A recent study found that there are over 170 million blockchain wallets worldwide. Blockchain has grown in popularity over the last few years, but what exactly is it, and how does it work?
Don’t worry! We’ve investigated everything you need to know about blockchain technology. That way, you can decide if blockchain networks are right for you.
Now, are you ready to get started? Here’s an in-depth look at the blockchain network:
What Is Blockchain?
Blockchain is a shared database that records and distributes data across various computer networks. Blockchain aims to record and distribute but does not allow data to be edited.
It’s become the foundation for immutable ledgers and record transactions that can’t be altered or deleted. Thus, blockchains are also known as distributed ledger technology or DLT for short.
Blockchains have grown in popularity for maintaining a secure record of transactions in a number of cryptocurrencies. However, blockchain is most well known for its role in Bitcoin.
Its innovation is in how blockchain is structured. Unlike typical databases, blockchain collects data in groups known as blocks.
These blocks also link to previous blocks forming a chain of data points giving the blockchain its name. Any information that comes after the newly filled block will be compiled and linked to the block to continue the data chain.
This structure helps to make the data irreversible; that way, there’s a concrete and permanent timeline for each transaction. For instance, when a block is filed, that information is unchangeable in the timeline. It’s given a timestamp and allows anyone to view it for further recording or verification purposes.
How Does Blockchain Technology Work?
In the years since it was created, blockchain has exploded with the creation of various cryptocurrencies, NFTs, and smart contracts. But how exactly does blockchain technology work?
We’ve listed the four main processes and their roles below:
Transaction Process
Once a new transaction is made, the transaction is submitted across a variety of different networks. The networks work to verify the transaction by using mathematical equations.
The verification process can take anywhere from five minutes to two hours. However, if the network senses a problem, manual verification must occur. Manual verification may take as long as two days.
Once a transaction is verified, the transaction is then sorted into blocks. The blocks are linked together to create a log history of previous and current transactions. When the blocks are recorded together, the transaction is complete.
Cryptocurrency Features
Cryptocurrency has certain features, but unlike a bank, they are not decided upon by a board of directors. Instead, features and rules are decided by the majority of its members. This makes the network decentralized since everyone has a voice and can use their voice to state wanted features.
We will talk more about decentralization and its role in blockchain in the next section. For now, let’s take a look at blockchain’s various features.
Blockchain has no physical form. It doesn’t have any cash or coins. Instead, when money is transferred, it’s transferred digitally from one person’s e-wallet to the next. For those that don’t know, e-wallets contain all your digital currency in one place, so you don’t have to open multiple windows to see your money.
You can transfer money directly to your e-wallet or into your crypto account. Either way, the blockchain will record the transaction making a log of who you sent the money to, the amount, along with a timestamp and whether or not it’s been verified.
Since blockchain has no physical form, it has intrinsic value. You see, with blockchain, currency can easily be tracked and recorded at little cost, making it a valuable way to transfer money.
Decentralization
With blockchain, there is no central source, person, or entity. It’s completely decentralized, and that’s by design.
After all, centralized institutions often store money in one physical space or through one to two networks. In doing so, hackers have a better chance of succeeding since all the money is in one place. Decentralization provides better security while also offering greater transparency and flexibility to its members.
Members have the ability to transfer their money anywhere at little to no cost. Unlike banks that stipulate which ATMs you can use and limit transaction numbers, blockchain offers members a new type of banking system.
Blockchain enables you to send money when you want, how you want, and at any amount. It provides greater access so you can have control of your money.
Transparency
Due to decentralization, anyone can view any transaction made on the blockchain. All you need is a personal nod or use a blockchain explorer. In other words, you can track cryptocurrency and where it goes.
Of course, records are encrypted, so to view intimate details of the transaction, you must be the owner and use a public and private key. As a result, blockchain succeeds at providing amenities without sacrificing transparency.
Types of Blockchains
There are two common types of blockchains public and private. Public blockchains are distributed across different networks rather than being stored in one physical location. Thus, anyone can view the information or join the network if they have the right key.
To secure the network, a consensus algorithm verifies information by performing proof of stake or proof of work, two common authentication methods. Bitcoin and other cryptocurrencies like Ethereum or Tether are examples of public blockchains.
Private blockchains, on the other hand, operate on closed systems. This allows businesses to customize their security and authorization policies. For example, companies s may require each connection to be verified before moving forward; that way, they know the network is secure and can be trusted.
How Is Blockchain Secure?
Blockchain develops decentralized security and trust in a number of ways. To begin with, blocks are always stored chronologically, meaning that new blocks are added to the end of the chain.
It’s extremely difficult to go back and alter the data chain once a block has been added to the end. This is because each block has its own hash, as well as the hash of the previous block and its timestamp.
Hash codes, for those that don’t know, are mathematical functions that enable digital data to be read in numbers and letters. If the code were altered in any way, the entire code would change.
For instance, let’s say a hacker wants to change a blockchain so they can steal cryptocurrency. Once they change one copy, it will no longer connect to the blockchain. As a result, the copy would immediately be cast out as illegitimate since the copy doesn’t align with the agreed-upon chain.
For a hack to occur, the hacker would have to take control of the system and change about 50% of the blockchain so that their new copy would be the majority. This type of hack would cost an enormous amount of money and need many resources to complete.
With cryptocurrency networks becoming so fast and vast, it’s incredibly unlikely that a hack would occur. Even if a hack does happen, it won’t go unnoticed. Network members would radically change the blockchain, making the hacked copy decrease in value, thus, making the attack fruitless.
The system is built this way, so it incentivizes using the system rather than attacking it. While blockchain is newer, leading many to be apprehensive, there’s no denying that it’s a secure and safe way to log data.
How Are Blockchains Used?
Blockchains are used to record and store transactions. These transactions are usually of monetary value resulting in a new way of banking.
In fact, all cryptocurrency is formed on the bedrock of blockchain. Its ability to spread operations across networks enables all cryptocurrencies to operate without the need for primary authority. This reduces fees and creates a more stable currency for a larger number of individuals.
As a result, cryptocurrency ATMs and wallets are becoming increasingly popular, especially in this location and other areas of the United States. However, blockchains are also being used outside of banking and finance.
For example, large food corporations use blockchain to record materials, track food distribution, and more. Even healthcare providers are starting to use blockchain as a way to secure patient medical records. While blockchain may have started as an alternative banking method, it’s becoming an essential resource for corporations and businesses.
Use Blockchain Today
Blockchain technology is a preview of the future. It doesn’t only record and distribute information, but it prohibits any change or deletion.
Its structure ensures that records stay the same, so you can use them for analytic or verification purposes. Due to its structure, it can be used for public or private purposes – how cool is that?
So ditch your bank and start using blockchain today. For more information about technology and cryptocurrency, visit our blog.