How Does the Blockchain Work?
Would you like to know how the blockchain works because cryptocurrencies are powered by blockchain technology and this might answer a lot of questions you have?
How Does the Blockchain Work?
Blockchain technology is not exclusive to cryptocurrencies and is being used by other industries, and even authorities, in order to streamline various systems.
We will today shed some light on the working of blockchain technology, but before that, it is a good idea to understand what exactly it is.
What is blockchain technology?
Blockchain technology is a digital decentralized ledger, which can help you in storing any kind of information. In the case of cryptocurrencies, it is used to store financial information. The ledger cannot be corrupted or tampered with in any way.
Now that you are familiar with the concept of blockchain technology, let's go into the details of the working of blockchain technology.
How does this blockchain technology work?
The 3 key elements of blockchain technology include:
- Private key cryptography
- Distributed ledger network
- Network servicing protocol
We will explain each and every one of these elements below in order to give you an idea regarding how the blockchain actually works.
1. Private key cryptography:
The blockchain enables transactions between 2 parties and the transactions can be in the form of exchange of cryptocurrencies or exchange of information. Both the parties involved in the transaction have 2 keys, to begin with, one is the public key and one is the private key.
The "Public Key" and "Private Key" create a digital signature for the buyer as well as the seller. This signature cannot be forged and the keys cannot be tampered with or stolen. This secures the transaction and ensures that control of ownership is provided to the consenting parties.
Once the identities are created, the transactions can be initiated. However, just having a secure digital identity does not secure the entire transaction.
The transaction needs proper authorization and verification. This is where the second aspect of the blockchain comes into the picture as the "distributed ledger network."
2. Distributed ledger network:
The distributed ledger network is a way of keeping a record of each and every transaction which is conducted on the blockchain. Moreover, it is possible for individuals to verify the transactions, which are recorded in the distributed ledger network.
Once the transactions are recorded, proper authorization can be given to them. In the case of cryptocurrencies, only when this authorization is completed, the receiver receives the cryptocurrency.
In order to ease the authorization, blocks are created on the distributed ledger network. Blocks are nothing but a certain size of information. These consist of the digital signatures as well as the other transaction records in an encrypted format. The blocks are verified by the individuals in the blockchain before the transaction is confirmed.
The procedure to initiate the transaction is pretty simple. The sender uses their private key to make a declaration that they will be sending the cryptocurrency to the receiver. Then, the cryptocurrency is sent to the public key of the receiver.
Whenever this transaction is initiated, the digital signature, as well as the timestamp and other relevant information of the transaction, is added to the block, which is present on all the nodes in the network.
3. Network servicing protocol:
The network servicing protocol consists of individuals who are incentivized in order to verify the transactions because only when the transactions are verified, then you can be sure that the sender actually has the cryptocurrency which they are sending to the recipient. This also ensures that double spending is not occurring either.
In this case, the people who are verifying the transactions are replacing the bank. In the real world, the bank ensures that you are able to send the money, which you have in your account. The individuals who verify the data in the block are known as cryptocurrency miners.
The task of verifying the information in the block is known as mining. It is done by lending the processing power of the computers of the cryptocurrency miners to the blockchain. As an incentive, when a single block is mined by the miners, they receive cryptocurrency tokens in return.
With the help of mining, the blockchain works smoothly and ensures that there is no tampering with the data or the blocks.
Moreover, the blocks are structured in such a way that if any block is tampered with, it will not just halt the verification of that particular block, but all the blocks after that. As a result, the entire blockchain will break down. The flip side to this is that the block, which is manipulated can be instantly detected and fixed. This, however, is a very rare case since all the information is encrypted and linked to the previous and the next block.
The information contained in the block, as well as its size, varies from one blockchain to another. It is dependent on the developer of that particular blockchain.
These are the 3 key constituents of the blockchain technology, which is what keep it running smoothly round the clock.
Alternative applications of the blockchain:
As we stated above, the blockchain is not just used for transacting cryptocurrencies. There are quite a few other applications as well.
In the case of Tron (TRX), the cryptocurrency can be paid in order to access storage space on the decentralized network. The blockchain consists of the transaction information, which when verified allocates the storage space to the sender of the cryptocurrency.
The blockchain is a versatile technology which can be used for a wide variety of applications.
Now that you are familiar with the various aspects of the blockchain, the next time someone talks about it, you will not be entirely confused.
Once you understand the basics of the blockchain, it is not just easier to understand cryptocurrencies, but the various other applications of the blockchain as well.
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Your post had been curated by the @buildawhale team and mentioned here:
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