This article explains everything you need to know about Blockchain and how it works. Stay on this guide to learn more
What is Blockchain
Blockchain is a distributed, unchangeable ledger that makes it easier to record transactions and track assets in a corporate network. It is a system where a record of bitcoin or other cryptocurrency transactions is kept among multiple computers connected in a peer-to-peer network. So, we can say a blockchain is an open ledger where transactions are confirmed from various devices to execute a transaction.
How Does Blockchain Work?
Companies around the world are switching to Blockchain technology. But how exactly does Blockchain work? The truth is Blockchain innovations are still in their early stages, and they have the potential to be something big in the future.
The goal of Blockchain is to allow for the gathering and sharing of digital information while preventing it from being edited. In this regard, a blockchain serves as the backbone for immutable ledgers or records of transactions that cannot be altered, erased or destroyed. Because of this, Blockchains are widely known as Distributed Ledger Technology (DLT).
The concept of Blockchain first showed up in 1991 as a research project. This was long before its use in bitcoin in 2009. The use of blockchains has risen tremendously since then, owing to the development of various cryptocurrencies, Decentralized Finance (DeFi) apps, Non-fungible tokens (NFTs), and smart contracts.
Blockchain is a mix of three cutting-edge technologies:
- Cryptographic keys
- A peer-to-peer network containing a shared ledger
- A computational method for storing network transactions and records
Cryptography keys are composed of two parts. The private and public keys, these keys aid in the effective execution of transactions between two parties. These two keys are owned by each individual and are used to generate a secure digital identity reference. The protected identity of Blockchain technology is its most vital component. In the world of bitcoin, this identity is known as a ‘digital signature,’ and it is used to authorize and manage transactions.
The peer-to-peer network contains the digital signature. Many individuals acting as authorities use digital signatures to obtain agreements on transactions and other issues. When they authorize a transaction, it is validated mathematically, resulting in a successfully secured transaction between two network-connected parties. To summarise, Blockchain users use cryptography keys to conduct various digital exchanges over the peer-to-peer network.
Types of Blockchain networks
There are principally four types of blockchain networks. They include public, private, hybrid, and consortium blockchain networks.
Private Blockchain: A private blockchain is a permissioned and partially decentralized system where access and control are restricted to a single organization.
A private blockchain requires an invitation, and only those involved in the transaction can be aware of it. Any transaction may be modified or edited per the needs of the person in charge of a private blockchain network. In other words, it is not accessible to the general public, and anyone who wishes to join it must request permission from the Blockchain’s governing body.
With private blockchains, different levels can be enabled to control who can write to, read from, and audit the Blockchain. Users receive rules on private blockchain networks that are unavailable on other platforms. A private blockchain uses many resources and is more susceptible to dangers, hackers, data breaches, and manipulation. It is simple for bad actors to put the entire network in danger.
Public Blockchain: A public blockchain is open to everyone, allowing anybody to join at any time. Anyone with access to the ledger can participate in the consensus-building process.
A public blockchain network uses proof-of-work or proof-of-stake consensus techniques to validate transactions. The Blockchain is permissionless in public blockchain architecture, meaning anyone can join and participate in the network without requiring permission; you can download the protocol anytime.
All you need is an internet connection to join the network, validate blocks, and send transactions. In general, this network provides incentives to users who verify blocks. Public blockchain networks include, for example, Bitcoin and Ethereum. Anyone can participate in a public blockchain by verifying and uploading data.
Decentralization exists in a public blockchain. A public blockchain has a smaller order of magnitude than a private blockchain and produces more transactional throughput. Compared to private blockchains, a public blockchain processes fewer transactions per second.
Because it is decentralized and involves active involvement, a public network is more secure. A central authority must be given access to a public blockchain to oversee the entire network.
Hybrid Blockchain: A hybrid blockchain is a special kind of blockchain technology that combines elements of private and public blockchains or aims to use the best features of both types of blockchains.
In a hybrid blockchain, transactions and data are made private but can still be validated as necessary, such as by granting access via a smart contract. Although retained inside the network, private information can still be verified.
A private entity can own the hybrid Blockchain but cannot alter transactions. A hybrid blockchain enables organizations to set up a private, permission-based system alongside a public, permissionless system, giving them control over which data will be made public and who has access to it.
A hybrid blockchain permits communication with outside parties while preserving anonymity. The network cannot be subjected to a 51 per cent attack from outsiders since hybrid blockchain functions in a closed ecosystem.
A hybrid blockchain generates more scalability than a public blockchain network and allows for quick and inexpensive transactions. Because only a few nodes are needed to verify transactions on the hybrid Blockchain, they are inexpensive.
Consortium blockchain: A permissioned blockchain technology called consortium blockchain is managed by several different organizations. It resembles the private Blockchain quite a bit. Contrary to consortium blockchain, which numerous organizations use, a private blockchain is solely used by one organization.
Instead of starting from scratch, consortium blockchain enables new users to join the existing framework and share information. Blockchain consortiums let businesses collaborate to identify answers, cut development costs, and save time.
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