What Is Blockchain And How Does It Work?

In this blog, you will learn about what is blockchain and how does it work. Blockchain is a system of recording information in a way that makes it hard or impossible to change, hack or cheat the system. It is a digital ledger of transactions that is copied and shared across the entire network of computer systems on the blockchain. Each block in the chain contains a number of transactions, and every time a new transaction occurs on the blockchain, a record of that transaction is added to every participant’s ledger. It is said that blockchain is not a short-term technology.

You know what is blockchain and how does it work but let us go into detail. Blockchain is a type of DLT in which transactions are recorded with an immovable cryptographic signature called a hash. In addition, DLT also known as Distributed Ledger Technology is a decentralized database managed by multiple participants. DLT has multiple properties that make it stand out. They are as such:

• Programmable

• Secure

• Distributed

• Immutable

• Anonymous

• Unanimous

• Time-Stamped

At this point, you know what is blockchain and how does it work is the next topic we will cover. Blockchain works in eight steps. These steps are as follows:

• A transaction is requested and verified.

• A block representing that transaction is created.

• The block is sent to every node i.e. participant in the network.

• Nodes approve the transaction

• Nodes receive a reward for Proof of Work.

• The block is added to the existing blockchain.

• The update is shared across the network.

• The transaction is completed.

In Blockchain, firstly, as each transaction occurs, it is recorded as a block of data. Secondly, each block is then connected to the ones before and after it. Finally, transactions are blocked together in a chain i.e. a blockchain. Now that you know what is blockchain and how it works, let us move forward.

What Are The Advantages Of Blockchain?

Above we have learned what is blockchain and how does it work now let us move ahead and learn what are the advantages of blockchain. There have been many failed attempts in the past to create digital money. That is to say, the issue is trust. The value of blockchain stems from its ability to share data in a fast, secure way among entities. That is to say, without anyone having to take responsibility for safeguarding the data or aiding the transactions. In fact, blockchain and its features can provide multiple advantages to businesses whether they are using a public blockchain network or opting for private or permission-required blockchain-based applications. Let us move forward from what is blockchain and how does it work. Below are some examples of what are the advantages of blockchain:

• Trust

It creates trust between different entities where trust is either nonexistent or unproven. As a result, these entities are willing to join in business dealings that involve deals or data sharing that they may not have otherwise done or would have required a broker to do so. The ability to build trust is one of the many benefits of blockchain.

• Decentralized Structure

Blockchain really proves its value when there’s no central body that sets up the trust. In addition to enabling trust when participants lack trust because they are unknown to each other, blockchain allows sharing of data with an ecosystem of businesses where no single entity is solely in charge. For example, multiple companies want or need the information from others in this chain but no one is in charge of it.

• Improved Security and Privacy

The security of blockchain-enabled systems is another leading benefit of this rising technology. The enhanced security offered by blockchain stems from how the technology actually works. That is to say, blockchain creates an unalterable record of deals with end-to-end encryption, which shuts out fraud and unauthorized activity. In addition, data on the blockchain is stored across a network of computers, making it nearly impossible to hack. Further, blockchain can address privacy concerns better than traditional computer systems by anonymizing data and requiring permissions to limit access.

• Reduced Costs

Blockchain’s nature also can cut costs for organizations. It creates efficiencies in processing deals. It also reduces manual tasks such as amassing and amending data, as well as easing reporting and auditing processes. Blockchain’s ability to streamline clearing and settlement translate directly into process cost savings. More broadly, it helps businesses cut costs by eliminating middlemen i.e. vendors and third-party providers that have traditionally provided the processing that blockchain can do.

• Speed

By eliminating brokers, as well as replacing remaining manual processes in transactions, blockchain can handle deals faster than common methods. In some cases, it can handle a deal in seconds or less but, times can vary. That is to say, how quickly a blockchain-based system can process transactions depends on multiple factors, such as how large each block of data is and network traffic. Still, blockchain beats other processes and technologies in terms of speed.

• Visibility and Traceability

Blockchain is not only about speed. That is to say, it allows to better manage inventory, respond to problems or questions and confirm the histories of the product. It can help track the origins of a variety of items, such as medicines to confirm they are valid instead of fake and organic items to confirm they are indeed organic. It can help the retailer to identify and remove items if needed.

• Immutability

It simply means that once transactions are recorded on the blockchain, they cannot be changed or deleted. That is to say, all transactions are time-stamped and date-stamped so there is a permanent record. To sum up, it can be used to track information over time, enabling a safe, reliable audit of information. 

• Individual Control Of Data

It enables an exceptional amount of individual control over one’s own digital data. That is to say, in a world where data is very valuable, the tech protects our data while allowing us to control it. In addition, individuals and individual organizations can decide what parts of their data they want to share and with whom as well as for how long with limits set up by blockchain-enabled smart contracts.

• Tokenization

It is the process where the value of an asset whether it is a physical or a digital one is converted into a digital token that is then recorded on and then shared via blockchain. It has caught on with digital art and other virtual assets but it has broader applications that could smoothen deals. For example, utilities could use it to trade carbon emission allowances under carbon cap programs.

• Innovation

One of the examples of innovation is that blockchain is used to verify the information on job applicants’ resumes. Studies have shown that a strong percentage of people fake their resumes. As a result, leaving hiring managers with the time-consuming task of manually verifying the information. But pilot programs allow participating universities to put data about their graduates and their awarded degrees on the blockchain that can then be accessed by used hiring managers. Now that you know what is blockchain and how does it work, let us move forward to the importance of blockchain.

What Is The Importance Of Blockchain?

We know what is blockchain and how does it work now let us learn what is the importance of blockchain. To sum up, business runs on information. The faster it is received and the more accurate it is, the better. It is ideal for delivering information because it provides immediate, shared and completely transparent information stored on an immutable ledger that can be accessed only by network members. A blockchain network can track orders, payments, accounts, production, and much more.

Members can share a single view of the truth and as a result, you can see all details of a transaction, end-to-end, giving you greater confidence as well as new opportunities. In addition, this streamlined efficiency provides transparency, reliability, and authenticity. Moreover, because data is shared on multiple systems in multiple countries as well as validated before it is recorded, it is more secure. That is to say, each data block is encrypted and linked to the one before it. Below are some points as to why blockchain is important:

• Builds Trust In Government
• Provides Data Security

There are many industries that benefit from it such as healthcare and NPOs. Now you know everything about what is blockchain and how does it work.