Defining Blockchain Technology and Its Related Applications

Blockchain is one of the biggest buzzwords today and it is considered one of the most promising emerging technologies. Blockchain application development has the power to change the traditional business as we know it but what is blockchain? This article helps you to understand it step by step and in the simplest way possible.

Problems with the Traditional Ways

Ever imagine if there's an easier way to complete transactions without having to deal with online wallets, banks, and third-party applications, well, it's possible, thanks to blockchain.

But what are the problems with the above ways? There are many limitations to these methods such as :

The transaction could fail due to technical issues at the bank
Accounts could be hacked
Daily transfer limits are exceeded in sometimes
Additional charges like transfer charges
Sometimes transactions may take many days too etc.

The Concept of Cryptocurrencies - Solution

To solve these problems the concept of cryptocurrency came into existence. Cryptocurrencies are a form of digital or virtual currency designed to work as a medium of exchange that is secured by cryptography that runs on the technology known as blockchain. It's a peer-to-peer system that can enable anyone from anywhere to send and receive payments.

Cryptocurrency uses strong and complex encryption algorithms to protect transactions, so it got its name. It doesn't require a central authority as all transactions are recorded in a public ledger.

Bitcoin was the first cryptocurrency, Satoshi Nakamoto creator of Bitcoin described the project as "an electronic payment system based on cryptographic proof instead of trust."

Now we have got some idea about basic stuff to understand the blockchain.

Check It Out | How Blockchain Solves the Intellectual Property Problem of AI

What is Blockchain

Let us look at the definition first. Blockchain is a peer-to-peer, decentralized, and distributed database that is cryptographically secure, append-only, immutable, and updateable only via consensus.

Now we have some important terms in our definition. Okay, if those words seem difficult, then let me break it down for you:

Peer-to-Peer and Decentralized

There is no central authority to control the whole system or network, all the participants can connect directly.

Distributed-Database

It is a Ledger (Data file) shared with all the people in the network and each one is holding a copy of the complete ledger.

Cryptographically Secure

Data on the blockchain is secured by cryptography (a method of converting data to random string)

Append-only and Immutable

Data once added to the blockchain is almost impossible to change but can be altered only if more than 50% of the nodes (computer operates on the network) agree to do so, hence it is immutable.

Updateable only via Consensus

Consensus means agreement and in this context data in a blockchain can only be updated after everyone on the network agrees to new data.

Also, Discover | Exploring the Top Blockchain Platforms for Your Enterprise

Why is it called a Blockchain

To understand this let us consider a block which is nothing but a collection of data. Block consists of two parts: the Block Header and Block Body where the block body can store any information according to need and the block header stores the hash of the previous block where the hash is a fixed-length encrypted string that is generated uniquely for particular data provided.

Now let's have a closer look at that block.

Consider a block that stores transaction information such as senders' data, receivers' data, and also the amount in the body. It also has a header that stores the hash of the previous block. This is the first block so its previous block hash will be empty. The first block of the blockchain is also called the GENESIS BLOCK.

Now we have another block with new transaction details. In this case, we also have the hash of the previous block which points to the previous block of the blockchain. With the previous block hash, these blocks make a chain together and hence it is called a blockchain.

What makes Blockchain so Secure

Blockchains rely heavily on cryptography to achieve their data security which is achieved through cryptographic hashing functions. These functions generate the hash of the block based on both the data contained within that block and the hash of the previous block.

If someone tries to change the data of the block say amount then the hash of that block will also change due to this reason the next block which was storing the hash of this block cannot find the block now and hence the chain breaks. This makes the blockchain very secure and immutable.

If you are interested in blockchain app development, then connect with our blockchain developers to get started.