Blockchain technology only at first glance seems complicated. In today’s article we will understand its features and methods of application. And let’s make it all as simple as possible.
The basis of blockchain technology appeared in the nineties of the last millennium, but the word “blockchain” itself was introduced into use only recently, when Satoshi Nakamoto demonstrated how these technologies could fit into the global financial system.
The generally accepted definition of a blockchain is as follows: it is a continuous sequential chain of blocks containing information built according to certain rules. But this wording is far from clear to everyone, and today we will try to talk about what blockchain is in simple words. Take advantage of cutting-edge blockchain development services provided at https://4irelabs.com/blockchain/ by trusted industry experts. Launch new successful projects implementing first-class blockchain solutions.
Blockchain in very simple words
Contrary to popular belief in the network, blockchain is not about money, or rather, not only about it. As we have already said, blockchain is translated as a chain of blocks. What is blockchain in simple terms for dummies? Imagine a dialogue between John and Bob in a house-wide chat, each phrase in which is a block in a large chain:
Bob: How did you rest yesterday?
John: Just great! We went with Natasha to the cinema, walked along the embankment.
Bob: Does your wife know?
And then Bob realizes that communication takes place in a general chat at home, where his wife is also. He would be happy to change his last message, but he cannot do this due to one of the main features of the blockchain. The fact is that each such block has a complex structure that allows you to find out everything about yourself and the previous block.
To be precise, such a block consists of service information and a list of transactions. With the latter, everything is clear – these are the same messages in the general house chat from our example. Well, the service information includes the date of creation of the block, its hash sum and the hash of the previous block.
A hash sum is a unique set of characters created based on our transaction (messages in a chat). If you change even a letter in your message, the entire hash sum will change as well. Do you remember that each block contains not only its own hash, but also the hash of the previous block? As a result, it turns out that all blocks of the chain are inextricably linked by a hash. If the hash of any block is changed, it will be discarded as false, which means that it is physically impossible to change such a block.
If you don’t like the chat analogy, you can think of blockchain as a big book, each page of which is a separate block in the chain. The principle here is exactly the same – you will not be able to edit the already written pages of the book, and if you tear out one of them, this will not go unnoticed.
Transactions in more detail
We have already said that a list of transactions is stored in each block of the blockchain network. In our example, such a transaction is a separate message in the house-wide chat. But in practice, each block contains a whole list of transactions. When the block runs out of memory, it is closed and signed with a hash sum, which further protects it from being changed or tampered with.
At the same time, each participant in the system has its own unique public key, which is used to sign the transaction it creates, and a private key that allows you to open the transaction sent to him. From the very name of these keys, it is clear that the public key of the blockchain user is available to all network participants and, in fact, is its identifier, the so-called wallet number, and every cryptocurrency user has a blockchain wallet. As for the private key, it can be compared to the password from an online bank, and such a key must be stored very carefully.
Every time a transaction is processed, be it a money transfer or the mentioned chat message, the system goes through the entire hash chain, thereby confirming the integrity of the network. This means that if you decide to add an extra couple of hundred dollars to your account or want to edit an already sent message, this initiative will not work. When processing a transaction, such a modified block will be recognized as invalid, and its hash sum will be rewritten in accordance with the data stored in most of the network blocks.
By the way, it is this approach that not only protects blocks from changes, but also ensures the transparency of all blockchain transactions – you can restore the entire chain of transactions using only one upper block.
Who are the miners
The usual banking system is maximally centralized and for this reason is not only not protected from errors, but also has many vulnerabilities. In contrast, blockchain technology is a decentralized, distributed system without control nodes.
The decentralization and distribution of the blockchain is provided by the very miners that many ordinary users do not like so much. It is they who replace the attendants of the banking system, processing transactions.
So far, the unconfirmed transaction that users want to make is placed in the so-called mempool. The system performs the necessary hash calculations, and the miners are engaged in confirming the validity of the block.
What does it look like in simple terms? Imagine a round table, the participants of which (miners) need to compose a certain word from a set of disparate letters. The first to cope with this task is one of the miners, who informs other participants of the round table about the solution of the problem. Now the rest of the users need to check whether the correct decision was voiced. Three of them confirm its correctness, and the fourth participant of the round table indicates a different answer. This participant is in the minority, and his word is discarded as incorrect, and the words of other miners confirm each other, and the transaction is recognized as reliable.
What is blockchain in cryptocurrency
The first cryptocurrency appeared in 2008 and was called Bitcoin. Its author is considered to be a person or group of people under the pseudonym Satoshi Nakamoto. And, in fact, Bitcoin is not so much a coin as a protocol, i.e. a set of rules by which participants in the system make transactions. The protocol itself is based on the blockchain technology, which we talked about above. And the same goes for all other cryptocurrencies.
What is smart contact
Smart contracts play a significant role in the blockchain. This concept was formulated long before the appearance of the first cryptocurrencies. It was introduced by the American programmer Nick Szabo, according to whom an intellectual contract is a computer algorithm designed to form, manage and provide information about the ownership of something.
Sounds difficult, right? In fact, everything is extremely simple. A smart contract is nothing more than a software algorithm that allows you to quickly get what you paid for. The simplest analogy for a smart contract is a coffee machine. Imagine that you threw the right coins into it, pressed the buy cappuccino button and selected the right amount of sugar. The machine will quickly give you your favorite drink.
Same with smart contracts. They relieve us of intermediaries (brokers, cashiers, etc.), fully automating the receipt of the desired product. At the same time, smart contracts are not only completely autonomous. In addition, they allow you to quickly get what you want, and the smart contracts themselves have maximum protection. They are almost impossible to hack, and some experts call smart contracts the most secure place to store documents in the digital world.
Smart contracts are secure by storing them on a distributed blockchain network, so they cannot be tampered with or changed. Moreover, the contract itself can be encrypted, preserving the anonymity of the parties to the agreement. Therefore, it is not surprising that these smart contracts are actively used in the blockchain.
Where is blockchain technology used
We have already said that blockchain is not only, and not so much about money. Its scope is much wider. This technology can be effectively used to protect copyrights, which, frankly, was a very difficult task in the past. But you can confirm not only copyrights, but, for example, ownership of real estate or any other things.
Moreover, distributed networks are already beginning to be actively used in elections – it becomes simply impossible to fake their results. And smart contracts, which we wrote about above, may well play the role of quite legitimate legal contracts that are binding on their parties.
They are actively thinking about integrating the blockchain into the healthcare system. Using this technology, any doctor in any country in the world will be able to access the patient’s medical record and other reliable and verified documentation. For example, about the side effects of certain drugs and the list of drugs recommended for the treatment of the disease.
In general, the features of the blockchain – decentralization, reliability and reliability – allow it to be integrated into almost all areas of life. Using this technology, you can create any database, automate contracts and, of course, make payments.