The Blockchain technology is arguably one of the most recent ingenious inventions that has now evolved to become a great phenomenon. This technology was originally designed for bitcoin transactions and digital currencies but the innovative tech community has diversified its uses. Today, many cryptocurrencies are pushing the blockchain technology to the limit. In fact, its adoption is being explored by financial institutions such as banks as well as governments. This article is an introduction to blockchain technology that outlines all the basics that you need to know.
What Blockchain Technology is All About?
So, what is blockchain technology? This technology involves the use of an incorruptible digital ledger containing financial and other valuable transactions. It is a secure infrastructure on which cryptocurrencies are built and at the same time ensures that there is complete transparency and no one can alter the transaction history. The blockchain technology is a brainchild of little known Satoshi Nakamoto, the creator of bitcoin who initially wanted to create a digital cash that could work via a peer-to-peer-electronic cash system. Before Satoshi’s invention, there were numerous attempts to create a digital currency but they all failed.
Bitcoin was neither controlled nor owned by a single entity thus the transaction data as well as transaction history could not be centrally stored in a database or server which was the problem that blockchain tried to solve. A public database was now available and was distributed to all bitcoin users. The major advantage of blockchain is the fact that it is not controlled by a single entity which means tampering with information on the blockchain would mean altering the entire network.
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What are the Key Elements of Blockchain?
In order to understand how the blockchain technology works, it is important to understand its key logical elements. These include:
- A distributed ledger
- Decentralized systems
- A Consensus algorithm
1. Distributed Ledger
This logical component of the blockchain technology is a data structure that is managed inside a node application. A distributed blockchain is simply a public ledger outlining all the digital transactions as well as information of each and every participant. The “block” part of a blockchain is responsible for keeping all the records of the most recent transactions before they go into the blockchain once completed. Every time a block enters into the blockchain, a new one is generated.
2. Decentralized Systems
A decentralized system allows you to store your assets in a network that is accessible over the internet. Assets may include tokens, property registry documents, contracts, etc. The decentralized technology allows the owners of these assets to have direct control over them via a private key which means they can also transfer them to anyone whenever they desire to do so.
3. Consensus Algorithm
This logical component of the blockchain technology provides the rules and regulations governing the use of the shared ledger in the blockchain ecosystem. Some of the most common consensus algorithms include proof of authority, proof of work, proof of elapsed time and proof of stake.
- Blockchain Specialization at Buffalo, The State University of New York
- Certified Blockchain Developer Exam: Ethereum CBDE
- Blockchain and Bitcoin Fundamentals
- Blockchain A-Z™: Learn How To Build Your First Blockchain
- IBM Blockchain Foundation for Developers at IBM
Understanding Related Concepts in Blockchain
At the core of the blockchain technology is a digitalized, decentralized and distributed ledger ecosystem but there are other important components that include:
A cryptocurrency is a digital currency or asset that is designed to be the medium of exchange within the blockchain that uses strong cryptography to verify and ensure that all financial transactions are secure.
ii. Digital Tokens
A digital token works like a regular bank check but on a digital platform. Anyone holding a digital token can claim the underlying asset. For instance, a transferable asset like a house, car, computer including intangible assets such as licenses and property rights can be represented in form of digital tokens.
iii. Smart Contracts
This is a computer protocol that digitally facilitates, verifies or enforces the performance or negotiation of a contract without third parties. These contracts are self-executing which means that the terms of agreement between a buyer and seller are directly written into coded lines which enables trusted agreements and transactions to be carried out among anonymous parties.
iv. Decentralized Autonomous Organization (DAO)
This is an autonomous entity that exists on the internet and is run through computer programs referred to as smart contracts. Its program rules as well as financial transaction record are maintained on the blockchain.
v. Decentralized Autonomous Corporation (DAC)
Decentralized autonomous corporation is a subclass of DAOs that is capable of automating and organizing complex systems, processes and organizations such as corporations that would previously be controlled only by humans.
Few Limitations of Blockchain Technology
The blockchain technology has its own limitations such as complexity, transactions costs as well as network speed. This technology involves the use of highly complex terminologies and jargon that are not easy to understand. Other limitations include scalability, lack of customer protection and slow settlement.
Hopefully, the reader will get a sound understanding about the technology as a whole. More related articles with detailed information will be published later here.