If you’ve been alive for the past five years I’m very sure you’ve heard of Bitcoin, cryptocurrency and blockchain technology. Blockchain technology was made popular by Bitcoin but most people fail to realize Bitcoin was built on blockchain technology.
I hope you’re not getting confused because we just getting started. Now let me break it down. Blockchain is a distributed/decentralized ledger where information is stored. It’s like a platform where you record transactions and these transactions aren’t stored on a central server but on different servers located in different locations worldwide, that’s why it is called a decentralized technology.
Blockchain technology came to limelight in 2008 when Satoshi Nakamoto the inventor of Bitcoin wrote about it in his Bitcoin whitepaper (the beginning of the cryptocurrency era). He described blockchain technology as a decentralized system where immutable transactions can be recorded and accessed in the future -from anywhere in the world. Since the creation of blockchain technology it has had a massive impact on the world economy, it’s impact can be compared to that of the world wide web. In this article we will be telling you about blockchain technology, how it works, and the features that makes it the most powerful technology around right now. At the end of this article you will have a clear understanding of what blockchain technology is and how it works in the everyday world.
What is Blockchain Technology?
If your browse through the internet or ask a simple question on Google, let’s say you type in what is Blockchain technology and the answers you will get will be along this line “blockchain technology is a decentralized ledger where transactions are stored”.
In the real sense of its name, block means chunks of information stored in a distributed database called the chain. For anything to become a chain it has to be linked together, that’s why the blockchain is a network of linked databases stored on different servers all over the world. The blocks on a blockchain network is made up of three distinct pieces of information. The first information it stores is that of the transactions like the date, time, amount and other relevant information about the transaction. It also stores information about the person initiating the transaction and thirdly it stores information that distinguishes the information on one block from that of another block, for this it uses what we call “hash”
How Blockchain Technology Works
Now you’re familiar with blockchain technology. Now we should look at how blockchain technology works. Before we get into this, let me give you a simple analogy of how blockchain works. Let’s say your family really loves music and you guys are creating a music playlist, a blockchain is considered as an always evolving music playlist. When one member of your family (let’s say your dad) adds a new song to the playlist you’ve created a new version of that playlist, for blockchain you’ve created a new block on the chain. This new playlist contains the song your dad just added plus the old songs on the playlist, right? That means a new block has been added to the chain. If your little sister decides to add some millennial trap song or some cool Afrobeats to the playlist, the family has to approve of this new type of song, right? That’s what we call a consensus mechanism (Proof of stake, proof of work, etc).
When the new playlist has been approved by everyone it is added to the playlist or a new block is added to the chain to create a new version of the playlist containing old songs and the newly added song. The more information is added to this playlist the more it keeps evolving, that’s basically how blockchain technology works.
Now let’s give you a formal explanation of how blockchain technology works. A blockchain as the name suggest is a chain of blocks that houses information about everything and anything. When a transaction is made on the blockchain, the network creates a new block on the chain for that particular information, the block is unique and added to the chain. Before that information is added to the blockchain, Miners need to approve the transaction using consensus mechanism unique to that blockchain network. For the Bitcoin blockchain the proof of work consensus algorithm is used. Once the transaction has been approved it is added to the block. Each new block added to the network has a cryptographic hash (blockchain uses cryptography to secure its network from tampering) of the previous block on the blockchain network, it also contains the transaction data and the timestamp of the previous block on the chain.
This is why a blockchain platform is tamper proof. Once a record had been uploaded to a blockchain network it is almost impossible to tamper with it – you will have to change all subsequent blocks on the network and you can only do this when a majority of the users on that blockchain agrees with you and that my friend is like the Avenger’s defeating Thanos without Tony Stark (impossible!).
Major Features of Blockchain Technology
What makes blockchain stand out is its unique features. These features makes it stand out from the traditional technology and it is the reason why the fintech industry is gradually shifting towards the mainstream adoption of blockchain technology.
Immutability: One of the key features of blockchain technology is the fact that it is immutable. This simply means once information has been stored on the blockchain it cannot be changed, altered and even deleted without leaving breadcrumbs (trace). This is why the
blockchain is incorruptible (can’t be corrupted). Blockchain technology works differently from the existing bank methods of storing transactions. A bank record can always be altered, changed or deleted but on a blockchain network, any new block added contains information of the old block in the network and every node has a copy of the blockchain stored in it.
This means before a transaction or record is added to the blockchain every node needs to validate this transaction and they have to agree that the block is valid before it is added. This means no one can just wake up and add a record to a blockchain without getting approval from a majority on the network. This is what make it incorruptible; no one can also alter information stored on the network without getting permission from a majority of the people on the blockchain network.
Decentralized: The decentralized nature of the blockchain is its unique selling point. The decentralized nature means it doesn’t have any governing body overseeing it or any third-party you need to go through when accessing the network. The normal banking system is a centralized system where information is stored in a central server and governed by the leaders of that bank.
Let’s say you’re sending money to someone you have to go through the bank – who act like a third party or governing body, with blockchain it is different. You send information or funds directly to the recipient without passing through a third party or wasting time getting approval from a governing body.
For a network to be decentralized its nodes will be located in different parts of the world and not located in a central server. A centralized system is vulnerable to hacks and isn’t tamper proof but a decentralized system is tamper proof since no single person has control over it and it is almost impossible to hack.
Secured: The reason why blockchain technology is getting love from the fintech sector is the fact that it is a secure network. You might be asking why blockchain is so secured and it just lies in the fact that it isn’t a centralized system, this means no one can tamper with the network for no reason. Another reason why it is so secured is because it is encrypted with the highest level of
cryptography. Cryptography added to decentralization makes the network almost impossible to hack or tamper with.
Consensus algorithm: The blockchain consensus algorithm makes the system even more secure. This consensus mechanism has been put in place to help the blockchain network make decisions that’s beneficial to the network. The consensus mechanism of the blockchain network makes blockchain technology absolutely powerful. Every node on a blockchain network has to validate a transaction before it is recorded on that platform, that why it is called a consensus mechanism; nodes consenting to information
being uploaded to the network. There are different consensus algorithm for different blockchain networks but the most
important thing is that they all have the feature and that makes the technology a really strong opposition to already existing technology.
The features listed above and other functionalities offered by blockchain technology makes it one of the best inventions ever and thanks to Satoshi Nakamoto the world will enjoy this beautiful technology. The great thing about this tech is that we have even barely scratched the surface and we have already seen how awesome it is and how much it can offer to the world in general.