Think of blockchain as a book(ledger) that records transactions securely and transparently, but makes it distributed and decentralized. that means that instead of one central server, it is replicated across a network of computers. Each block in the chain contains transactions(data) and a link to the previous block. This provides an unbreakable chain of information.
Blockchain can potentially revolutionize not just the finance sector, but the health care, identity management, and even electoral processes. In this article, you will learn and understand the way blockchain works, its key components, use cases, and most importantly the future of blockchain.
How Does It Work?
To understand what blockchain is, you have to first understand how blockchain works. But before we get into that there are a few terminologies you should get familiarized with.
Cryptographic hashing: Each block has a unique hash, which is like a fingerprint. If any data in the block changes, the hash changes completely, making it easy to detect tampering.
Consensus mechanisms: In a decentralized network like a blockchain, there needs to be a way for nodes (computers participating in the network) to agree on the validity of transactions and the state of the ledger
Distributed networks: No single node controls the blockchain. This makes it resistant to hacking and manipulation.
Proof-of-Work(PoW): Nodes compete with each other to solve a complicated mathematical problem. The first node to solve the problem wins the next block to validate and win rewards. This system is safe but consumes a lot of power.
Proof-of-Stake(PoS): Nodes stake their crypto assets to confirm transactions. Nodes with the largest stake have a better chance of being selected to confirm a block and receive remuneration. This is more energy efficient than PoW.
The mechanism of a blockchain can be explained in three easy steps;
Initiation of Transaction: Imagine Ebube wants to send 1000 apples to Uloma, this is referred to as a transaction and this transaction is broadcast to the network of computers called nodes.
Creation of a block: These nodes compete to solve a complicated mathematical equation and the first node to solve the equation gets to create the next block in the chain. This new block would contain the transaction( Ebube sending 1000 apples to Uloma), a unique identity called hash, and the hash of the previous block, linking everything together.
Validating and Distribution: All the other nodes would then Verify the new block and ensure its validity. They would check its mathematics, the transaction data, and the chain link. If valid, the new block is then added to each node's copy of the blockchain, creating a distributed and consistent record of the transaction.
The mechanism of blockchain would not be possible without decentralization. Decentralization in its most basic form just means the distribution of authority and power away from a central server/point and towards a wider network or group.
Key Components Of a Blockchain
Cryptographic hashing plays a vital role in blockchain technologies as no technology is safe without proper security measures. It acts as the glue that binds the entire chain together and it is important because it provides;
Data integrity and Tamper detection.
chain linking and verification.
secure transaction and identity management.
builds trust and transparency
Another vital component of any blockchain is what I refer to as the 'power couple'. Smart contracts and nodes.
Smart contracts are like self-executing agreements that are written in codes and stored on the blockchain. They are the definers of the T&C of an agreement, and when those conditions are met, the contract automatically executes.
Nodes, on the other hand, are the backbone of any blockchain network. They are computers, as earlier mentioned in this article. And they store a copy of the blockchain, validate transactions, and run smart contracts.
Use Cases Of Blockchain
The most popular use of blockchain is in the development of Cryptocurrencies. Cryptocurrencies facilitate secure and transparent transactions without the need for a central intermediary. This is what currencies like Bitcoin and Ethereum run on.
There are other use cases for blockchain technology, like;
Securing transactions
Decentralizing network transactions
Immutability
Conclusion
In this article, you learned what a blockchain is, how it ensures transparency the role of nodes and smart currencies in making transactions run smoothly and properly, and the role of cryptographic hashing in securing the links between different blocks and the various use cases of blockchain.
Blockchain is just not a trend, it is ever-evolving, and it is important to get yourself abreast with the developing trends.