Bitcoin is one the hottest topic today, especially because of rising of its value. 1 bitcoin is now worth 49,742.6 USD! This is nearly impossible to believe years ago when it's worth absolutely nothing.
As bitcoin became more and more popular, many people became familiar with it. However, are you familiar with the fundamental technology of bitcoin -- blockchain technology? Let's talk about it.
Blockchain technology
Blockchain technology is most simply defined as a decentralized, distributed ledger that records the provenance of a digital asset. By inherent design, the data on a blockchain is unable to be modified, which makes it a legitimate disruptor for industries like payments, cybersecurity and healthcare.
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.
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.
An overview
- A blockchain is a database that stores encrypted blocks of data then chains them together to form a chronological single-source-of-truth for the data
- Digital assets are distributed instead of copied or transferred, creating an immutable record of an asset
- The asset is decentralized, allowing full real-time access and transparency to the public
- A transparent ledger of changes preserves integrity of the document, which creates trust in the asset.
- Blockchain’s inherent security measures and public ledger make it a prime technology for almost every single sector
How does it work?
- Blockchain consists of three important concepts: blocks, nodes and miners -
Blocks
Every chain consists of multiple blocks and each block has three basic elements:
- The data in the block.
- A 32-bit whole number called a nonce. The nonce is randomly generated when a block is created, which then generates a block header hash.
- The hash is a 256-bit number wedded to the nonce. It must start with a huge number of zeroes (i.e., be extremely small).
Miners
Miners create new blocks on the chain through a process called mining.
In a blockchain every block has its own unique nonce and hash, but also references the hash of the previous block in the chain, so mining a block isn't easy, especially on large chains.
Miners use special software to solve the incredibly complex math problem of finding a nonce that generates an accepted hash. Because the nonce is only 32 bits and the hash is 256, there are roughly four billion possible nonce-hash combinations that must be mined before the right one is found. When that happens miners are said to have found the "golden nonce" and their block is added to the chain.
Making a change to any block earlier in the chain requires re-mining not just the block with the change, but all of the blocks that come after. This is why it's extremely difficult to manipulate blockchain technology. Think of it as "safety in math" since finding golden nonces requires an enormous amount of time and computing power.
When a block is successfully mined, the change is accepted by all of the nodes on the network and the miner is rewarded financially.
In a blockchain every block has its own unique nonce and hash, but also references the hash of the previous block in the chain, so mining a block isn't easy, especially on large chains.
Miners use special software to solve the incredibly complex math problem of finding a nonce that generates an accepted hash. Because the nonce is only 32 bits and the hash is 256, there are roughly four billion possible nonce-hash combinations that must be mined before the right one is found. When that happens miners are said to have found the "golden nonce" and their block is added to the chain.
Making a change to any block earlier in the chain requires re-mining not just the block with the change, but all of the blocks that come after. This is why it's extremely difficult to manipulate blockchain technology. Think of it as "safety in math" since finding golden nonces requires an enormous amount of time and computing power.
When a block is successfully mined, the change is accepted by all of the nodes on the network and the miner is rewarded financially.
Nodes
One of the most important concepts in blockchain technology is decentralization. No one computer or organization can own the chain. Instead, it is a distributed ledger via the nodes connected to the chain. Nodes can be any kind of electronic device that maintains copies of the blockchain and keeps the network functioning.
Every node has its own copy of the blockchain and the network must algorithmically approve any newly mined block for the chain to be updated, trusted and verified. Since blockchains are transparent, every action in the ledger can be easily checked and viewed. Each participant is given a unique alphanumeric identification number that shows their transactions.
Combining public information with a system of checks-and-balances helps the blockchain maintain integrity and creates trust among users. Essentially, blockchains can be thought of as the scalability of trust via technology.
Every node has its own copy of the blockchain and the network must algorithmically approve any newly mined block for the chain to be updated, trusted and verified. Since blockchains are transparent, every action in the ledger can be easily checked and viewed. Each participant is given a unique alphanumeric identification number that shows their transactions.
Combining public information with a system of checks-and-balances helps the blockchain maintain integrity and creates trust among users. Essentially, blockchains can be thought of as the scalability of trust via technology.
Application of Blockchain
Money Transfer and Payment Processing
Potentially the most ideal and rational application of blockchain technology is using it as a means to accelerate the transfer of funds from one party to another. Most transactions carried over via blockchain can be settled within a matter of seconds, while banks take 24hours a day and even seven days a week.
Supply Chains Monitoring
Blockchain technology is easy to apply when it comes to monitoring supply chains. By eradicating paper-based trials, enterprises are able to spot inefficiencies within their supply chains rapidly, as well as to detect items in real-time. Blockchain also enables enterprises, and even consumers, to perceive how products perform from a quality-control point of view as they move from their place of origin to the retailer.
Retail Programs Based on Loyalty Rewards
Blockchain also helps in transfiguring the retail experience by becoming the go-to for loyalty rewards. By designing a token-based system that rewards consumers, and storing these tokens within a blockchain, would encourage consumers to return to a certain store or chain to do their shopping. It would also terminate the fraud and waste that are commonly associated with paper- and card-based loyalty rewards programs.
Digital IDs
More than 1 billion people around the globe face challenges related to identity issues. Microsoft is looking to alter that. It’s designing digital IDs within its Authenticator application that are currently used by millions of people, which would give users a way to control and manage their digital identities. This would enable users in indigent regions to get access to financial services or begin their own business.
Potentially the most ideal and rational application of blockchain technology is using it as a means to accelerate the transfer of funds from one party to another. Most transactions carried over via blockchain can be settled within a matter of seconds, while banks take 24hours a day and even seven days a week.
Supply Chains Monitoring
Blockchain technology is easy to apply when it comes to monitoring supply chains. By eradicating paper-based trials, enterprises are able to spot inefficiencies within their supply chains rapidly, as well as to detect items in real-time. Blockchain also enables enterprises, and even consumers, to perceive how products perform from a quality-control point of view as they move from their place of origin to the retailer.
Retail Programs Based on Loyalty Rewards
Blockchain also helps in transfiguring the retail experience by becoming the go-to for loyalty rewards. By designing a token-based system that rewards consumers, and storing these tokens within a blockchain, would encourage consumers to return to a certain store or chain to do their shopping. It would also terminate the fraud and waste that are commonly associated with paper- and card-based loyalty rewards programs.
Digital IDs
More than 1 billion people around the globe face challenges related to identity issues. Microsoft is looking to alter that. It’s designing digital IDs within its Authenticator application that are currently used by millions of people, which would give users a way to control and manage their digital identities. This would enable users in indigent regions to get access to financial services or begin their own business.
