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Blockchain technology 101: A beginner’s guide

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Blockchain technology 101_ A beginner's guide
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Blockchain technology has been growing in popularity in recent years, and it shows no signs of slowing down. But what exactly is blockchain technology? Why use a blockchain? What exactly is a block? And Do all cryptocurrencies have blockchains? Read on to learn everything there is to know about blockchain technology, and how you can use it to make your business more efficient and secure.

What is blockchain technology?

what is blockchain?

A blockchain is a continuously growing list of records, called blocks, which are linked and secured using cryptography. Each block typically contains a hash pointer as a link to the previous block, plus the transaction data (generally represented as a Merkle tree root hash). The most famous example is the public ledger that records all bitcoin transactions known as the blockchain.

Blockchains can be used for so much more than just cryptocurrency; they can also be used to store information about anything that has value like deeds, stocks, and medical records. Blockchains offer many benefits including ease of use and less possibility for fraud or tampering.

Why use a blockchain?

Blockchains provide a transparent and immutable way of storing data. They are the perfect tool for storing financial transactions, health records, and any other information that needs to be both highly secure and easily accessible to anyone with the right permissions. Blockchain databases aren’t stored in any single location (hence the block), which means there’s no one central point of attack, so it provides a cryptographically-secured system.

Why blockchain

It also has great scalability; we can add more storage space without compromising on speed or security. In addition, blockchains offer something called smart contracts, which are computer protocols that facilitate, verify, or enforce the negotiation or performance of a contract without third parties. Basically, they’re self-executing programs that run when specific conditions are met. Let’s say I want to transfer $10 worth of Bitcoin from my personal wallet to someone else’s wallet.

First, I need the private key associated with my Bitcoin wallet address so I know where to send them. If someone wants access to their account, all they need is a password – you don’t have to rely on them remembering anything complicated like a private key or seed phrase. Once they enter their password, they have access and control over their account just like always – but what if they forget their password? You guessed it! There’s a backup option, which will require another piece of information – like an email address. If this is set up ahead of time, when someone forgets their password, they’ll receive an email with instructions for resetting the password and gaining access to their account once again.

The concept behind this is simple: when someone registers an account with us, we create two keys – public and private. The public key stays visible and available for everyone to see at all times, while the private key stays hidden until needed.

For example, when you send money to your friend by copying and pasting your friend’s public key into the input field, your computer uses its own private key to digitally sign a message with the amount of money that should be sent. We use our own copy of their public key as proof that we had permission to do this transaction. When your friend receives their funds, they use their private key as well as our digital signature to prove that these funds belong to them and then proceed to spend those funds as desired.

no one can take down blockchain

Since blockchain ledgers are decentralized across thousands of servers around the world, not even powerful adversaries like governments or hackers can bring down a blockchain network because it would take control of every server at exactly the same time. This decentralization is why most people consider blockchain technology to be vastly superior to traditional, centralized systems.

With the current internet infrastructure, services like Facebook, Twitter, Google, and YouTube are vulnerable to shutdown due to localized natural disasters or government censorship. But unlike centralized services dependent on any individual physical node, distributed blockchains depend on nodes spread out everywhere.

Blockchain voting

Furthermore, traditional electronic voting machines suffer from privacy and security issues because they often use proprietary software with few checks in place to ensure votes are recorded correctly. In contrast, voting via a blockchain offers full transparency about how many votes were cast for each candidate because votes are mathematically verified using cryptography before being added to the tally.

What exactly is a block?

A block is a collection of data, which includes the hash of the previous block, transaction data, and a timestamp. As you can see from the image below, blocks are added to each other in chronological order. This makes it easy for miners to create new blocks because they only need to add transactions to the end of the chain.

What exactly is a block

Since a new block is always created by referencing an existing one, tampering with any information in an old block would cause it to be changed in all blocks that followed it. Because the blockchain contains an immutable record of every exchange since its inception, it’s difficult to falsify information on the blockchain.

One important property is its resistance to modification of the data – once written into a block, data cannot be altered retroactively without being detected by every node in the system. The idea is that having this immutable public ledger means less time reconciling records or correcting mistakes. It also reduces the cost of auditing and improves transparency, making it easier to spot potential problems like money laundering. 

This doesn’t mean that if someone wanted to tamper with a block they couldn’t do so, but if someone wanted to tamper with the whole history of transactions in bitcoin – something called double-spending – then their attempt would have been detected as faulty long ago. So far, no one has ever successfully hacked the bitcoin network. For example, when bitcoins were stolen from people’s wallets due to the 2013 Mt. Gox incident, those people were reimbursed in full because there was still a record of every transaction ever made on that part of the network.

It is interesting to note how different Bitcoin and Ethereum are when it comes to these attacks: Bitcoins are transferred directly between addresses whereas Ethereum runs programs (smart contracts) using a Turing complete language. Smart contracts are much more complicated than regular computer programs, meaning they can be vulnerable to certain kinds of hacking techniques such as reentrancy bugs and race conditions. Even though these hacks have not happened yet, many experts believe that the threat is too great for smart contracts to become a dominant application on Ethereum.

How many blocks are there?

There are many blocks, and each block contains a set of transactions. Blocks are added to the blockchain in batches, about every 10 minutes. There is no limit to how many blocks can be added to the chain, but once a block is added it cannot be changed or removed from the chain. The information contained within these blocks is secure because it’s made up of complex math that’s impossible to break.

How many blocks are there

All this information is available for anyone on the internet who wants to see it because the ledger is decentralized and distributed across servers around the world. The only way someone could tamper with the information in one of these blocks would be to change all subsequent blocks as well. That would require an immense amount of computing power that isn’t easily accessible. Blockchain security has been proven so strong that banks and credit card companies are exploring ways they can use it to improve their own data protection mechanisms.

How are blocks added to the chain?

Blocks are added to the chain when they are validated. When a miner validates a block, they add it to the chain by solving a cryptographic puzzle. The puzzle is solved by coming up with a hash of that block that is less than or equal to the target hash.

How are blocks added to the chain

The process of solving this cryptographic puzzle is called mining, and miners are rewarded with bitcoin for doing so. As more blocks get added to the chain, it becomes increasingly difficult to find a solution that is less than or equal to the target hash. Therefore, more computational power (or hashing power) is required as well as increased electricity costs which can make mining impractical in certain situations.

It is also possible for two miners to solve a block at about the same time. In this situation, it is not uncommon for one party to reject the other’s work because they think their own has been completed first and may not even be aware of what their opponent has accomplished. Miners will have to wait until both transactions have been verified before adding them to the chain. 

What goes in each block?

Blocks contain the data of a transaction, including the date, time, and amount. The block also contains the hash of the previous block in the chain. In short, a block is a history of who transacted what with whom and when. All this information is verified by miners before it gets added to the blockchain.

Why do we need miners?

Why do we need miners

Miners are the backbone of the blockchain. They use their computing power to validate transactions and add them to the blockchain ledger. If miners don’t validate transactions, then no transactions can go through and there will be no new blocks on the blockchain. That means no one can get in or out of the cryptocurrency. The problem is that with so many people using cryptocurrencies, it is impossible for any single miner to process all those transactions in a timely manner – which is why we need miners who validate transactions for the entire network.

Who creates the rules of the network?

The rules of the network are created by consensus among the participants. This can be done in a variety of ways, with some networks having more centralized control than others. Bitcoin and Ethereum have decentralized control where all transactions that take place on their networks must be verified before they can be added to the blockchain ledger.

Do all cryptocurrencies have blockchains?

Do all cryptocurrencies have blockchains

No, not all cryptocurrencies have blockchains. Bitcoin is the most well-known cryptocurrency, and it does have a blockchain. Other cryptocurrencies do not have a blockchain. Cryptocurrencies without blockchains are called fiat currencies. They are backed by governments or banks that stand behind them as opposed to being backed by cryptographic proof. Fiat currencies include the U.S dollar, British pound, euro, yen, and many others. There are also other types of cryptocurrencies such as Ethereum, Litecoin, and ripple. Each type has its own unique characteristics and uses cases which will be explained in future posts in this series.

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