You may know the word “blockchain,” the record-keeping technology behind the Bitcoin network, whether you’ve been following finance, trading, or currency crypto over the last ten years.
What is Blockchain, and how it works?
While it may appear to be complicated, and it can be, its core concept is relatively easy. A blockchain is a type of digital ledger, also called a distributed ledger technology. To comprehend blockchain, it is essential first to comprehend what a database is.
“Database” refers to a collection of data saved electronically on a computer or other digital device. In order to make searching and filtering for specific information easier, database information, or data, is frequently structured in a table-like format. Where do spreadsheets and databases vary when it comes to data storage?
In a spreadsheet, a single person or a small group of individuals can store and retrieve limited amounts of data. Another advantage of databases is that they allow multiple users access, filtering, and manipulation of large amounts of data at the same time.
To do this, large databases use powerful computers to store information on servers. To provide the computing power and storage space necessary for multiple users to access the database simultaneously, these servers may often be constructed using hundreds or thousands of computers. Although anyone can access a spreadsheet or database, it is often owned by a company and maintained by a designated person who has complete control over its functions and the data it contains.
Key differences between a database and a blockchain
A regular database and a blockchain have quite different data structures. Blockchain is a digital ledger of transactions that organizes data into blocks, each of which contains a data collection of some sort. “Blockchain” refers to a data chain created by chaining together blocks that have a certain amount of storage capacity. Once a new block is added, all new data and information are added to the chain until the chain is full.
Unlike a database, a blockchain organizes information into connected blocks. But not all blockchains are databases. When applied in a decentralized manner, this system creates an irreversible data timeline. When a block is filled, it becomes permanent and part of the timeline. When a block is attached to the chain, it is assigned an exact timestamp.
To better comprehend blockchain, it’s helpful to think about it in terms of how it’s been utilised by Bitcoin. To know more about Bitcoin, please check out our blog on the same. In order to store the blockchain in Bitcoin, it relies on a network of computers, just like a database. Every Bitcoin transaction is recorded on this distributed ledger technology (DLT), which is called a blockchain. These machines are not all housed under one roof, as they are in the case of Bitcoin, and each one or group of them is managed by a single person or group of people.
An example is a company that runs an enterprise-wide server with 10,000 machines, as well as a database with all of its clients’ account information. All of these computers are housed under one roof in a warehouse that belongs to this organisation, which has complete authority over each of them and the information they contain. As with Bitcoin, it relies on a large number of computers to work. There is still a difference in the location and ownership of each machine or group of computers that contains a blockchain. A currency crypto network is made up of nodes, or computers. Refer to our blog on cryptocurrencies to know more about them.
A decentralised Bitcoin blockchain is employed in this paradigm. Another type of blockchain exists that is privately owned and controlled by a single person.
In a blockchain, every node has a comprehensive record of all the data that has been stored on the blockchain since it was created. A complete history of all Bitcoin transactions is what constitutes the Bitcoin data. An mistake may be fixed by using the thousands of other nodes as a reference. The data in the network can’t be altered by any single node in the network this manner. Consequently, the past transactions in each block of Bitcoin’s blockchain are immutable and cannot be altered. Here is a more detailed guide on Bitcoin.
It is easy to track down a user who has tampered with Bitcoin’s transaction record because all other nodes can cross-reference each other. As a result of this method, it is possible to establish a clear and concise sequence of events. Legal contracts, state identifications, or a company’s goods inventory can all be stored on the blockchain.
If you want to change the way the system works or the information contained in it, you’ll need a large amount of computational power. It follows then that any improvements made will serve the majority’s interests.
All transactions may be publicly displayed by utilising an individual node or blockchain explorers since Bitcoin’s blockchain is decentralised. This allows anybody to see transactions as they happen in real-time. As new blocks are added and validated, each node has its own copy of the chain. As a result, if you wanted to, you could follow Bitcoin wherever it goes.
There have been instances in the past where exchanges have been compromised and all Bitcoins kept on the exchange were lost. Despite the fact that the hacker can stay anonymous, the Bitcoins they stole can be tracked. Bitcoins that have been stolen in any of these thefts would have been tracked if they were transferred or spent someplace.
Blockchain networks come in four flavours.
A decentralised blockchain has no restrictions on who can use it. As long as you have an Internet connection, you can make transactions and serve as a validator for them (i.e., participate in executing a consensus protocol). People who guard them are usually compensated with money, and they employ a Proof of Stake (PS) or Proof of Work algorithm.
It’s password-protected, and no one may join unless they’ve been invited by the admins. Participant and validator access is restricted to a small number of people. In order to distinguish them from other peer-to-peer decentralised network applications that are not open ad hoc compute clusters, private blockchains are often called Distributed Ledger, and DLT.
Combining controlled and decentralised blockchains, hybrid blockchains offer advantages of both types of networks in one package. Centralization and decentralisation are applied in different ways, which affects the chain’s ease of operation.
When we talk about sidechains, we’re talking about a cryptographic ledger that runs in parallel with the main blockchain. It is possible to connect entries from the main blockchain (which typically reflects digital assets) to and from the sidechain, allowing the sidechain to function independently of that leading network (e.g., using alternate record-keeping, alternate consensus algorithm, etc.).
Why is blockchain technology causing such a stir these days?
To date, a number of unsuccessful attempts have been attempted to establish digital currency.
Confidence is by far the most important challenge. Anyone who creates a new currency called the X dollar has no reason to assume that they won’t give themselves a million dollars or take your X dollar?
By employing a blockchain, a type of database, Bitcoin addresses this problem. Changes to the entries can be made by the person in control of most regular databases, such as a SQL database (e.g., giving themselves a million X dollars). People that utilise blockchain are in charge of it, which makes it unique. People who own bitcoins can be assured that they are worth something because they can’t be hacked, faked, or double-spent.
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