Blockchain technology is one of the hottest emerging technologies in the world right now. It is the technology underlying the world’s leading cryptocurrency, bitcoin. So how does it work? Why blockchain is used? Here is your short guidebook to understanding blockchain in detail.
The blockchain technology works on the principles of decentralization, immutability, trust, and transparency. These are the main benefits of a blockchain. In a blockchain-based network, instead of just one single party controlling the network, the network is maintained by various nodes. In open blockchains, anyone can participate in the network, take part in the maintenance of the network and become a node.
Blockchain is mainly used for the process of decentralization i.e removal of the third-parties from a framework. It is also used in frameworks where trust and transparency are of prime importance. It finds its most interesting use-case in the arena of finance.
One of the most killer use-cases of this tech is seen in the case of bitcoin. The bitcoin blockchain essentially works by carrying the record of all the transactions happening in the bitcoin space. Bitcoin is related to blockchain in a sense that it is a use-case of this very technology. It forms a global monetary framework. Bitcoin itself is not a type of blockchain, it’s just a depiction of the usage of this technology.
The bitcoin blockchain in its role is only limited to tracking the financial transactions. But blockchains can also be made programmable, as seen in the case of Ethereum. Decentralized applications, or dApps, can be made using such platforms. Smart contracts are usually used in order to make a blockchain a platform for the developers to build dApps. A smart contract running on a blockchain essentially allows the developers to outline the requirements and features of their dApps. It is like a protocol that allows one to put in something else in a blockchain than just the financial record.
A blockchain developer usually deals with these smart contracts. These smart contracts define rules of a dApp built on a blockchain. Blockchain networks as a whole can be built using various languages but the programming language that Ethereum, one of the world’s most famous dApp development platform, provides for writing smart contracts in its ecosystem is Solidity.
Then comes an important aspect linked to blockchain, mining.
A blockchain record is built using blocks. After a certain time interval, a block is added into the previously existing blockchain record and the information that is added in a blockchain through a block is considered final. A block in a blockchain carries information in it. Miners are usually needed in a Proof-of-Work-based blockchain network in order to maintain and run the network. Mining in a blockchain network is often done in order to gain rewards. In order to add the next block in a blockchain, miners have to solve a cryptographic puzzle. Solving such cryptographic puzzles result in rewards but a lot of computing power is needed for this purpose. A lot of electricity is required. Hence, there is a cost associated with mining.
These miners of the network are also sometimes referred to as nodes because they help run the network. Hence, a blockchain network is essentially a collection of nodes. In simple words, a blockchain is a decentralized network that is being run by various nodes instead of a single entity. It is also immutable, meaning once a record is there in a blockchain, it is there forever.
While blockchain is a network, a cryptocurrency is something that is built on top of it. Regarding the ownership, nobody essentially owns an entire blockchain. Decentralized nodes maintain the network and all the changes in a blockchain-based ecosystem are usually made after the consensus of the entire network.
Now, different types of blockchain networks are floating around in the world right now. They usually differ in the way how consensus is achieved in a network. Various consensus algorithms are floating around and the most common of them is Proof-of-Work (PoW). Proof-of-Work is the consensus algorithm that involves miners who are incentivized to maintain the network in the form of rewards. It is the consensus algorithm that is lying underneath bitcoin and ethereum. It involves solving cryptographic puzzles in order to gain rewards.
Now one important fact needs to be kept in mind here. The distributed-ledger technology (DLT) and blockchain are not the same things. A blockchain is a DLT, but not every DLT is a blockchain. DLT is essentially a distributed database, where the data is kept by various parties, not just a single controlling party. This results in greater transparency in the network. Blockchain, although is a DLT, is essentially a record logbook where the record is organized in the form of blocks. It just has its own set of rules that define how the data is stored, in the form of blocks.
The bitcoin blockchain record is growing continuously as of now. Since transactions are being made continuously, more and more data is being added to the growing blockchain of bitcoin. At the beginning of January 2019, the size of the bitcoin blockchain was approximately 197 gigabyte (197 GB) in size.
Blockchain finds its usage in many industries. In any industrial or governmental framework where transparency and trust are of prime importance, blockchain can prove itself to be very effective. Since the record of all the happenings of a blockchain network is visible to all, a strong fabric of transparency and trust is established using blockchain. Owing to the prospects that it provides, blockchain technology is already being used in industries like healthcare, logistics, eSports, content-creations etc. Various startups are springing up each day presenting forward various use-cases of this tech.
A lot of capital is flowing into the blockchain space right now in order to solve the issues that are associated with this technology such as scalability. This space is growing at a very rapid pace. Moving forward into the future, it sure looks like it does possess the potential to revamp various industrial and governmental operations with the possibilities that it offers. In all this, one thing seems likely, blockchain is here to stay.