What is BlockChain?!?
Blockchain Technology: Explained
If you are not under a rock, you have likely heard a lot of buzz about blockchain technology. There are countless contents on the internet, enough chit chatting in the local places about how the blockchain technology is changing the entertainment industries, social media, and IT areas. At the end of 2017, total market capitalization of all blockchain technology based cryptocurrencies crossed over 840 billion USD. If you are wondering about, how much time it would take for the stock market to reach that market cap? Well, that would take several decades to achieve what cryptocurrencies did in past few years. But, what is a Blockchain technology, and how does it even work? Let’s talk about, what blockchain technology is all about and how does it work. Details may seem little bit technical, but the basic concept isn’t and we will explain in a way which makes sense.
What Blockchain Technology Is:
Blockchain technology is the digital and decentralized way to make a transaction of the digital asset and making records in the database. It is the underlying technology behind all available cryptocurrencies like Litecoin, Ethereum, or Monero. This technology uses decentralized ledgers, which records all information to a mother database when you spend or earn digital currencies or buy digital assets and everything which requires virtual transactions.
Why Blockchain Invented?
When you are in the virtual world, and making transactions with virtual money, there is a term known as “Double spending.” Suppose, you are going to exchange money with a stranger for a good purchased online, or you guys are having a bet. Though, you can get the products, when it comes to exchanging money between you and that person, there are some problems may occur in the process:
That person can run away without giving you the product,
He can argue about trusting you and ask for the money before giving you the product, or
Both of you can hire a third party, and hand over your money, products to that third party for claiming later. Oh, wait, the third party can also run away by ditching both of you.
Either you or the person can just exchange the copy of tokens.
These problems are sort of double spending and to avoid this type of situation, blockchain technology was introduced. It allows you to generate code linked to the ledger where you can define the specific amount and when you and that person starts the transaction, it won’t be stopped. And, after the period, money will be transferred safely to the right owner's account.
So, How Does Blockchain Technology Works?
A network of the different electronic devices such as computers, laptops, and smartphones including yours (if you are a wallet owner) validates and keeps track of every transaction ever made and will continue to do this process in the future transaction. From here, it’s going to be more interesting. Every computer connected to the internet that uses the same type of Blockchain technology software can talk to each other. That means, Blockchain technology connecting all the devices and it’s like a massive database, which also stores the data to a central storage known as a ledger.
The devices which run the blockchain software are the nodes of the ledger and as the devices are connected, every node is connected to each other like a chain of nodes. The reason behind making this chain is to track information of:
Update transactions and
Completion of the transactions.
When a single node update above information, it passed through the chain to all the devices as well as to the ledger.
This distribution process of updating information works on a peer-to-peer basis. Peer-to-peer is a way of sharing data like chit chatting on that network, where everyone shares data to others and they are sharing with more people. The main benefit of the peer-to-peer network is, users aren’t dependent on a controller or one central point. Everyone is sharing with everyone.
Benefits of Using Blockchain Technology:
As we have already discussed, Blockchain is a decentralized, open source and cryptographic technology, which:
Allows people to trust each other and transact peer to peer, making the need the third party totally obsolete. This technology also ensures high security in every transaction.
Cybercrime, like a hacking attack to a large centralized organization account (i.e. Banks), is a common problem. But, for blockchain, it’s impossible, as every transaction on the ledger is connected to millions of nodes and if someone wants to hijack a ledger to alter a transaction, he must need to access those millions or even hundred millions for some network of nodes.
As the system is based on millions of users/nodes in a P2P network, the technology becomes highly available. Even, a single node leaves the network or become unreachable, the whole network will continue growing.
Once the information about any transaction has been written to the blockchain, it is nearly impossible to change it back. This is the most important advantage when we are talking about money are security.
In a centralized organization like a bank, the transaction will take a lot of time and effort where Blockchain technology made it possible to securely complete a transaction with few clicks.
To complete a transaction, you don’t need to go to a third party. Which massively eliminate overhead cost for the fees that are paid to them.
Drawbacks of Blockchain Technology:
Drawbacks of Blockchain technology:
When most of this technology is filled with advantages, and it was an ingenious invention, there are still some technical drawbacks of Blockchain technology exists, such as:
When it comes to the total amount of computation (Not just for a single node), unlike centralized database process, blockchain processed the transactions in every node. This process requires an enormous amount of calculation for the same end result.
In Blockchain technology, consensus mechanism used is high and this might involve back-and-forth communication between all the connected nodes.
Blockchain technology uses huge energy. As an example, Bitcoin, a well-known Blockchain cryptocurrency miners attempted to consume 450trillion solutions per second in efforts to validate transaction using that much amount of computer powers.