Do you know what blockchain (blockchain in literal translation) is? It is a digital transaction ledger that stores information that becomes difficult to hack or change. Thus, it allows direct negotiation between individuals safely, without government, bank, or other third-party intermediation.
The growing list of records, called blocks, are linked using encryption. In this way, each transaction is verified independently by peer-to-peer computer networks. In addition, there are timestamps on each block of the growing chain of data. Once registered, the data cannot be changed.
What is blockchain in practice?
Imagine a place that offers passwords for attendance. The system offers a number that orders the arrival of users. Additionally, it inserts the pick-up date and time information. Thus, in a single dataset, it is possible to know when the user arrived. As well as who came first and who should be next. Analogously, blockchain works similarly. That is, data can be validated in the same way as a password. Because each one of them presents information about its origin and cannot be duplicated.
In practice, it is a large database distributed over a computer network. Simultaneously, all computers, called nodes, have a copy of all transactions since the creation of the blockchain.
All information (all transactions to date) is public and distributed. With this, the network only validates a new transaction if it is in harmony with the history of previous transactions. In this way, nodes can check for inconsistencies and irregularities. Finally, only when the nodes agree on the integrity of the transaction is their proper validation.
The technology has become popular with the increasing use of bitcoin, Ethereum, and other cryptocurrencies. However, its promising applications go much further. For example, legal contracts, property sales, or medical records. As well as any other sector that needs to authorize and register a series of actions or transactions.
Among its great advantages, Blockchain provides decentralization. That is, it allows secure transactions without the need to submit them to a central authority. In addition, it provides transparency, accuracy, and security. With this, it can help, for example, in the inclusion of unbanked people in the financial universe.
How does it work?
As we said, the blockchain orders a block of information in a sequential and temporal chain. It is important to ensure that no one can defraud transactions, as the balances of each address depend on past transactions.
Let’s use Bitcoin as an example. Compare with a bank account. A database stores balance and can even erase the history of longer periods. On the other hand, the blockchain only records the movements. To calculate the balance, one must go through the entire history of the network. That is, following the transactions since the issuance of each currency.
In the case of Bitcoin
When initiating a transfer, the sender uses his private key (a password) and sends transaction information over the network. At this point, a block containing all the information is created. This is the digital signature, timestamp, and public key (or address) of the recipient.
Subsequently, the propagation of the information block to the network and the validation process begin.
Miners (computers, also called “nodes”) across the network begin solving the transaction-related cryptographic math equation to process it.
Whoever solves the equation first receives a reward in the form of bitcoins.
This is called a Proof of Work math problem. This is because the equation is solved through the work of several computers to guarantee the security of the network.
Finally, most of the “nodes” in the network reach a consensus and agree on a common solution. With this, the block is marked with time and its insertion into the existing blockchain.
With the addition of the new block to the chain, the existing copies of the blockchain are updated for all nodes on the network. After that, they become immutable.
Each networked computer has the entire transaction history. Thus, it is possible to consult any transaction for free on sites such as btc.com or chain.so, further increasing transparency and security.
Use beyond Bitcoin
After the success of Bitcoin, an even more promising concept emerged: smart contracts. They are codes written in a programming language, whose data are compiled and published on decentralized networks – the blockchains – that use peer-to-peer (or P2P) technology.
Imagine you have a self-executing contract. That is, it automatically does what was agreed between the parties. For example, in the case of cryptocurrencies such as bitcoin, it is a value transfer agreement. But this contract could have several other clauses.
For example, the inheritance of these virtual currencies to someone. If by any chance the owner of the bitcoins dies, there is the transfer of this value, as recorded there, automatically. Likewise, if you want to bet something with a friend, you can deposit your coins in a smart contract. This contract, when automatically checking the result of the bet, transfers the amounts to the winner. Thus, it makes the process much less susceptible to fraud.
And what guarantees this is that smart contracts are unalterable. That is, once published on the blockchain, it will remain there forever. If the parties want to change something, a new contract must be published and used thereafter. But the previous one will never be changed; it will just be unused.
The concept of Smart Contracts allows for the development of numerous projects. And several concepts have already emerged from them (click here for the blog link – Blockchain Revolution). What to know how? Contact us and we’ll help you understand all the possibilities, as well as SOLVE the entire technical part of the development for you.
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