How Blockchain Technology Works and Why It Matters

This article comprehensively explains about the blockchain technology and why it holds significance

In today's world, Blockchain technology is not only limited to Cryptocurrencies like Bitcoin, but it serves as a foundation of many other industries like healthcare, finance voting systems, etc. Learning how blockchain technology works adds to our digital literacy and empowers us to comprehend the digital world more effectively.

What is Blockchain Technology?

Blockchain technology is a ledger or an accounting tool that is accessible to anyone who participates in the network. The primary purpose of Blockchain is to record transactions. Unlike traditional ledger, it is decentralized where the access of the record is distributed and not governed by a single entity. It operates on a network of computers or nodes, and the nodes collectively participate in maintaining the ledger. The modus operandi of blockchain technology fosters transparency and security.

How Blockchain Technology Works?

When a participant initiates a transaction in the Blockchain, the Blockchain accumulates the transaction data and incorporates it into a block. This block serves as a container for the data. When a block is ready for processing, it goes through an encryption process. During this process, the data present in the block is converted into a unique hexadecimal number, which is generally known as 'hash.' When the hash is created, it gets included in the header of the following block, and eventually, a chain of blocks gets made. In this chain, each block contains a reference to the previous block through the hash. The process enhances security and immutability and makes it difficult to tamper with the transaction history.

How are transactions executed and confirmed on Blockchain Networks?

The process of transaction execution and confirmation varies with blockchain platforms, as each Blockchain has its consensus mechanism and transaction validation process. Taking the Bitcoin blockchain into consideration, when you make a transaction, it sends the transaction to a memory pool where it is temporarily stored and queued. The transaction then gets validated by a miner and added to a new block. Eventually, the transactions get encrypted using an encryption algorithm.

Once the encryption process is done, miners attempt to solve complex mathematical problems like finding a nonce. Nonce is short for 'number used once.' It helps to generate a hash after getting combined with other data. The hash needs to meet specific criteria. Otherwise miners keep changing the nonce until they find a hash is considered valid.

Upon finding a valid hash, the block gets closed, leaving the miners with a reward and the transaction is considered confirmed once it is added to multiple subsequent blocks. In Bitcoin, the process of confirmation typically takes an hour, as five additional blocks need to be validated.

Why does it matter?

Understanding how blockchain technology works is crucial these days as a multitude of industries are switching to the technology. As mentioned before, the versatile nature of blockchain technology goes well beyond cryptocurrencies. It is now bringing revolution to sectors like real estate, healthcare and, banking, etc.

In supply chain management, blockchain technology has made it easy to trace the origin and the journey of products, as the process here is transparent. Stakeholders can also access real-time data that effectively helps to reduce error and fraud. Also, for the voting system, technology has made the process more secure and transparent. Likewise, in the field of real estate, records can now be handled more securely.

Additionally, Blockchain facilitates smart contracts. Smart contracts are self-executing agreements that get executed automatically when the predefined conditions are met. It eliminates intermediaries and reduces costs. The speed and efficiency besides security benefits of Blockchain, are also worth noting.

Conclusion:

As Blockchain continues to redefine conventional processes, from supply chains to real estate, offering efficiency, security, and cost reduction, understanding how Blockchain works is not just a matter of technological literacy now. Still, it's an essential step toward mastering the digital landscape.