What is Blockchain technology? A beginner's tutorial

What is blockchain technology?

Blockchain is an immutable shared ledger, comprised of blocks (lists of records), that helps in recording transactions and tracking assets (both tangible and intangible assets) in a business network. A tangible asset could be a house, car, cash, land, etc., while an intangible asset could be intellectual property, patent, copyright, branding, etc.

Blockchains significantly reduce the risk of trading virtually anything valuable on a blockchain network. It is also economically viable because it drastically cuts costs for all involved. These blocks are securely interlinked through cryptographic hashes. Each block carries information from the previous block and effectively forms a chain, hence the name blockchain. The transactions on the blockchain cannot be reversed once they are recorded.

Why is Blockchain important?

Blockchain technology is rapidly growing and receiving wide acceptance because of its innumerable benefits. In today’s fast-paced world, businesses must be able to access any type of information at the press of a button. It should be faster and more accurate for better outcomes. And blockchain does exactly that by providing transparent information — immediately. Stored on an unchangeable ledger, the information can be accessed by those within the network who have permission.

A blockchain network can accomplish several tasks, including tracking orders, payments, production, accounts, and much more. All the members within a blockchain network share a single view of the truth, allowing them to see all the details of a transaction end to end. It leads to an increase in confidence, as well as the creation of new opportunities and efficiencies.

What are the key elements of blockchain?

The key elements of blockchain are discussed below:

Distributed ledger technology (DLT): It is a platform that utilizes ledgers stored on separate but connected devices in a network to maintain data accuracy and security. Blockchain solutions emerged from distributed ledgers to obliterate the concern of the involvement of too many third parties in too many transactions. The distributed ledger is accessed by all network members with permission. The record of transactions in the ledger is always immutable because they are recorded only once. It mitigates the risks of duplication, which is a characteristic of conventional business networks. This makes blockchain a far better alternative.
Records are immutable: The reason why blockchain technology is preferred by all in today’s business world is that the transactions are immutable. No participant in the network can change a transaction once it is recorded in the shared ledger. Even if there is an error in a transaction, it cannot be rectified. A completely new transaction has to be created to reverse the order, making both transactions visible.
Smart contracts: Smart contracts refer to the simple programs stored on a blockchain that run when predetermined conditions are fulfilled. Smart contracts are used to automate and expedite the execution of an agreement. It rules out the involvement of any third party and saves time for the participants in the network as they can be immediately sure of the outcome.

How does blockchain work?

The blockchain transaction process can be understood in the following few steps:

Allowing a new transaction: The first step is the entry of a new transaction in the blockchain network. All information is securely encrypted with public and private keys.
The transaction gets verified: The new transaction gets verified by transmitting it to a network of peer-to-peer computers across the globe. Every node on the network will get to work to check the authenticity of the transaction.
A new block gets formed: Once the new transaction has been verified and is passed as legitimate, it gets added to the Mempool (memory pool). A blockchain network comprises several nodes and simultaneously many transactions get verified at the same time. All legitimate transactions in a node form a mempool and multiple mempools form a block.
Consensus algorithm: Now, the nodes that form a block will try to add it to the blockchain network, which will disrupt the working of the network. So, to negate this problem, the nodes use a consensus algorithm. This consensus mechanism ensures that every block added to the blockchain is the only authentic one and the only version of the truth. It makes sure that only a valid block is added to the blockchain. The consensus algorithm creates a hash code meant for that block to add that block into the blockchain.
Adding the new block to the blockchain: The newly created block gets ready to be added to the blockchain once it is authenticated and has received the hash value. The blocks are cryptographically interlinked with each other to form the blockchain. Every block has a hash value of the previous block, which is how they are connected. In this way, a new block is attached to the open end of the blockchain.
Completion of the transaction: Soon after the new block is added to the blockchain it marks the end of that transaction. Every information or transaction detail of that new block can be assessed by all members of that blockchain network.

How secure is blockchain technology?

The purpose of blockchain technology is to provide impenetrable security and is meant to be highly secured. However, today, technological development can cut for or against us. Frauds can devise creative ways to cheat by leveraging technology. So, even a robust blockchain technology can have some cracks, making it vulnerable. However, in most instances it is foolproof.

Blockchain has become part of our financial lives these days, and invariably people are talking about its security. Blockchain can indeed be tough to penetrate by bad actors. Yet, the adjacent processes of a blockchain can be manipulated in several ways. The recent cryptocurrency hacks have raised eyebrows and concern over the invincibility of blockchain.

However, elements of blockchain like smart contracts can make it difficult for hackers to break into a network easily. It is also the encryption of the blockchain records that makes it very hard for the bad players to break in. Each record is interconnected to the previous and subsequent one — so, to hack it, the entire chain has to be altered to get one single record. It can be a huge deterrent for cheats.

There is also an element of human error that can lead to a leak. But, it cannot be attributed to a flaw or weakness of blockchain technology. Social engineering can be lurking behind.

Conclusion

Blockchain technology has brought about significant changes in various industries, helping shape their paths to innovative solutions. Although there are challenges and roadblocks, emerging technologies offer a promise for the future where blockchain can be a driving force to development. It will redefine the landscape of transactions carried out in the world. With perpetual advancement and development in technology, blockchain will certainly prove to be the cornerstone of the new digital era.