The Concept of Blockchain Technology
Perhaps you’ve ever wondered what the concept of blockchain technology is all about, you’re not alone as it may seem quite cumbersome, especially to newbies. But after a series of research and online readings, it usually gets clearer. If you want to cinch what blockchain technology is about, please read on as I work on simplifying the concept in this article.
What is Blockchain technology?
A blockchain is a growing list of records, called blocks, that are linked using cryptography. The basic components of each block include; a cryptographic hash of the previous block, a timestamp and transactional data.
By design, a blockchain is resistant to modification of its data. This is because once recorded, the data in any given block cannot be altered retroactively without alteration of all subsequent blocks.
Below are the six basic features to consider in blockchain technology;
1. Immutability: This is one of the top blockchain features that helps to ensure that the technology will remain as it is — a permanent, unalterable network. The big question is “how does it maintain that way”? It is important to note that blockchain technology works slightly differently from the traditional banking system. Instead of relying on centralized authorities, it ensures the blockchain features through a collection of nodes.
Every node on the system has a copy of the digital ledger. To add a transaction, every node needs to check its validity. If the majority think it’s valid, then it’s added to the ledger. This promotes transparency and makes it corruption-proof.
So, without the consent from the majority of nodes, no one can add any transaction blocks to the ledger.
Also worth noting is that once the transaction blocks get added on the ledger, no one can just go back and change it. Thus, any user on the network won’t be able to edit, delete or update it.
2. Decentralization: The network is decentralized meaning it doesn’t have any governing authority or a single person looking after the framework. Rather a group of nodes maintains the network, making it decentralized.
In simpler terms, blockchain puts users in a straight forward position. As the system does not require any governing authority, they can directly access it from the web and store their assets there. Any type of asset can be stored on the blockchain, ranging from cryptocurrencies, important documents, contracts or other valuable digital assets and with the help of blockchain you will have direct control using your private key.
Therefore, the decentralized structure is giving the common people their power and rights back on their own assets.
3. Enhanced Security: Since blockchain technology gets rid of the need for a central authority, no one can simply just change any characteristics of the network for their own benefit. The use of encryption ensures another layer of security for the system.
The big question now is “how does it offer so much security compared to the already existing techs”? Well, it’s extremely secure because it offers a special disguise; that’s the cryptography — a rather complex mathematical algorithm that acts as a firewall for attacks.
Every information on the blockchain is hashed cryptographically. In simpler terms, the information on the network hides the true nature of the data.
4. Distributed ledgers: Usually, a public ledger will provide every information about a transaction and it’s participant(s). It’s all out in the open, nowhere to hide. Although it’s quite different from private/federated blockchain, but still in those cases many people can still see what really goes on in the ledger.
That’s because the ledger on the network is maintained by all other users on the system. There is distributed computational power across the computers to ensure a better outcome. The result will always be a higher efficient ledger system that can take on the traditional ones.
5. Consensus: The architecture of blockchain technology is cleverly designed and consensus algorithms are at the core of this architecture. Simply put, the consensus is a decision-making process for the group of nodes active on the network in which the nodes can come to an agreement quickly and relatively faster.
This can be likened to a kind of a voting system where the majority wins and the minority has to support it. The consensus is responsible for the network being trustless — nodes might not trust each other but they can trust the algorithms that run at the core of it and that is why every decision on the network is a winning scenario for the blockchain.
Therefore, to keep the decentralization going every blockchain must have a consensus algorithm or else the core value of it is lost.
6. Faster settlement: Traditional banking systems are quite slow especially in this part of the world (Africa), where sometimes it can take days to process a transaction after finalizing all settlements — I have had to wait for a week to withdraw the same funds that I deposited into my bank account. Blockchain offers faster settlement compared to traditional banking systems. This way a user can transfer funds relatively faster, saving a lot of time in the long run.
A simple analogy for understanding blockchain technology is a Google Doc. When we create a document and share it with a group of people, the document is distributed instead of copied or transferred. This creates a decentralized distribution chain that gives everyone access to the document at the same time. No one is locked out awaiting changes from another party, while all modifications to the doc are being recorded in real-time, making changes completely transparent. Of course, blockchain is more complicated than a Google Doc, but the analogy is apt.
Blockchain is an especially promising and revolutionary technology because it helps reduce risk, stamps out fraud and brings transparency in a scalable way for myriad uses. Therefore, it is safe to say that blockchain technology is here to stay as it lays the foundation for the future of transactions.