There are already numerous people who know about all kinds of digital currencies, especially Bitcoin, which is the first-ever crypto that was released to the public. But not many of them know the technology behind it, especially blockchain technology, as it has the potential to be used for more than just digital currencies. Admirers such as Richard Branson and Bill Gates, especially insurers and banks, are falling on top of one another to try and be the first ones to fully utilise blockchain technology in their industry. So what exactly is a blockchain? Keep reading to know more.
Blockchain is sometimes referred to as DLT or Distributed Ledger Technology, and the way it works is that all history of a particular digital currency asset is recorded as transparent and unalterable data through cryptographic hashing and decentralisation. To gain a better understanding of what blockchain is, let’s use a simple analogy and make Google Doc an example. When creating a new document and you share it with a group of individuals, the document itself is distributed to all of the participants instead of just creating a copy or transferring the document to them, creating a decentralised distribution system.
Furthermore, all the individuals that the document has been shared with are never locked out of it, giving all the participants access to the document at the same time. Also, all modifications made to the document by a particular individual are always recorded in real-time, making all of the changes transparent. Regardless, blockchain technology is more complicated than a Google Doc, but the analogy is suitable as it fairly illustrates the crucial aspects of the technology.
To further understand how blockchain works, let’s take on the three important concepts of the technology, the blocks, nodes, and the miners.
Every chain in the digital ledger consists of numerous blocks, and each of those blocks has three elements which are the data in the block itself, the 32-bit whole number called a nonce, and the 256-bit number wedded to the nonce, which is called the hash. When the first block of information is made, a cryptographic hash will be generated by the nonce, and the data that resides in the block is verified and forever tied to the hash and nonce unless it’s mined by the crypto miner.
Crypto miners are not just mining for new crypto coins in the system, they are also important in the blockchain’s infrastructure as they’re the ones responsible for creating new blocks in the chain, and the process is called mining. However, mining a block is not as easy as it sounds, especially on larger chains, as every block in the digital ledger has its unique hash and nonce, as well as having unique references of the hash on the previous block.
Furthermore, crypto miners use a specific set of software and hardware to solve significantly complex math problems to find a particular nonce that creates a hash that can be accepted. And because of how a nonce is only 32 bits in size, and the hash is 256, there are around 4 billion combinations for miners to locate before finding the right one to use. After the right nonce-hash combination is found, what happens is that the miners have found the “golden nonce,” in which the block is added to the chain. And when a block is mined successfully, the change is accepted throughout the network of nodes, and the miner is rewarded for it in crypto.
If you’ve done your research, you’ll eventually know that one of the most important aspects of blockchain technology is its decentralisation, no single entity, whether computer or organisation, can own a chain in the system. With that in mind, the digital ledger is then distributed through nodes that are connected to the blockchain. Additionally, blockchain nodes can be any kind of device that can receive and maintain copies of the digital ledger while keeping the whole network functioning.
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Blockchain technology is not only popular because of digital currencies; it appeals to multiple investors because of its potential to become something more than just to store crypto-related transactions into blocks of information in the digital ledger. Blockchain can hypothetically work for every kind of transaction, especially transactions that involve value such as money, goods, property, and more.
Investors see blockchain’s potential uses to be limitless, from collecting taxes to allowing individuals to send money back to places where traditional banking can be difficult. Furthermore, blockchain technology can also help in reducing fraud and scams in transactions as all of it would be recorded and shared on the digital ledger for everyone to see.
Businesses of today run on one crucial aspect, and that is the information circulating the industry. The faster a business receives its needed information, especially the more accurate the information is, the better. Blockchain technology is ideal for delivering essential information because of how fast it is and how it’s completely transparent and shared in an unchangeable digital ledger, which can be accessed by a network of computers with permission.
Furthermore, with the use of blockchain technology in a business, it can be utilised to track payments, orders, production, accounts, and so much more. Because of how all of the members share a centralised view of the information, you can perceive all of the details in a particular transaction from one end to another. With that in mind, it provides customers greater confidence in the business, as well as providing new efficiencies in the system and better opportunities.
Over the years, there have been many attempts in creating a new digital currency, but almost all of them have failed and the main reason is trust from the public. If a company creates a new digital currency, how can people trust that new technology? Does it provide the potential of letting investors earn millions of dollars? Or the company would just steal all the invested money into the investment and keep it for themselves? That’s where blockchain technology comes into play; its system is completely different because it’s decentralised, meaning there’s no single entity in charge as it’s only run by the people who use it.
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