How Blockchain Technology Works?
Bitcoin, Etherum, NXT, NEO, cryptocurrencies All of them are based on Blockchain technology. We are talking about a concept that is revolutionizing the digital landscape of companies and users.
Within the digital transformation characteristic of this 21st century, Blockchain is a technological disruption with a marked cross-cutting nature, since it will be applied to the business and operational model of multiple sectors (banking, insurance, energy, logistics and transportation, agriculture, tourism public policy, and management …) and will influence other new technologies, such as the Cloud, APIs, Big Data or IoT.
What is Blockchain Technology?
Blockchain is a distributed, secure, and immutable digital database. It is distributed because all the records are linked and because each user who participates in it keeps a copy, that is, they all have the same information. This is one of the advantages of blockchain: the decentralization of information, which makes intermediaries unnecessary to generate trust in transactions.
It is secure because the records are encrypted to protect the privacy and security of transactions. Due to these characteristics, a blockchain cannot be modified by a user without the validation of the rest of the participants.
And it is immutable since all the information recorded in this great accounting book cannot be erased.
There is no single blockchain, but you can generate as many as you want.
- There are several types of blockchain.
- Public: open to everyone, such as Bitcoin.
- Private: only accessible by invitation of the chain’s owners.
- Hybrids: in which the participants are private, but the transactions are public.
- The creation of a Blockchain or blockchain consists of various processes: storage, transmission and validation.
Blockchain technical glossary
This technology is based on several concepts, already existing before the Blockchain disruption. Let’s review the most important:
Nodes: refers to the users that make up the network; that is, to each computer that keeps a copy of the Blockchain records.
P2P (Peer to peer): it is a decentralized network where all the parts interact with each other, as opposed to a network with a central server.
Block: data package that contains the transactions carried out in a certain period of time. It is each of the divisions of the chain.
Hash: A cryptographic function that applies an algorithm to data entry. Thus, it marks the blocks with an alphanumeric output that summarizes and protects the information. The hash guarantees the immutability of the records.
String: it is the cryptographic link that through the hash keeps each block united with the previous one.
Data Mining or Data Mining: it is the process of solving cryptographic problems that, through the use of computer hardware, adds newly created and encrypted blocks using the hash function. The data miners or data miners achieve by validating blocks that new ones can be added and for this, they are rewarded.
Consensus: it is one of the bases of the Blockchain. Being a distributed database, the validation of the data is not carried out from a central user or body, but through the consensus of all the participants in the network. This consensus is achieved by establishing a validation algorithm that is followed by miners to verify transactions. The best known are the Hashcash-SHA256, Hashcash-Scrypt, and Hashcash-CryptoNight.
How does Blockchain Technology work?
As we have seen, a blockchain relies on inviolable self-validation of data to further develop. The key is the hash function.
In the following video, Anders Brownworth, a Blockchain professor at MIT, performs a simplified visual demo to understand how blockchains work:
Bitcoin Blockchain Technology
Bitcoin is a digital currency supported by blockchain technology. For the user, it works in a similar way to an online banking application, except that this currency does not have a banking institution behind it, but it is completely public. The use of this currency is still not very common, mainly due to ignorance. We tell you some advantages and disadvantages to get to know this currency better.
- Transactions are made in real time, and operate 24 hours.
- There are no transaction costs since there are no intermediaries, so we avoid the known commissions.
- There are no counterfeits. Blockchain technology makes it impossible for bitcoins to be faked or duplicated.
- The absence of an endorsement such as a government or bank also brings disadvantages since many of the users feel more insecure.
- Payment acceptance, merchants that accept payment with bitcoins are still a minority.
Blockchain technology is one of the pillars for the digital transformation of our society and economy. What changes will you introduce in production processes and what business models are already implementing its advantages? Discover the advantages of Blockchain for companies and which sectors will benefit from its use.