What Is Blockchain? A Beginner’s Guide

Anyone with even a passing interest in cryptocurrencies has probably heard the word “blockchain” thrown around. No doubt many who are familiar with the term also know that blockchain technology is behind Bitcoin and many other cryptocurrencies. But what else do you know about the blockchain? How does it work? What are the applications? And the future prospects of the blockchain?

Understanding of Blockchain technology

Blockchain technology can be defined as a system of decentralized digital ledgers that record transactions. This transaction information is stored in blockchains, hence the name “blockchain”. These computers on the network share this information through encryption.

Blockchain is used for a wide variety of functions. In addition to cryptocurrency, it’s also used for things like healthcare, smart contracts, supply chains, and electronics. Let’s see how the blockchain works.

How does blockchain work?

All information on a blockchain is stored in digital files called blocks. These blocks are not owned by a central unit. so they are decentralized. Several elements make up the functionality of the technology behind the blockchain.

Decentralized authority

The entire premise of Blockchain revolves around its decentralized nature. This idea spawned Bitcoin in 2009. Before that, on October 31, 2008, the Bitcoin whitepaper Bitcoin: A Peer-to-Peer Electronic Payment System was published by pseudonymous creator Satoshi Nakamoto. . This article describes how Nakamoto thought blockchain technology would work and his vision of a monetary system far beyond the reach of banks: a system for the people.

the birth block of the Bitcoin blockchain was created. This was the first step in revolutionizing traditional, centralized, bank-centric financial systems as we know them.

What are Nodes?

Nodes are computers linked together to share information through a ledger, a blockchain network.

Each node stores a copy of the blockchain and verifies every transaction made on it. Data tampering is rare because the data and records of every node in the blockchain need to be changed.

These nodes play an important role in the Bitcoin mining process because, in the absence of a central authority, these nodes are tasked with lining up a match to confirm the validity of a transaction on the network. Only when this verification occurs can the block be added to the blockchain and the miners receive their reward (on the Bitcoin blockchain it is currently 6.25 BTC after the last Bitcoin halving). These nodes agree to confirm transactions using consensus mechanisms, usually Proof of Work (PoW) and Proof of Stake (PoS). The PoW consensus is used by Bitcoin and many other cryptocurrencies, such as Litecoin, a “fork” or spin-off of Bitcoin.

Consensus mechanisms

While PoW and PoS are the two main consensus mechanisms in cryptocurrencies, there are others as well.

• PoW: Miners compete with each other to solve a complex math problem known as a hash. With this, the miner validates a new block in the blockchain and receives a reward in the form of new cryptocurrencies.
• PoS: Unlike PoW, the “winning” miner of PoS is chosen at random. The higher a miner’s odds, the more likely they are to be selected. PoS was introduced in the Ethereum 2.0 update.

Delegated Proof of Stake (DPoS): Differs from POS in that delegates are actually elected to mine new blocks and ensure consensus rules are followed. If they don’t do their job properly, they can be eliminated, just like politicians. Cryptocurrencies like EOS use this consensus mechanism.

Crypto decentralization

The cryptographic decentralization process is essential to ensure the security of the blockchain. It involves one-way encryption of data in unique text and is a process that cannot be undone. In the Bitcoin blockchain, the result of the hashing process is a 64-character text called a hash.

Can the Blockchain be hacked?

Because every single piece of digital text cannot be translated to decipher the original information, the blockchain is considered highly secure by hackers. In cryptocurrency blockchains, hackers can launch a 51% attack, in which they try to gain more than half of the hash rate (computer power) of the blockchain network. If they succeed, they can block transactions or even cancel previously confirmed transactions, meaning they can “double” coins (spend the coin twice).

While the Bitcoin network has never been the target of a successful 51% attack, other cryptocurrencies have fallen prey to it. One such example occurred in May 2018, when the Bitcoin Gold network succumbed to a 51% attack, resulting in the loss of $18 million in currency. Fortunately, such events are rare, as a huge amount of hash power is required to perform an attack. While hacking the blockchain isn’t impossible, it is highly unlikely.

How is the Blockchain used?

We all know that cryptocurrencies use blockchain, but what else in the world benefits from the wonders of blockchain technology?

Cryptocurrencies

As we have already seen, the blockchain forms the basis of what defines cryptocurrency: a decentralized asset free from the shackles of a central entity such as a bank or government institution. Bitcoin may be the most popular cryptocurrency, but it’s actually just the tip of the iceberg. Thanks to the technology invented by Satoshi Nakamoto, there are numerous coins today, from altcoins to stablecoins to DeFi tokens.

Health care

Sensitive medical information in patients’ electronic health records (EHRs) has been hacked, used for identity theft or impersonation, or sold to a third party.

With strong cryptography, the blockchain can put a stop to that. Records can be added to a trusted and secure blockchain, making it grow longer over time. Consent is required when new records are added, making the chain very difficult to crack or break.

Health Wizz is a company that uses the blockchain to give patients complete control over their medical information. The decentralized mobile platform allows patients to manage their health data and sell it to third parties in exchange for tokens if they wish.

Electronic health records also have gaps because doctors can access patient data from another facility. This is because in some countries different manufacturers often offer different EHR software for different facilities and there is no interoperability between them. While a single, comprehensive system would benefit doctors and patients, it would reduce opportunities for companies to charge exorbitant fees.

Attempts have been made to integrate electronic health records into one system in several countries, but this has often proved to be a doomed process. In the UK, in 2011, there was an attempt to create a linked health record system for the entire NHS at a cost of almost £10bn.

Blockchain could enable an EHR system owned by an individual patient, where patient information would be transmitted securely to different financial institutions and be available as new information is added.

It should be noted that blockchain is not a replacement for the EHR itself – it executes seven transactions per second when the EHR has a capacity of up to 12,000 – but it can act as an additional layer for additional functionality, certifying that records are complete and unaltered, and logging consent. of the patient to the data for sharing.

Smart contracts

A smart contract works the same way as any contact, but across the blockchain, which eliminates the need for third-party intermediaries. Only when the pre-established conditions (set in the computer code of the blockchain) are met will the contractual event occur.