What is Blockchain, and how does it work?

For the past few years, you might have heard continuously or come across the term ‘Blockchain’ or sometimes referred to as Distributed Ledger Technology (DLT), on social media, discussions, news, mostly regarding cryptocurrencies like Bitcoin. With so many technological advancements taking place every day, it is imperative to understand what Blockchain is, the technology used, how it works as it is being exchanged among us as a means of transactions. 

According to Global Data’s Thematic research report, the demand for cryptocurrencies receded by 20% during 2018 compared to the previous years. The reason is that businesses prefer to deploy traditional approaches for their earlier stage projects rather than blockchain technology. So what is this Blockchain that is making so much noise!!!!

What is Blockchain?

In the beginning, one might find this term very complicated. Still, at its core, it is a database, or to make it a bit complex, blockchain is a structure that stores transactional records, also known as the block, of the public in several databases, known as the “chain,” in a network connected through peer-to-peer nodes. Typically, this storage is referred to as a ‘digital ledger,’ built around a P2P (peer to peer) system.

A straightforward analogy for understanding blockchain is a Google Doc that is so dear to us. When we create a document and share it with a group of people, it is distributed instead of copied or transferred. This practice creates a distribution chain that gives everyone access to the document simultaneously without anyone being the sole controller of the document.

Furthermore, every transaction in the ledger is authorized by the owner’s digital signature, which authenticates the transaction and safeguards it from tampering. Hence, the information the digital ledger contains is highly secure.

How does Blockchain Technology work?

Blockchain is a combination of three concepts: miners, blocks, and nodes, along with three technologies wiz cryptographic keys, a peer-to-peer network containing a shared ledger,  computing to store the transactions and records. 

1. Miners
   Miners create new blocks on the chain through a process called mining. They use special software to solve the incredibly complex math problem of finding a nonce (which is an arbitrary number used just once in a cryptographic communication.) that generates an accepted hash. Because the nonce is only 32 bits and the hash is 256, roughly four billion possible nonce-hash combinations must be mined before the right one is found, and if they get lucky, then they are said to have found the “golden nonce”, and their block is added to the chain.
2. Blocks
   Every chain consists of multiple blocks, and each block has three essential elements:
   1. Data
   2. A 32-bit whole number called a nonce.
   3. Hash, a 256-bit number linked to the nonce.
3. Nodes
   Decentralization is the most imperative concept in blockchain technology. No one computer or organisation can own the chain. Instead, it is a distributed ledger via the nodes connected to the chain. Nodes can be any electronic device that maintains copies of the blockchain and keeps the network functioning. 

Cryptographic keys consist of two keys – Private key and Public key. These keys help in performing successful transactions between two parties. Each individual has these two keys, which they use to produce a secure digital identity reference. In the world of cryptography, this identity is known as a ‘digital signature.’ 

The digital signature is then merged with the peer-to-peer network; many individuals act as authorities using the digital signature to reach a consensus on transactions. When they authorise a deal, it is certified by a mathematical verification, which results in a successful secured transaction between the two network-connected parties. To sum it up, Blockchain users employ cryptography keys to perform different digital interactions over the peer-to-peer network.