Synopsis: This article discusses blockchain, its components, and interrelated concepts. We will start with some complicated definitions and later on break down all technical terms for ease of understanding. Let’s get to know more about this technology by reading this entire article.
Most of us would be in a misconception that blockchain was introduced during the launch of bitcoin. But the simple fact is that blockchain got a lot of recognition and made a buzz when bitcoin was launched. Before we understand the difference between blockchain and Bitcoin, let’s first define what blockchain actually is.
What are the different ways of defining blockchain technology?
- “Blockchain is a shared, immutable digital ledger, enabling the recording of transactions and the tracking of assets within a business network and providing a single source of truth.” This is the definition of blockchain technology from IBM.
- “Blockchain is a peer-to-peer decentralised distributed ledger technology that makes the records of any digital asset transparent and unchangeable and works without involving any third-party intermediary.” This is the definition of blockchain technology from the Blockchain Council.
From the above, we can see that there are many keywords that comprise the definition of blockchain. By understanding these keywords more keenly, we can truly understand blockchain and its functioning.
What do we mean by distributed?
All the players will have a copy of the ledger in their computers
What do we mean by decentralised?
It is not centralised. It is not controlled by any third-parties or any regulators
What do we mean by immutable?
Transactions cannot be easily tampered once it is recorded
What do we mean by transparent?
All participants have a copy of blockchain data. They have access to all transaction data. They can verify the identities without the need for any third-party intermediary.
What does the name “Blockchain” technology function?
- A transaction will be created using cryptocurrency. For better understanding, we’ll use Bitcoin (BTC) as an example in this case.
- Second, miners can validate the transaction through a hash algorithm. only by solving mathematical puzzles.
- Third, validated transactions will be grouped under a block.
- Fourth, the new block is linked to the existing block. The data is stored in blocks, with each new block linked to the previous one. These all blocks will form a continuous chain. Each block comprises transactions, timestamp and a unique identifier called cryptographic hash of the previous block.
- Fifth, distributed ledger is updated across all the ledger.
Is cryptography different from Blockchain?
- Cryptography is the science of ensuring the information is secured through the use of mathematical techniques.
- It can be segregated into: symmetric encryption and asymmetric encryption. In symmetric encryption, the message is encrypted and decrypted using the same key. In asymmetric encryption, the message is encrypted using the first key and decrypted using the second key. The first key is a public key and the second key is a private key. The private key is kept as a secret, whereas the public keys are widely known.
- Blockchain uses both cryptography and hashing to validate and process the transactions in blockchain.
How are blockchain and bitcoin different from each other?
- Blockchain was invented in 1991 by Stuart Haber, W. Scott Stornetta and Dave Bayer, whereas Bitcoin was launched in 2009.
- Bitcoin is the first application of blockchain technology. Bitcoin is a cryptocurrency, which functions on blockchain.
- The function of Bitcoin is limited to currency, but blockchain can transfer anything from currencies to legal rights of stock.
Advantages of this technology:
- Accuracy
- Very low cost due to no intermediaries
- Difficult to alter
- Secure
- Private and efficient
- Transparent
Disadvantages of this technology:
- Significant technological cost
- Low number of transactions per second
- High usage in dark webs
- Due to its ambiguous nature, it is still largely unknown and unregulated
Blockchain is a technology that has the potential to improve the security and safety we have today. It does not only have the capability to change the finance and payments industry, but also other industries such as healthcare and supply chain management.
Written by Parvati Anilkumar
