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What Is Blockchain Technology? How Does It Work?

What Is Blockchain Technology? How Does It Work?

Hitesh Vohra723 03-Dec-2021

What is Blockchain Technology

 Bitcoin and other cryptocurrencies are commonly connected with blockchain technology. It is a distributed database of transaction records that are vetted and maintained by a network of computers located all over the world. Instead of a single central authority, such as a bank, the records are controlled by a vast community, and no single person has power over them, nor can anybody travel back in time and edit or erase a transaction history. Due to blockchain's built-in distributed nature of structure and validated assurances by peers, information cannot be changed as it can in a traditional centralized database. In other words, unlike a traditional centralized database that is stored on a single server, blockchain is distributed across software users. Anyone on the network has access to everyone else's entries, making it difficult for a single central organization to take control of the network.

Types of Blockchain

Blockchain technology has advanced significantly in recent years, and it can now be classified into several categories depending on its various characteristics.

1. Public Blockchains
Publicblockchains are accessible to the general public, and anybody may participate in the decision-making process by becoming a node; however, users may or may not benefit from their participation in the decision-making process. The ledgers are owned by no one in the network and are openly accessible to anybody who is a part of it. To reach a conclusion, blockchain users employ a distributed consensus method and keep a copy of the ledger on their local nodes.

 2. Fully Private of Proprietary Blockchains
These Blockchains are not used in any major applications and contradict the concept of decentralization. These blockchains are useful when it is necessary to transfer data inside an organization while also ensuring the data's legitimacy. To transfer data between departments, government agencies deploy private or proprietary Blockchains

3. Shared Ledger
A shared ledger is an application or database that is accessible to the general public or an organization.

4. Distributed Ledger
A distributed ledger blockchain is one in which the ledger is shared among all blockchain participants and can span various businesses. Records are recorded in a distributed ledger in continuous blocks rather than sorted blocks, and they might be private or public.

5. Private Blockchains
These blockchains are not available to the general public, but rather to a select set of individuals or organizations, and the ledger is shared solely among the participants.

6. Semi-private Blockchains
A semi-private blockchain has certain parts that are private and managed by a group or of organizations, while the remainder is accessible to the public and anybody can join.

7. Sidechains
These blockchains are also known as pegged sidechains because they allow currencies to be transferred from one blockchain to another. One-way pegged sidechains and two-way pegged sidechains are the two varieties of sidechains. One-way pegged sidechains enable movement between two sidechains, but two-way pegged sidechains allow movement between both sides of two sidechains.

8. Fully Private of Proprietary Blockchains
These Blockchains are not used in any major applications and contradict the concept of decentralization. These blockchains are useful when it is necessary to transfer data inside an organization while also ensuring the data's legitimacy. To transfer data between departments, government agencies deploy private or proprietary Blockchains.

9. Tokenized Blockchains
These are traditional blockchains that create currency through a consensus process that involves mining or initial distribution.

10. Tokenless Blockchains
These blockchains are not true blockchains since they lack the capacity to transfer assets, but they can be beneficial when no value is being transferred between nodes and only data is being transferred between previously trusted parties.

Advantages of Blockchain

a. Dissemination is one of the most significant advantages of Blockchain since it allows a database to be shared without the need for a central body or institution. When oppose to traditional databases, the decentralized structure of the blockchain makes it nearly impossible to manipulate the data.

b. Users have complete control over their data and transactions.

c. Blockchains deliver accurate data that is full, consistent, and up to date.

d. Due to its decentralized network, blockchain can survive any security assault since it lacks a single point of failure.

e. Users may be certain that a transaction will be conducted as protocol instructs since no central authority is necessary.

f. Because all transactions cannot be changed or erased, blockchains give transparency and immutability to transactions.|

g. Blockchain's peer-to-peer connections aid in detecting network fraud and achieving distributed consensus. Invading a network is nearly hard since an attacker can only have an influence on the network if they control 51 percent of the nodes.

h. End-to-end encryption can be used to secure critical corporate data while employing blockchain.

i. Because all transactions in a blockchain are digitally branded, users can readily track the history of each transaction.

j. Due to the peer-to-peer nature of blockchain, it is resistant to cyber-attacks, and the network will continue to function even if certain nodes are offline or under security assault.

Disadvantages of Blockchain

a. Because each node in the blockchain repeats a process to establish consensus, blockchains are costly and resource-heavy.

b. Users in blockchain verify transactions using certificate authentication, land titles, cryptocurrency, and other methods. However, even if both parties are willing to reverse the transaction or if the transaction goes bad for whatever reason, there is no method to do it.

c. A blockchain transaction is only complete when all of the nodes in the chain have correctly verified it. This might be a lengthy procedure because the block added must be confirmed by all nodes in order for the transaction to be marked as valid. A new idea known as the lightning network, which allows transactions to be validated instantly, might be a potential answer to this problem.

d. Every time a block is added to the blockchain, it expands in size. To participate in verifying transactions, a node must keep the complete history of the blockchain, leading the blockchain to expand continually. If the blockchain has huge blocks, it will expand quickly, separating the miners and affecting the health of the blockchain, which is reliant on the number of nodes in the network.

e. One of the disadvantages of blockchain is its intricacy and difficulty in understanding the average person. Blockchain is full of complicated ideas and procedures that have yet to be developed so that the average person can simply understand and consume information on how to utilize it, and hence it is not yet ready for widespread use.

Working Mechanism of Blockchain Technology

A distributed ledger, or blockchain, is a system that allows thousands of computers or servers to share a single, secure, and immutable record. Blockchain can carry out user transactions without the involvement of third-party middlemen. To perform transactions, all that is necessary is a wallet.

A Blockchain wallet is a program that lets you spend cryptocurrencies like Bitcoin, Ethereum, and other digital currencies. These wallets are protected using cryptographic methods (public and private keys), allowing users to oversee and control their transactions. This is how Blockchain currently works. When a user conducts a transaction on the Blockchain network,  a block is created to record it. The intended transaction is broadcast through a peer-to-peer network,
 which is made up of computers known as nodes, who then validate it. Cryptocurrency, contracts, documents, or any other important information may all be part of a validated transaction. When a transaction is verified, it is combined with other blocks to create a new data block for the ledger. Each new transaction creates a safe block, which is encrypted and connected to the others using cryptographic principles. Every time a new block is formed, it is added to the current Blockchain network, ensuring its security and immutability.

Updated 04-Dec-2021
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