What is Blockchain Technology, and How Does It Work?

The P2P architecture of Blockchains provides several benefits such as greater security compared to traditional client-server-based networks. A distributed P2P network, paired with a majority consensus requirement, provides Blockchains a relatively high degree of resistance to malicious activities.

Although the advent of Blockchain has taken the world by storm, many people still get confused about these two terms. Thus, it is important to understand how these terms differ and how they are interrelated. Bitcoin is a cryptocurrency, which is an application of Blockchain, whereas Blockchain is simply an underlying technology behind Bitcoin that is implemented through various channels. So if you are working on Blockchain and learning Blockchain, then you are not actually learning cryptocurrency but learning how cryptocurrency works.

Blockchain can be defined as a shared ledger, allowing thousands of connected computers or servers to maintain a single, secured, and immutable ledger. Blockchain can perform user transactions without involving any third-party intermediaries. In order to perform transactions, all one needs is to have a wallet. A Blockchain wallet is nothing but a program that allows one to spend cryptocurrencies like BTC, ETH, etc. Such wallets are secured by cryptographic methods(public and private keys) so that one can manage and have full control over his transactions.

Initially, when a user creates a transaction over a Blockchain network, a block will be created, representing that transaction is created. Once a block is created, the requested transaction is broadcasted over the peer-to-peer network, consisting of computers, known as nodes, which then validate the transaction.

A verified transaction can involve cryptocurrency, contracts, records, or any other valuable information.

Once a transaction is verified, it is combined with other blocks to create a new block of data for the ledger.

We have learned a lot about Blockchain technology. Now let’s explore what its benefits are:

1. Immutability
2. Transparency
3. High Availability
4. High Security

In a traditional database, you have to trust a system administrator that he is not going to change the data. But with Blockchain, there is no possibility of changing the data or altering the data; the data present inside the Blockchain is permanent; one cannot delete or undo it.

Centralized systems are not transparent, whereas Blockchain (a decentralized system) offers complete transparency. By utilizing blockchain technology, organizations and enterprises can go for a complete decentralized network where there is no need for any centralized authority, thus improving the transparency of the entire system.

Unlike centralized systems, Blockchain is a decentralized system of P2P networks which is highly available due to its decentralized nature. Since in the Blockchain network, everyone is on a P2P network, and everyone has a computer running, therefore, even if one peer goes down, the other peers still work.

This is another major benefit that Blockchain offers. Technology is assumed to offer high security as all the transactions of Blockchain are cryptographically secure and provide integrity. Thus instead of relying on third-party, you need to put your trust in cryptographic algorithms.