Blockchain Explained in Simple Words

 

The concept of digital money has been around for a long time. Blockchain is that disruptive technology that ensures the authenticity of the cryptocurrency.

What is Blockchain?

In simple words – Blockchain is a database. It is referred to as digital ledger, often called DLD (Distributed Ledger Technology). The concept of cryptocurrency or online money requires the guarantee of safety and authenticity. Blockchain is here to solve it.

What makes it unique from other databases?

Unlike other databases, Blockchain is a shared database that is connected to a network of computers. The technology is decentralized; it stores a registry of transactions across a peer-to-peer network. The transactions are secured through cryptography. The transactions are inscribed in blocks of data that are linked together in a chain to ensure security.

The digital assets are distributed, not copied or transferred. The ledger is constantly under check and validation in the network. Once a record is added, it is very difficult to alter or forge. It creates an impeccable, immutable record of all the transactions in the network. This transaction record is written on all the computers in the chain.

All the shared computers in the network can access the record and validate the transactions. As a result, iron-clad security is ensured. It filters out frauds, forgery, duplication and prevents hacking. The secured nature of Blockchain technology is the reason it is being hyped, and all the cryptocurrencies are using it.

It has even opened the door for non-fungible tokens.

Google Docs could be a simple example to understand Blockchain technology. When a google doc is shared, the file is distributed rather than transferred. It allows access to all the parties in the chain. When modifications are made, everybody can see it.

How it works?

Three essential parts of a chain are –

Blocks, Nods, and Miners.

When a transaction record is accepted, it is added to a block. Each block has three things: the hash and the hash of the previous block. The first block is called the Genesis block.

The data stores the details of transactions. The information about the asset, the sender, the receiver, etc is the details of a transaction.

The Hash is a unique identity of a block and all its data. Once a block is created, its Hash is electronically produced. Any alteration in the block will automatically change its Hash. So, when a Hash of a block is altered, it no longer remains the same block that was created in the first place.

The final part of a block is the Hash of the previous block. In this method, the security of the chain is ensured.

However, Hash alone is not the only thing that makes it difficult to tamper with the blocks. Here comes the other parts – Nods and Miners.

Blockchain uses distribution method to keep and validate the transaction records in the digital ledger. The ledgers are a peer-to-peer network that is connected to everyone. The nodes are the electronic devices that keep the copies of the chain and connect to the network.

Nods

When someone joins the network, he/she receives a full copy of the chain. Everyone is allowed to join. When a new block is created, it is sent to everyone. After being verified by all the nodes, the block is added to the network. The Blockchain is very transparent. Every record in the chain can be viewed and verified by its members.

These Nods validate each and every block. The tempered blocks will be rejected by the Nods.

To temper the blocks in the chain, hackers will need to change all the blocks, redo every process, and gain control over at least 51% of the nodes. That is one difficult job.

Miners

Miners are responsible for the creation of new blocks.

Mining isn’t an easy job. As mentioned, every block has three parts. Miners have to work with every element of a block to create a new one. That part of the job is very complex. They have to go through complex mathematical puzzles and solve them in time to find a block nonce (electronically generated during the creation of a block) that approves a Hash.

This part is very complex and difficult. There are billions of combinations. Miners have to work tediously to find the golden combination. When a miner finds an approved combination, his block is added to the network.

But that is only one part of the equation. Mining is an extremely competitive job, for which miners use special kinds of software with advanced computers. These computers are built with strong and ultra-fast parts. They also contain optimum graphics cards. Computing power is very essential in the mining competition.

The reward for miners is also very high. When a block is accepted, the miner is financially rewarded. Bitcoin currently rewards 6.25 BTC for the creation of every new block. With the current sky-high price of the cryptocurrency, that is a huge reward. Without miners, there will be no new Bitcoin. Reportedly, it will be the year 2140 when the last Bitcoin is mined. So the mining game isn’t going anywhere soon.

Blockchain is the digital equivalence of authenticity certification. With an intricate mathematical model, it ensures security. Disruptive technology has already swept the world, and it opens doors to a new dimension.