What Is Blockchain Technology And How It Works
It seems that the entire world is obsessed with the blockchain. If you still struggle with the understanding of what is the blockchain, and what are the blockchain technologies, read this brief article for the beginners who want to get the basic knowledge on this subject.
The simplest blockchain technology definition states that it is a chain consisting of blocks. These chains contain all kinds of information and data. But in 1991, a group of researchers created this system for another purpose. Actually, they intended to develop an electronic timestamp for documents, lest anyone should forge them. However, it wasn't popular among people until the turning point in 2009.
The history of the blockchain and bitcoin
In 2009 a man, whose name is still unknown, (but he calls himself Satoshi Nakamoto) decided to use blockchain for a new type of cryptocurrency called Bitcoin. From that moment blockchain and bitcoin blended and created the blockchain BTC. Nowadays this system of blockchain technology bitcoin is used as a basis of any cryptocurrency, representing one of the safest systems in the world.
What is blockchain technology and how does it work?
The basis of the blockchain technology is the combination of thousands of blocks. The three parts of any block include data, hash and the previous block’s hash.
Hash is needed to secure the content. It is a unique number, which identifies all the single blocks and their data. It is like a fingerprint, because it is unique and never duplicates or occurs again. As soon as the block is created, it automatically gets its hash. If anybody cracks or changes the block content, the number immediately alters depending on the content of the block. With changed content, the block is not the same anymore, so it requires a new hash.
In addition to this, all the blocks in the blockchain system include the previous block’s hash to ensure consistency. For this reason, the blocks depend on each other and create chains. These chain connections enabled the creator of the blockchain technology to develop Bitcoin and to guarantee its safety and reliability.
- Proof-on-work. In addition to the sophisticated chain system, the new blockchain technology contains mechanisms that slow down the speed of new blocks’ creation. They are called Proof-on-work, and they serve to prevent recalculations of hashes;
- Distribution is another mechanism that guarantees the security of your data or money. The blockchain information is distributed among the network users due to the P2P system. Any volunteer may join the network after verification. In this case, a new block is sent to him and everyone else in the network. To add it to the blockchain, the network users must verify it, too;
- High speed. While the banks may do the transactions for hours or even days, all the transactions through the blockchain technologies are instant.
As you can see, the main advantages of the bitcoin technology blockchain system are closely related to its security and high speed. However, it is not perfect at all, having its own flaws and weaknesses. Thus, it is far from obvious whether the digital money will ever take the first prize in the competition with paper money, but we must be well-prepared and know the weak sides of the system.
The blockchain’s main issues
Even though blockchain technology and bitcoin have many advantages, there are some serious issues to consider as well. They concern the scalability and anonymity of the system:
- Scalability. To provide the system’s stable work, thousands of its participants must hold up-to-date copies. This is quite inefficient, as holding the copies means receiving constant updates around the world. This is the reason why it takes quite a lot of time for data to move throughout the network;
- Anonymity. When the Bitcoin was created, the blockchain technology was often associated with illegal activities, mainly because of its decentralized nature and lack of governmental control. So, even if the cryptocurrency owner took part in illegal activities, the police just couldn’t link his/her e-wallet to a particular person. Now the Bitcoin is no longer that anonymous. If one trades Bitcoins, he/she must verify his personality. But those early anonymous days still contribute to the stained reputation of blockchain and Bitcoin.
Blockchain guide: brief conclusion
Let’s recap the major points about blockchain:
- What is the blockchain technology? Blockchain technology meaning is a distributed ledger open to any person. It is used to keep or transfer data, information or even money. It consists of blocks, each of which possesses its unique number – hash.
- How is blockchain connected with bitcoin? Bitcoin is a cryptocurrency. The developer of the bitcoin is Satoshi Nakamoto; he made the blockchain technologies popular. Now Bitcoin and other cryptocurrencies use the blockchain to conduct crypto-transactions.
- What are the blockchain technologies? Why are they so popular? Blockchain has gained such popularity because this is a unique and secure system. It was developed with reliability and stability in mind. The sophisticated hash combinations’ system, proof-on-work and smart contracts programs combining with the mechanisms of distribution create a stable system, which is almost impossible to crack.
Now you know the meaning of the blockchain technology, its advantages and disadvantages, and in what fields it can be useful.
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