What Is A Blockchain Technology? How It Works?



  • A blockchain is a decentralized database consisting of a block chain in which all transactions of network members are stored. In simple terms, the blockchain is a combination of computers connected to each other, and not to the central server.

    Traditional databases operate on the principle of "Client - Server", that is, all information is stored in one place, for example, in a bank. This technology has several disadvantages: the server can be hacked, the data can be changed, and the money can be transferred to other accounts.

    Thanks to the blockchain technology, transaction data is not on a single server, but on all computers connected to one network. When a new transaction appears, it is copied to all computers, which means that it cannot be changed without the consent of all network participants, which eliminates the possibility of hacking and software malfunction.

    Blockchain technology is very widely used in the financial industry. However, nowadays, this technology is used not only for cryptocurrencies, but also for keeping records, digital notary and smart contracts. It is also actively used in research, medicine, management, politics, education, etc.

    How does blockchain technology work?

    Any new transaction in the blockchain implies the creation of a new block. Each transaction has a digital signature that guarantees its authenticity. Before this block will be added to the network, it must be checked by the majority of system nodes (computers).

    Each blockchain block consists of:

    certain data;
    block hash;
    hash from the previous block.
    The data stored within each block depends on the type of chain of blocks. For example, in the structure of the bitcoin chain, the block stores data about the recipient, sender, and number of coins.

    A hash is like a fingerprint (a long entry consisting of several numbers and letters). The hash of each block is generated using a cryptographic hashing algorithm (SHA 256). Therefore, it helps to easily identify each block in the blockchain structure. When a block is created, it automatically appends the hash, and any changes made in the block also affect the hash change. Simply put, the hash helps detect any changes in blocks. The last element in the block is the hash of the previous block. This creates a chain of blocks and is the main security element of the blockchain technology.

    Any hacking attempt provokes block changes. All subsequent blocks carry incorrect information and invalidate the entire blockchain system. On the other hand, in theory it would be possible to configure all the blocks using powerful computer processors. However, there is a solution that excludes this possibility, called proof of work. This allows the user to slow down the process of creating new blocks. In the architecture of Bitcoin chains, it takes about 10 minutes to determine the necessary proof of work and add a new block to the chain. This work is done by miners - special nodes in the structure of the bitcoin chain. Miners retain a commission for creating a new bloc as a reward.

    When adding a new node (network user), it gets a complete copy of the system. After creating a new block, it is sent to each node in the block chain system. Then each node checks the block and the correctness of the specified information. If everything is in order, the block is added to the local block chain at each node.

    Blockchain technology is the most transparent and secure, eliminating any interference from the outside. It is impossible to hack the blockchain system, since it would be necessary to intervene in all its blocks, as well as control more than 50% of all nodes in the peer-to-peer network.


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