying to combat fraud related to elections at the ballot box. Blockchain technology can be used as a secured manifesto for the healthcare industry for storing sensitive patient’s data. It can also create a decentralized P2P network for apps and organisations like Airbnb and Uber. Two parties who wish to conduct private transactions can opt for blockchain technology in the private business world.

Advantages of blockchain technology

Here are some of the advantages of blockchain technology you can envision achieving when embracing Blockchain technology into your company:

It is an immutable public digital ledger. A transaction cannot be modified after it has been recorded.
Blockchain is always safe due to the encryption function.
The transactions are made promptly and transparently since the ledger is automatically updated.
It is a decentralised system. So there is no need for an intermediate charge.
Participants verify and validate the transaction’s authenticity.

Features of Block chain

Some of the features of block chain are:

The public distributed ledger uses hashing encryption.
Every block has a hash value that serves as its digital signature.
All transactions are accepted and validated using a proof-of-work agreement mechanism.
The Block chain network uses the miner’s resources, which verifies transactions in exchange for incentives.

4) History of blockchain

Blockchain, yet being a new technology boasts an interesting history. A brief timeline of some of the notable and most important events in the development of blockchain is given as follows:

2008: Santoshi Nakamoto published “ A P2P electronic cash system”
2009: Santoshi Nakamoto and computer scientist Hall Finney executed their first-ever Bitcoin transaction.
2010: First purchase using a Bitcoin
2011: Cryptocurrency equalled with the US Dollar.
2013: Ethereum project paper being published by Buterin suggesting other possibilities of blockchain besides Bitcoin.
2017: Bitcoin had reached 1000 dollars for the first time and Dubai had announced blockchain-powered government by 2020.
2020: Trading remains one of the most important applications of blockchain technology.

Conclusion

Some of the many pros of blockchain programming include high security, improved accuracy by lesser human involvement, cost reductions by eliminating verifications by third-party, transparent technology, decentralized structure, and efficient transactions. However, it does have some cons like low transactions per second, significant technology costs, and history of use in illicit activities. Blockchain can be operated in a variety of ways and by using various mechanisms to secure a consensus on dealings which allowed to be seen by authorized users only.

To show how huge the blockchain industry has developed into Bitcoin is the perfect example. The founders of blockchain have also started trying out numerous other applications to expand the level of influence and technology of blockchain. Blockchain is poised to rule the digital world in the future judging by its increased use and success. After reading this article we hope you are more familiar and have a clearer and solid understanding of what blockchain is and how it works!

If you are interested in making a career in the Data Science domain, our 9-month online PG Certificate Program in Data Science and Machine Learning can help you immensely in becoming a successful Data Science professional.

Blogs