What Is Blockchain?

Blockchain is one of the top disruptive technologies at the moment but the primary reason that makes it difficult for newcomers to enter this industry is that it needs a deep understanding of its different layers. The ecosystem is evolving rapidly with new changes and related use-cases added every day. As the technology is expanding further, it is convenient to say that users also need to grow their understanding to leverage it at its best.

This article guides you through all the concepts of blockchain as you explore its different functioning layers and how it is emerging as a paradigm shift for the digital world.

What Is A Blockchain?

Blockchain is a distributed digital ledger where each block holds transaction records across a network and is secured with a strong cryptographic signature called a ‘hash’. Each block comes with limited storage and gets closed once they are filled. For any new transaction, a fresh block gets added to the previously filled one, thus forming a chain. The transactions are verified using different cryptographic validation protocols.

It is a form of decentralized database where the data once stored becomes permanent. This enhances the transparency and security of recorded data as the entire timeline of transactions can be tracked effectively.

Why Is Blockchain Important?

Arguably, the biggest advantage of a decentralized system is the elimination of a central authority. This is beneficial in two primary ways-  the network isn’t manipulated by a single power and complete transparency. 

For instance, in the traditional money transfer system, there’s an involvement of a bank or a third-party service provider. They maintain huge databases of their customers and initiate all the transactions. But this centralized system has a  point of the defect— what if their server goes down? What if the database gets hacked?

This is where blockchain can be fruitful— a money transfer system built on blockchain, peer-to-peer with full real-time access, no third-party charges, or the need to share your personal data.

Blockchain technology rose to prominence through cryptocurrency, especially Bitcoin, but its applications go far beyond them. It has the potential to disrupt the online space through decentralization. Futuristic projects including NFTs, Web3.0, and Metaverse are all built on blockchain.

How Does A Blockchain Work?

Blockchain is built on distributed ledger technology (DLT) that allows users in the network to record and access data in an immutable format. The development of a blockchain depends on its three working components-

• Blocks

A blockchain is built up of multiple blocks where each block holds some transaction records. Each block generates a 32-bit arbitrary whole number called ‘nonce’ during its authentication process. A nonce can only be used once to prevent any fraudulence in block verification. Then it creates a 256-bit encrypted number called hash to further protect the block.

Any block once created can always be identified using its two components- the nonce and hash, and always refer back to the hash of the previous block on the chain. To make changes in a single block, all the after-blocks need to be altered which makes it very difficult to exploit the network.

• Nodes

Nodes are the electronic devices in the network responsible for the execution of transactions. They are the base of a decentralized system as no one computer can own a blockchain network. 

Every node owns a copy of the blockchain network and verifies transactions for new blocks. For any block to be added to the chain, it must be algorithmically approved by the present nodes in the network.

• Miners

The blocks cannot be created on their own— miners create these blocks through a process called mining. The electronic devices in the network solve a complex mathematical problem to find a unique nonce from the permutation of all the possible nonces that creates a valid hash.

When a block is successfully mined, the miner is rewarded through cryptocurrency and all other nodes accept the block through cryptographic consensus, adding it to the blockchain.  

Conclusion

In the digital world, one of the biggest issues becomes trust. Developed to solve this problem in the case of online currency, bitcoin became the first implementation of blockchain. Today, it is a foundational technology of businesses across the globe and is paving way for next-gen projects like web3.0 and metaverse. Being in its early stages, it has opened immense opportunities for early birds entering the industry, and understanding the concepts of this innovation can allow newcomers to get started with it effectively.