What is blockchain technology: how it works and is the ultimate guide to the future
The 21st century is the new era of technology, where technology is evolving day by day and a new blockchain technology is introduced to solve this centralized problems, so what is blockchain technology?
The blockchain technology was the solution for the same and the first use case developed on this technology is digital cryptocurrency bitcoin.
Bitcoin dreamed that in the future every person on the network could move digital assets without third-party intervention.
But this time the blockchain industry is evolving and extending its use cases to actual use of life.
So, if you are a technology lover or ever interested in Cryptocurrency or know about current financial systems.
Then what is the blockchain technology guide in it, I will help you explain what blockchain technology is and why it is the future of technology step by step.
We have written many guides on the project working on this blockchain technology, which you may like the most.
What is blockchain technology?
Table of Contents
The idea behind the development of blockchain technology is to replace the current centralized system and increase network security. Satoshi Nakamoto, the creator of bitcoin, has written a protocol on which to build a cryptocurrency called bitcoin.
Currently, we are conducting payment transactions using a centralized financial system, like banks, where they have a personal account that holds a record of all your transactions.
In some cases, they can forfeit your payment or in any other case, if anyone hacks their central server, it can steal all the money or your personal information.
This means that you are at risk and rely on a third party such as banks or financial systems to maintain your Fiji assets. On the other hand, we have seen the changing face of money, where before it was the face of money, later goods were exchanged which later became gold and copper coins.
As time changed, it changed from paper currency like dollar and euro to plastic currency like credit and debit cards. So Satoshi Nakamoto thought that the future lies with a digital currency over which no one would have any control.
So they created a protocol on which the first digital currency bitcoin was built and that protocol is known as blockchain technology.
This is a brief history of what blockchain technology is and why it has been introduced, now it will focus on how it actually works.
How does blockchain technology work?
Blockchain’s earlier focus was to solve banking financial issues, but was later identified to solve a number of major problems. The blockchain technique is to create a fully decentralized system where no one will have any control over the network.
If you use this blockchain network, how will the security or verification of transactions be verified in the network, as there is no central authority to validate it.
In the legacy banking system the bank verifies your transactions, so who will do this work in the blockchain network?
Don’t worry, you will explain everything by step.
Let us tell you, any banking financial system has started using the blockchain network and anyone on the network has started the transaction.
Every transaction in the network will be unconfirmed until it is validated by the mine or verifier. You are thinking, who is Khan or legitimate? Then wait will explain later.
First, let’s talk about the basics of blockchain, what does it really mean? In general terms, a block is like a container and a chain is a series of blocks. Each transaction initiated in the network will be a part of a block.
Therefore, the block will be like a container and transactions are like small boxes, where small boxes fit into the container.
On a blockchain network, each block has three data to record.
- Hash (block’s own specific code or identification name)
- Transaction data (details of all transactions such as amount, sender, recipient address)
- Hash of previous block.
How many transactions can be limited in a block is dependent on the block size, tell us that the block size of bitcoin is 1 MB although bitcoin cache has 8 MB.
Meaning, bitcoin cash has more ability to transact in blocks. Each block has a hash (unique identity) of the previous block.
It describes how the actual chain is formed in the network. Where each block is connected to the previous block and is called a blockchain.
The first block in a blockchain network is known as a Genesis block because it has no address to map with the previous block.
Now, who are the miners and what do they do? Learn in detail about cryptocurrency mining here.
A miner is someone who uses his computer to solve mathematical problems associated with each block.
In order to confirm any transaction or verify any block first the miner must solve the mathematical problem generated in the network.
The mathematical problem here would be a cryptography code with a unique address to match.
So each person on the network tries to guess or solve that puzzle using mining tools like GPU, ASIC, CPU.
Whoever is able to do so is eligible for the mine block or can verify that block. So it will move all unconfirmed transactions into a single block.
And ask all other miners on the same network that it has successfully mined and verified the transaction if more than 51% approve that block.
It will be assumed that the block is successfully mined and will be added to the blockchain public ledger.
Verification of the transaction here means checking whether the account initiated is valid or whether there is enough money to send it.
The blockchain has its own public registry which is visible to everyone. The bank manages its own ledger account to maintain the transaction details.
In the same way, the blockchain network has its own public account in which every transaction from the first date is explained in detail.
Hence each block that has been confirmed by the miners will be added to this bookkeeping and this will bring transparency in the system.
Each transaction will appear as an anonymous transaction in the blockchain network.
Yes as an anonymous because if you are any recipient or recipient except your wallet address you do not have any identification.
The address will be an alphanumeric code, so the sole owner of that address will know that this transaction is initiated by him, not all others.
It will look like below. Where a constant number of alphanumeric characters is displayed.
As a result, the person who has successfully mined will get all the transaction fees for the block and the block reward.
When talking about bitcoin, there is an average of 10 minutes to block, but less so than others such as Litcoin and Bitcoin Cash.
Resulting in a larger block size and results in more transactions per block and more transactions per second in the network.
Bitcoin is the first decentralized project, also known as the mother of blockchain or cryptocurrency, but due to the block size being reduced and the minimum number of transactions per second.
More than 2000+ other blockchain decentralized cryptocurrencies came into the picture and are emerging out of a few and have millions of transaction speeds per second.
Check out our special detailed guide on each of those projects.
All of the above blockchain networks have built many relationships with government and financial institution and think blockchain is the future of technology.
By this point, I will consider that you got an idea what is blockchain technology and how does it work?
Now blockchain is coming for the security and integrity of the network.
Is Blockchain Technology Safe?
I will consider that you already have an idea of how this blockchain technology works which itself suggests that this other company does not depend on a central server like Facebook or Google.
In a central server, if one has access to that server, the network will have all control but this is not the case with blockchain technology.
First, it has no central server, instead, there will be miners or nodes connected on that blockchain network to validate the transaction.
The verification of the transaction will be done through a consensus mechanism, where each node on the network tries to confirm the transaction using computational power.
Even after confirmation, it will ask to be approved by about 51% of the current node or minor on the network which takes time so there is a 10 minute block to verify bitcoin.
On a blockchain network, anyone like you and me can install mining software and start validating that transaction.
Meaning millions of nodes are on the blockchain network and to get this accepted block you will need 51% of the total node.
If one were to hack the block one would need access to about 51% of the complete network node which is near impossible.
Yes, even then it will be able to hack only one block, not the entire blockchain network.
This proves their security in the network, talking about IBM, they built their blockchain world wire on the Steller (XLM) blockchain network.
IBM is using blockchain technology, which itself describes how secure this platform is.
Any transaction in the blockchain will not be considered confirmed until it is verified by the miner, here mining will be done in different ways.
- Stack Proof (POS)
- Representative evidence of stack (DPOS)
- Proof of Work (POW)
Proof of Work (POW) is where all the nodes on the network compete with each other to mine the block by solving a mathematical problem.
Only one who has a high powered computer will win the race.
Hence the mining pool came into the picture where many miners come together to generate more hash power.
In some cases, it creates a monopoly search below the current portion of the blocks mined by the mining pool, receiving reports from Blockchain.com.
Proof of work requires more energy consumption, not enough reward for the minor so that evidence of agglomeration comes into the picture.
The proof of stack mechanism is where the miner has a random selection based on the amount they stack.
This gives everyone in the network a chance to mine the block and no mining pool will come into the picture.
Similarly, the blockchain uses a separate mechanism to mine network blocks and ensure the security of the network.
What is the future of blockchain technology?
Currently, the world is moving towards scalability and decentralized platforms.
Scalability here means the ability and decentralization of the network to handle transactions per second means a well secured network over which no third party has any control.
Both problems are solved with blockchain technology.
Currently, every industry is almost displaced by new technology, but the banking industry is still running on the old network and system.
They are using a Visa card, which has the capacity to handle 1500 transactions per second, and built the Swift network for the old 1974 cross-border payment system.
They have their own old network servers on which everything is built and many more vulnerable older systems.
But by using blockchain technology we have widely adopted in banking industries and financial institutions.
Banks like American Express, Standard and Money Transfer companies like Money Express, Western Union have started using Ripple (XRP) blockchain network.
IBM has to build a blockchain world wire network on the Steller (XLM) blockchain network to provide financial system access to remote areas and existing banking institutions.
The South Korean government is building a decentralized blockchain-based voting system and many more operations on the ICON (ICX) blockchain network.
Companies like BMW have tied up with VeChain (VET) based blockchain networks to eliminate counterfeit and many more of branded products.
Cardano (ADA) is another blockchain based solution that solves the problem of differentiation between different blockchain networks.
EOS has the ability to process millions of transactions per second and allow smart contracts to be built on it.
TRON (TRX) is another major blockchain network that has now acquired BitTorrent and CoinPlay and allows decentralized applications to be built on it.
All this above proves how blockchain technology is developing in the 21st century, from my point of view it is changing the era of technology.
Let me highlight the use case of blockchain networks to establish strong points on blockchain technology.
What is the use of blockchain technology?
So far we have discussed how banking institutions have actively started using the blockchain network but it is not limited to financial institutions.
It has been used by many more companies to solve their biggest centralized and fake problems.
Let’s discuss some of them.
Currently, everyone is questioning the electronic voting system, we are dependent on an independent central government organization like the Election Commission.
People are concerned about the correct count of votes that can change at any time in the system.
The blockchain-based solution will create transparency where every vote is in the public ledger, the user can see who they voted for.
Yes the public led user in the blockchain will be anonymous as it will be an alphanumeric code.
But each user will have a private key that he can match and verify that his vote went to the right party.
South Korea is building such a blockchain based election voting system with ICON (ICX) company providing blockchain solutions.
Food chain supply network
Currently, the products produced at the manufacturing plant moved into the supply chain. Where each person buys and sells records in their central system.
But nowhere do we have a general system that can find out where this product started and what process it went through.
Vetchin (VET) has created a blockchain network that allows to trace every single record of a product, where it actually runs in the supply chain.
Every single movement in the supply chain will be tracked by scanning a bar code on the product.
This will advance the current state of the product to a decentralized blockchain network, which is not allowed to change information and be transparent and in the public ledger.
Anyone using DAP will be able to detect the originality of the product and reduce counterfeiting.
BMW and several other companies have tied up with Vecchin to solve this problem and have started using it in pilot projects.
This time to transfer funds, banks are using the SWIFT network charging around 1-3% in transaction fees and slower processing time.
The solution for this is with Ripple, Steller, and many more blockchain networks, using which they provide a transaction clearance time of only 2-3 seconds and transaction fees of less than 0.01 $.
This is what started with American Express Bank, IBM, Santner, Money Gram, Western Union, etc.
Above three are small few use cases, we have explained but many governments are working on building such regularities to use this blockchain network and their cryptocurrency.
It has huge potential and power to solve the biggest problem of the current world. I found it to be the future of new generation technology.
How to invest in blockchain technology?
If you are an investor and I am looking to invest in this blockchain technology, I have already created a detailed guide on how to invest in blockchain, check that guide for detail overview.
In some cases to use a blockchain network, you will need a digit property that works on the network that we call cryptocurrency. You can invest in that cryptocurrency.
If you already knew how to buy Cryptocurrencies using Binance, check out our guide.
But we all know that this is the changing face where different blockchain networks are competing with each other, so it is wisely chosen which one you should invest.
The government of some countries is imposing sanctions or not allowed to trade such cryptocurrencies, so there is still a risk to invest.
For our reader, I have also prepared a detailed guide to the top 7 best Altcoins that cost less than 1 dollar / coin and are worth investing projects.
If you want to look for the major project than the best cryptocurrency to invest in which lists a coin value over 100 dollars / coin.
I am not a financial advisor, what I can bring to you are highlights of how the world is moving towards blockchain technology and why you should see them.
What is blockchain technology?
This world is infinite, everyone is looking better than before and if we talk about technology then it is more aggressive than you think.
Blockchain is the solution to all existing centralized problems, keep your investment strategy separate, think of it as a problem-solving product.
You will definitely find a reason why this will be the future of technology.
The way it has been accepted by the country government, tech giants and financial institutions, proves the path of future development of blockchain technology.
Nevertheless, the future of cryptocurrency based on this blockchain technology is uncertain but yes technology will remain forever.
Well, I am quite optimistic with blockchain technology, tell me in the comment box what you think about it and share it with every blockchain technology seeker.