Blockchain technology has become a buzzword in recent years, but many people are still unclear about what it is and how it works. In this blog, we’ll explore the basics of blockchain and how it has transformed the world of finance, supply chain management, and more.
What is Blockchain?
Blockchain is a decentralized and distributed digital tally that records deals across a network of computers. Consequently, designing the ledger to be immutable means that once a transaction has been recorded, it cannot be altered or deleted. This creates a permanent and secure record of all transactions on the network.
How is Blockchain created?
Blockchain is created by reaching a consensus, where the network of computers agrees on the current state of the ledger. The consensus algorithm ensures that the network agrees without relying on a central authority. Proof of Work (PoW) is the most common consensus algorithm used in blockchains.
How Does Blockchain Function?
It records transactions in blocks, linking them together to form a chain. Each block contains a unique code, called a hash, that links it to the previous block. This creates a secure and endless record of all deals on the network.
To make a transaction on the blockchain, a user must first create a digital signature.
Which is a unique code that identifies the user and authorizes the transaction. Verifying and adding a transaction to the next block in the chain occurs after broadcasting it to the network.
Adding a transaction to the chain makes it permanent and viewable by anyone on the network.
Applications of Blockchain
Blockchain has a wide range of applications, including:
- Cryptocurrencies: It is the underlying technology behind many popular cryptocurrencies, such as Bitcoin and Ethereum.
- Supply chain management: Using blockchain tracks the movement of goods and materials through the supply chain, ensuring transparency and accountability.
- Healthcare: Using blockchain securely stores and manages patient medical records, thereby improving patient privacy and data security.
- Finance: Using blockchain can improve financial transactions by making them faster, more secure, and less expensive.
Blockchain’s Impact on Finance and Supply Chain
The decentralized nature of blockchain technology is one of its crucial features. Unlike traditional systems that rely on a central authority, it operates on a decentralized and distributed network of computers, effectively eliminating the need for intermediaries and thereby making transactions more secure and transparent.
Multiple computers in the network store copies of the ledger, and this is how blockchain operates on a distributed ledger.
This makes it almost impossible for the ledger to be hacked
or manipulated, as it would require changing the ledger on every computer in the network.
Designing the ledger in blockchain technology to be immutable ensures that recorded transactions
remain permanent and cannot be altered or deleted. This creates a permanent and secure record of all transactions on the network.
To initiate a transaction on the blockchain, a user creates a digital signature to identify themselves and authorize the transaction. The network then verifies the transaction and broadcasts it, adding it to the next block in the chain.
A chain forms by linking together blocks that record transactions. Each block contains a unique code, called a hash, that links it to the previous block. This creates secure and endless record of all deals on the network.
The consensus algorithm is the process by which the network of computers reach an agreement on the
current state of the ledger. The consensus algorithm ensures that the network reaches an agreement without relying on a central authority. Blockchain commonly uses Proof of Work (PoW) as its consensus algorithm.
It uses cryptography to secure the transactions and ensure the integrity of the ledger. This includes the use of
digital signatures and hashing to secure the transactions and link the blocks together in the chain.
A smart contract is a self-executing contract with the terms of the agreement directly written into code. Smart contracts automate processes and eliminate the need for intermediaries, speeding up transactions and making them more efficient.
Read the second part of this blockchain series, click here.
Blockchain is a revolutionary technology that has the potential to transform many industries.
Its decentralized and secure nature makes it ideal for a wide range of applications, including finance,
supply chain management and healthcare.
By understanding the basics of blockchain, we can see how it has the power to create a more secure, transparent and efficient world.