What Is Blockchain Technology? How Does It Works?

Overview

 

Blockchain technology services are decentralized, distributed ledger that stores the information of ownership of digital assets. Data stored on the blockchain is unable to be modified, making the technology a legitimate disruptor for industries like payments, healthcare, and cyber security.

Discover more about what and how it is used.

What is blockchain technology?

Blockchain technology services: Sometimes referred to as (DLT) distributed ledger technology makes the history of any digital asset unchangeable and transparent through utilizing a decentralized network and cryptographic hashing. A clear picture of how blockchain technology operates can be compared to how a Google Docs document works. When you create a Google Doc document and share it with a group of people, the document is simply distributed to all people instead of copied or transferred. This creates a decentralized distribution chain that gives access to everyone at the same time.

No one is locked out awaiting changes from another party, while all changes in the document are being recorded in real-time, for making changes completely transparent. A significant gap to note however is that, unlike Google Docs, original contents and data on the blockchain cannot be changed once written, adding to its level of security.

Of course, blockchain is more complicated than a Google Doc, but the analogy is similar because it illustrates critical ideas of the technology.

How does blockchain work?

Blockchain technology services are based on three important concepts for proof of work blockchains: blocks, nodes, and miners.

What is a Block?

Every chain is based on multiple blocks and each block has three basic elements:

  • Data in the block.
  • The nonce “number used only once.” A nonce in the blockchain is a whole number randomly generated when a block is created, which then generates a block header hash.
  • The hash — a hash in the blockchain is a number permanently affixed to the nonce. For Bitcoin hashes, these values must start with a huge number of zeroes.

When a block of a chain is generated, a nonce generates the cryptographic hash. The data in the block is considered signed and forever tied to the nonce and hash unless it is mined.

What is a miner?

Miners create new blocks on the chain through the process called mining.

In a blockchain every block has its own, and unique nonce and hash, but references the hash of the previous block in the chain, so mining is not easy, especially on large chains.

Miners use special software to solve the complex math problem of discovering a nonce that generates an accepted hash. Because the nonce is 32 bits only and the hash is 256, there are roughly four billion possible nonce-hash combinations that must be mined before the right one is found. When that is found miners are said to have found the “golden nonce” and their block is added to the chain.

When a block is successfully mined, the change is accepted by all of the nodes on the network and the miner is rewarded.

What is decentralization?

The most important aspect of blockchain technology is decentralization. Not only one computer or organization can own the chain. Instead, it is a distributed ledger via the nodes connected to the chain. Blockchain nodes could be any type of electronic device that maintains copies of the chain and keeps the network functioning. Every node has its copy of the blockchain, and the network must algorithmically approve any newly mined block for the chain to be updated, verified, and trusted. Since blockchains are transparent, every action in the ledger can be easily examined and viewed, creating inherent blockchain security. Each participant is given a unique identification number that shows their transactions. Combining public information with a system of checks and balances helps the blockchain to maintain its integrity and creates trust among users. Essentially, blockchains can be thought of as the reliability of trust via technology.

Related: Centralized Exchange V.s Decentralized Exchange – A Comparison

What is a blockchain platform?

While a blockchain network describes the distributed ledger infrastructure, a blockchain platform describes a medium where users can interact with a blockchain network. Blockchain platforms are created to be extendible and act as extensions from an existing blockchain infrastructure, allowing information exchange and services to be powered directly from the framework.

An example of a blockchain platform includes Ethereum, a software platform that houses the Etherium, or ether, cryptocurrency. With the Ethereum platform, users can also produce programmable tokens and crypto contracts which are built directly upon the Ethereum blockchain infrastructure.

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