Blockchain Basics: How are These Blocks Connected to Chains?

First Phase Media
minute read

If you have been following the new inventions in the IT world or the changes happening in the finance sphere over a couple of years, then you surely would have heard sound bites and buzzwords like blockchain technology, cryptocurrency, bitcoin, dogecoin and many more. 

So, what exactly is this blockchain? And why does everyone keep talking about it? 

Let’s make it a bit clear for you. Imagine a world where you are your ‘own bank’, we know that sounds a bit complex. But it is what it is. A world wherein you can send money to someone in just a few seconds and not hours or days. You have complete control over your money and don’t even have to pay any taxes or transaction fees to the banks. You have your own online wallet, and don’t need anyone’s permission or go to a third-party for any access. 

The global spending on blockchain solutions is projected to reach $6.6 billion by 2021, and almost $19 billion by 2024. 

And blockchain technology has the capability of turning this imagination into reality, and digitally transforming the way we trust and exchange value. Many people still are skeptical about the concept and that we will use it in the future. This skepticism exists only because we are in the early stages of development and it is still not widespread as compared to other technologies. In other words, 2021 to blockchain is like the internet to the 1990s!

Blockchain 101: Why is It Called Blockchain? 

Even if it seems a bit complicated from the outside, the core concept of blockchain is actually very simple. Blockchain is like a database. Blockchain collects the data in groups and holds this set of information in ‘blocks’. These blockahin have certain storage capacity and once filled the data is stored into the other blocks that are chained together, thus making it a ‘blockchain’. 

The only major difference between a database and blockchain is the way data is structured. A database stores the data into tables, while blockchain stores it into the chained blocks. Thus, it implies that all blockchains are databases, but not all databases are blockchain.   

Even experts predict that blockchain will boost global GDP by $1.76 trillion by 2030, which is approximately 1.4% of global GDP. 

Sometimes, blockchain is also referred to as Distributed Ledger Technology (DLT), but that’s not it. Blockchain is just one type of distributed ledger, a subset of many. A distributed ledger is not that complex to understand as it is a database that exists across numerous locations or among several participants. Distributed and immutable are two fundamental blockchain properties. Being distributed protects the blockchain from cyber attacks, while the immutability allows one to trust and have secured transactions.  

Infrastructure of Blockchain

Blockchain comprises three major concepts: blocks, nodes and miners.

When a block is created, the nonce is randomly generated and that later generates a block header hash. A nonce is a 32-bit whole number, while hash is a 256-bit number wedded to the hash. Nonce can be used just once for cryptographic communication, and has multiple applications like authentication, identification, hashing, electronic signatures, and more. 

Blockchain is based on the concept of decentralization, and not one computer or organization can own the chain. All the transactions and information is recorded chronologically on a decentralized digital ledger and made available to everyone via connected devices, i.e. nodes. From communicating within the network and transferring information about every transaction and new blocks, the nodes play a critical role in the blockchain infrastructure. Along with this, they help maintain the security and integrity of the network.

As per Deloitte’s 2021 Global Blockchain Survey, 73% of the respondents agree that their organization will lose an opportunity of competitive advantage if they don’t adopt blockchain and digital assets.  

Miners create new blocks on the chain using mining. They make use of hardware GPU, SSD for crypto mining, mining software, wallter and mining pool to find a nonce that generates the accepted hash. As a nonce is only 32-bits and hash 256, there are roughly 4 billion possible nonce-hash combinations to be mined before finding the right one. In the end when the block is mined successfully, the change is accepted by all the nodes on the network and the miners get rewarded financially.      

Is Blockchain Secure? 

Blockchain allows people to perform transactions and forms the bedrock for cryptocurrencies like bitcoin, dogecoin, ethereum and more. There is no need to operate with the requirement of any central authority and eliminates the transaction and processing fees involved.In the healthcare industry, providers can store medical records of patients by leveraging the blockchain technology. Through this transparent technology, transactions are even more secure, private and efficient. In addition to that, as there is very less human involvement the chances of errors and inaccuracy is very less.    

Did you know that in 2021, cross-border payments and settlements are considered the largest individual blockchain technology use case, accounting for 16% of the global blockchain technology market?   

The authenticity of the recorded transaction has to be verified by the blockchain network. After the transaction is validated, it is added to the block. All the transactions in this cryptographic system are irreversible, i.e. once a block is created it cannot be modified as it has it’s unique hash code. And if any information on the block is edited in any way, the block’s hashcode changes. So, despite the anonymity of the users and transactions accessible to the public on the blockchain network, it is extremely difficult to hack or cheat this cryptographic system, making it much more secure than traditional financial institutions. 

Final Note

With plenty of applications already coming into use and advancements made to explore the technology, blockchain is already establishing a name for itself and going to have an even prominent presence in the upcoming years. The technology has great potential  to revolutionize not just the finance world, but also many other business operations, supply chains and governments. We indeed are going into the glory days of blockchains, and it’s no longer a question of “if” we will catch on to this remarkable technology- it is a question of “when”.