Blockchain technology is the next big thing after the internet revolution that has touched our lives in many ways. The recent developments in this field have opened up a whole new world of opportunities. In this post we’re going to look into How Does Blockchain Technology Work, it’s uses and how it works with cryptocurrency.
What Is Blockchain Technology?
Blockchain is basically a Distributed ledger that contains all of the the cryptocurrency transaction information, the technology works as a giant real-time database where every transaction ever made on the network gets recorded for everyone to see. It record all transactions made by users anonymously and securely via cryptography. It also ensures that once a transaction has been verified it cannot be changed.
How Does Blockchain Technology Work?
Blockchain technology works in a similar way to how banks use multiple accounting ledgers when you transfer money from your savings account to your checking account – instead of using authorised accounts operators it uses digital ‘signatures’ called private keys. Behind every cryptocurrency transaction is a unique private key, which is created and owned by the user who initiates it.
The blockchain stores information about every single cryptocurrency transaction that ever takes place, from one wallet address (which could be Bitcoin, Ethereum etc) to another. It’s a public record of all transactions made since the start of its existence.
Each block contains relevant information such as who sent it, what and when they did so together, Each block make up the ‘chain’ in Blockchain.
Cryptographic links are made from one block to another in such a way that if any information is altered in the blockchain, all subsequent blocks will be changed as well. To change the old data, an attacker would have to alter each block on the chain (which must be done simultaneously).
Private key are needed to verify a digital signature attached to a transaction, just like how you need your PIN number when you withdraw cash from an ATM, or how you use your signature for identification when making purchases with your debit card.
Miners are rewarded with a single unit of cryptocurrency each time that they successfully add new blocks to the blockchain.
Nodes are computers or networks that stores information as every other node in a blockchain. Each node on a network has its own complete copy of the blockchain, which it uses to check for double spending and confirm the relationship between transaction inputs and outputs.
How Does Blockchain Technology Work With Cryptocurrency?
A cryptocurrency is an encrypted decentralized digital currency which runs on a public blockchain. It uses cryptography to prevent frauds like double spending, money laundering, identity theft etc, as well as ensuring that no single person has more than one copy of the same cryptocurrency.
In order for a Cryptocurrency transaction to take place between two people over a network (or multiple networks), they both need to have an established relationship with each other via cryptographic keys that are generated using public key.
This particular string is called the digital signature. A special hash function called hashing function such as Secure Hash Algorithm (SHA) is used to convert plain text into a fixed length string of code which is difficult to guess.
The SHA-256 algorithm generates a 256 bit string from the input data which represents that particular user’s public and private keys. Each person has their own private and public key, the private key is secret whereas the public key can be shared with others.
This prevents hackers from tampering with the original content and changing it into something else without using a private key. A digital signature is used for confirming the authenticity of a transaction and it can be verified using the privay key of that particular user to ensure that no one else can tamper with it in any way.
Types Of Blockchain
There are mainly 2 types of blockchains, each type comes with its own set of rules regarding how information is added, accessed and stored.
1. Public Blockchains (like Bitcoin or Ethereum)
Anyone can send or receive tokens using public blockchains but it’s not possible to edit or delete the data. While making a transaction, the user has to pay a network fee for processing and validating the payment.
2. Permissioned (Private) Blockchains
This type of blockchains is similar to public blockchains but it’s only secured by a pre-selected set of users who have permission to view it.
This means that if I want to add new information in a private blockchain then I will need prior access permissions from other people already having access on that particular blockchain. These participants can either be individuals or organizations working within an organizational structure where everyone plays their part as desired.
Why use Blockchain?
Blockchain has a number of key benefits that make it more appealing than other digital solutions.
- Unlike traditional accounting systems which are vulnerable to cyber attacks and fraud from computer hackers – blockchain uses a distributed system for processing transactions, this is much harder to hack because no single entity owns the network, whereas in traditional banks there’s one central server which makes them easier to target by malicious attackers. Distributed ledger requires consensus from multiple nodes (computers) before any changes can be made, so if someone want to try and alter data that has already been verified they would need to gain control of a majority share of all these computers in the world.
- Blockchain technology is completely open source. This means that it is not owned by any single entity and anyone can view the whole digital ledger of transactions. This ensures transparency between transaction parties, which makes things more secure when compared to a system where one party has more power and control than others.
- Blockchain allows for complete anonymity of participants in transactions, this is because everyone who uses the network are anonymous, so they cannot be tracked or identified – this means people feel safe to use it regardless of what they’re buying or selling.
5 Uses of Blockchain Technology In Cyptocurrency
Blockchain technology is the backbone on which cryptocurrency is build. Bitcoin was the first cryptocurrency to implement blockchain technology. Since then, more and more cryptocurrencies based on blockchain are being developed and launched in the market.
Blockchain technology, however, can be used not only for financial transactions but also for other areas of life. It has been successfully implemented in various sectors such as advertising industry, healthcare, agriculture technology, software development, Supply Chainetc. Here are a few examples of How Does Blockchain Technology Work and it uses?
1. Advertisement Industry
A company named Basic Attention Token (BAT) aims to revolutionize the digital advertisement space by allowing advertisers and users to transact with each other directly without any need for middleman involvement.
The company feels that there is no transparency in traditional advertisement systems where huge ad agencies take up a big chunk of the advertisers’ budget and middlemen like Google and Facebook do not give any cut to us, the users. Blockchain technology will be used here to solve this problem and provide a new solution for the digital advertisement space.
2. Healthcare Industry
The blockchain startup named PokitDok aims to use this innovative technology in healthcare industry by enhancing data sharing among medical facilities.
The idea is simple – PokitDok wants people with life threatening conditions like heart diseases or high blood pressure etc., to share their health records with participating hospitals and doctors using blockchain technology so that they can receive better treatment.
How Does Blockchain Technology Work for Poltdot?, This is how it works: when a patient visits a doctor he/she would have an up-to-date health records accessible at all times on their smartphones. When a patient visits an emergency room, it is possible for the doctor to instantly access the patient’s earlier health record and decide on the best course of action to be taken in that particular situation.
This technology also helps hospitals reduce their insurance costs by reducing medical errors and improving productivity.
3. Agriculture Industry
Blockchain technology has been applied in agriculture industry as well. AgriLedger is a blockchain startup designed specifically for this business sector.
It aims at preventing food frauds like tampering with product weight or quality etc, which are prevalent in this industry. Another application of blockchain technology in agriculture industry is helping sellers find new customers based on mutual demands .
For example if I have surplus stock of oranges but my neighbor loves apples then I can post a message on Sulvo marketplace to trade my oranges for his apples. This will help both of us find new buyers or sellers based on their mutual demands.
4. Software Development
A blockchain startup named ChromaWay started developing an open source platform called Postchain which allows the public and private sectors to create and use advanced applications in fintech, logistics etc. using blockchain technology.
By utilizing this decentralized system of data storage, transaction management, identity etc, it becomes possible to offer services like encrypted messaging, digital voting etc, that weren’t previously available offline.
A user can also transfer money between different Blockchains using this platform . For example if I have 1 BTC (Bitcoin) and want to send it from Bitcoin blockchain to Ethereum blockchain then I can do that using the platform developed by ChromaWay.
5. Supply Chain
Blockchain provides all parties within a respective supply chain with access to the same information, by reducing communication and can streamline administrative processes and reduce costs by enabling an effective audit of supply chain data.
Conclusion: How Does Blockchain Technology Work?
Bitcoin is the most well-known example that shows how huge Blockchain Technology has become.
Blockchain developers are also trying out numerous other applications to expand Blockchain’s level of technology and utility. Judging by its success and increased use, it seems that Blockchain is ready to rule the digital world of the near future.
We Hope you now understand How Does Blockchain Technology Work and also it’s uses. Thanks For Reading.