HOW BLOCKCHAIN WORKS?
Every ahead of the curve technology of its time had a long history of uphill battles. For any in-vogue technology to be well-functioning and pleasing to the eye has an extensive list of backend procedural tasks. Blockchain technology is no different from it too. As we already have a glance at “What is Blockchain?” let’s dive into its working and understand how this off-the-charts innovation operates. In the most fundamental logic, a blockchain is a publicly managed and verified record of transactional data. All of the data blocks are ordered chronologically and are connected to form a “chain” — hence, the term “blockchain” came into existence. This technology is a decentralized and distributed public ledger constructed around a P2P (peer-to-peer) system. To put it directly, Blockchain works as a time-stamped series of data records as a digital ledger administered by a group of computers, not under the monopoly of any particular individual, entity, or company. With the understanding and application of the cryptographic principle, the blocks of data (which are, indeed, referred to as “blocks”) are bound to one another.
“The whole point of using a blockchain is to let people — in particular, people who don’t trust one another — share valuable data in a secure, tamperproof way.”-MIT TECHNOLOGY REVIEW
Public blockchain ledgers are first and foremost managed independently and are used in peer-to-peer networks to interchange data between connected groups of parties. As is the nature of blockchain, there’s no need for an administrator. The users work together as a collective administrator. Another form of blockchain, generally known as a permissioned or “private” blockchain, allows an organization to both create and administer transactional networks that can be used with partners, either internally or from one company to another. Every blockchain transaction goes through the same steps regardless of whether it’s used for financial transactions or product tracking. The basic principle of the operation of any blockchain can be broken into four distinct, contiguous steps:
- A record is formed of each transaction. A digital signature corroborates each record, which contains particular details of the people making the transactions.
- Each transaction is verified to ensure its validity. This verification process is completed by the computers connected to the network, each of which independently checks to ensure that the trade is legitimate. For being a decentralized process, every node in the network needs to agree before the process can be completed.
- Once verified, each transaction is embedded into a block that gets hashed. “Blocks” are basically groups of transaction records, and each one is unique. Each block also carries a code known as a hash value (or hash digest), which both uniquely identifies it and calls out its position within the blockchain. The hash also ensures the integrity of the data to show that it hasn’t been modified since it was recorded in the block.
- Once complete, the block is added to the end of the blockchain. This brings us to the end of the blockchain creation and verification process. Once one block is complete, another block will soon follow — typically within just a matter of minutes.
The Blockchain has some functionality that makes it more pleasing to use and is the reason for its high demand.
- Hash Encryptions Blockchain technology uses hash encryption to secure the data, relying mainly on the SHA256 algorithm to secure the information. The address of the sender (public key), the receiver’s address, the transaction, and his/her private key details are transmitted via the SHA256 algorithm. The encrypted information, called hash encryption, is transmitted across the world and added to the Blockchain after verification. The SHA256 algorithm makes it almost impossible to hack the hash encryption, which in turn simplifies the sender and receiver’s authentication.
- Proof of Work In a Blockchain, each block consists of 4 main headers.
- Previous Hash: This hash address locates the previous block.
- Transaction Details: Details of all the transactions that need to occur.
- Nonce: An arbitrary number given in cryptography to differentiate the block’s hash address.
- Hash Address of the Block: All of the above (i.e., preceding hash, transaction details, and nonce) are transmitted through a hashing algorithm. This gives an output containing a 256-bit, 64 character length value, which is called the unique ‘hash address.’ Consequently, it is referred to as the hash of the block.
Numerous people around the world try to figure out the right hash value to meet a pre-determined condition using computational algorithms. The transaction completes when the predetermined condition is met. To put it more plainly, Blockchain miners attempt to solve a mathematical puzzle, which is referred to as a proof of work problem. Whoever solves it first gets a reward.