In the present era, technology is growing day by day. The Market Grows in Parallel
What is Blockchain?
If this technology is so complex, why call it “blockchain?” At its most basic level, blockchain is literally just a chain of blocks, but not in the traditional sense of those words. When we say the words “block” and “chain” in this context, we are actually talking about digital information (the “block”) stored in a public database (the “chain”). It works on the combination of two networks.
“Blocks” on the blockchain are made up of digital pieces of information. Specifically, they have three parts:
- Blocks store information about transactions like the date, time, and dollar amount of your most recent purchase from Amazon. (NOTE: This Amazon example is for illustrative purchases; Amazon retail does not work on a blockchain principle as of this writing)
- Blocks store information about who is participating in transactions. A block for your splurge purchase from Amazon would record your name along with Amazon.com, Inc. (AMZN). Instead of using your actual name, your purchase is recorded without any identifying information using a unique “digital signature,” sort of like a username.
- Blocks store information that distinguishes them from other blocks. Much like you and I have names to distinguish us from one another, each block stores a unique code called a “hash” that allows us to tell it apart from every other block. Hashes are cryptographic codes created by special algorithms. Let’s say you made your splurge purchase on Amazon, but while it’s in transit, you decide you just can’t resist and need a second one. Even though the details of your new transaction would look nearly identical to your earlier purchase, we can still tell the blocks apart because of their unique codes.
While the block in the example above is being used to store a single purchase from Amazon, the reality is a little different. A single block on the Bitcoin blockchain can actually store up to 1 MB of data. Depending on the size of the transactions, that means a single block can house a few thousand transactions under one roof.
How does blockchain works?
Simply blockchain is “When more than one blocks come together and form a particular network of chain then it can be called blockchain”.
Blockchain works on the concept of peer to peer network. A blockchain is simply a chain of blocks that contains information. Each block has a cryptographic hash of the previous block, a timestamp, and transaction data.
Although the design is simple, it is this design that makes Blockchain invulnerable to data tampering.
Blockchain technology is an open distributed ledger that can record transactions of two parties securely and efficiently. As it is distributed, Blockchain is typically managed by a peer-to-peer network working simultaneously together to solve complex mathematical problems in order to validate new blocks. Once recorded, the data in any given block cannot be updated retroactively without changing all subsequent blocks, which requires the confirmation of the majority in the network. This is the main reason why blockchain technology is secure and not susceptible to hacking.
- A node starts a transaction by first creating and then digitally signing it with its private key (created via cryptography). A transaction can represent various actions in a blockchain. Most commonly this is a data structure that represents the transfer of value between users on the blockchain network. Transaction data structure usually consists of some logic of transfer of value, relevant rules, source and destination addresses, and other validation information.
- A transaction is propagated (flooded) by using a flooding protocol, called Gossip protocol, to peers that validate the transaction based on preset criteria. Usually, more than one node is required to verify the transaction.
- Once the transaction is validated, it is included in a block, which is then propagated onto the network. At this point, the transaction is considered confirmed.
- The newly-created block now becomes part of the ledger, and the next block links itself cryptographically back to this block. This link is a hash pointer. At this stage, the transaction gets its second confirmation and the block gets its first confirmation.
- Transactions are then reconfirmed every time a new block is created. Usually, six confirmations in a network are required to consider the transaction final.
Transactions are then reconfirmed every time a new block is created. Usually, six confirmations in the Bitcoin network are required to consider the transaction final.
Video on how blockchain works…