Blockchain is one of the hottest topics in technology and finance sector today but what is blockchain? From insurance to logistics, real estate to healthcare — blockchain is predicted to transform almost every single industry in the next ten years. That is why it is important to understand what is blockchain.
In simple terms, a blockchain can be described as an append-only transaction ledger. What that means is that the ledger can be written onto with new information, but the previous information, stored in blocks, cannot be edited, adjusted or changed. Basically, blockchain is a growing list of records, called blocks, which are linked using technology called cryptography.
An individual block in a blockchain contains the following elements: block number, data stored in the block, hash (or cryptographic hash) of the previous block and hash of the current block. Blocks hold batches of valid transactions. Each block includes the cryptographic hash of the prior block in the blockchain, linking the two. The linked blocks form a chain. This iterative process confirms the integrity of the previous block, all the way back to the original genesis block. Each block contains a cryptographic hash of the previous block, a timestamp, and transaction data.
- A hash is a digital fingerprint of any collection of data. It is a long number which acts as a digital fingerprint of any collection of data.
- Blocks in a blockchain are cryptographically linked because each one includes the preceding block’s hash in the calculation of its own hash.
Blockchain is resistant to modification of the data. With a blockchain, many people can write entries into a record of information, and a community of users can control how the record of information is amended and updated. Transactions are broadcast, and every node is creating their own updated version of events and that makes blockchain technology so useful.
Blockchains which are readable by the public are widely used by cryptocurrencies. The first major application of blockchain technology was bitcoin which was released in 2009. Bitcoin is a cryptocurrency and the blockchain is the technology that underpins it. (Learn more about bitcoin)
In the blockchain, cryptocurrencies are the tokens used within these networks to send value and pay for these transactions. Furthermore, you can see them as tool, in some cases serving as a resource or utility function. Other times they are used to digitise value of an asset. Blockchain itself, serves as the basis technology, in which cryptocurrencies are a part of the ecosystem. They go hand in hand, are often necessary to transact. But without the blockchain, we would not have a means for these transactions to be recorded and transferred.
In cryptocurrency networks, validation of transactions is called mining. In the context of blockchain technology, is the process of adding transactions to the large distributed public ledger of existing transactions. The term is best known for its association with bitcoin, though other technologies using the blockchain employ mining. Blockchain mining involves adding transactions to the existing blockchain ledger of transactions distributed among all users of a blockchain.
In simple terms, cryptocurrency mining is a process of solving complex mathematical puzzles with computing power in the blockchain network. The cryptographic puzzle requires miners to find a hash smaller than the set target for it to be valid. (Learn more about cryptocurrency mining)
Part of solving the puzzle involves working out random number called the “nonce”. The Nonce range contains 4 Billion possible values which is insufficient to find a valid hash with a high degree of certainty. It is combined with the other data such as the transaction size, creates a digital fingerprint called a hash. This is encrypted, thus making it secure. Therefore, blockchain can’t be tampered with.
Also, that makes blockchain is consensus-driven as a large number of computers are connected to the network, and to reduce the ability for an attacker to maliciously add transactions on the network, those adding to the blockchain must compete to solve a mathematical proof.