If you’ve followed banking, investing, or cryptocurrencies in the past decade, you are probably familiar with “blockchain,” the recording technology behind Bitcoin. And there’s a good chance it just means so much. If you’re trying to learn more about blockchain, you’ve likely come across a definition like this: a blockchain is a decentralized, distributed ledger. “The good news is that blockchain is actually easier to understand than that definition sounds.

What is blockchain?

If the technology is so complicated, why call it blockchain? At its most basic level, blockchain is really just a chain of blocks, but not in the traditional sense of these words. When we talk about block and blockchain in this context, we really mean digital information (block) that is stored in a public database (chain).

Blockchain-based blocks consist of digital information. In detail, they consist of three parts:

1. Block store information on transactions, specifying the date, time, and dollar amount of your last purchase on Amazon.

2. Block stores information about people who participate in transactions. In a lock on your purchases on Amazon, your name will be recorded along with Amazon.com. Instead of using your real name, your purchases are recorded with a unique digital signature, a type of username, with no identifying information.

3. Blocks store information that distinguishes them from other blocks. Just as you and I have names that make us different, each block stores a unique code called a hash that enables us to distinguish it from every other block. Let’s say you’ve shopped on Amazon, but in transit you decide that all you can do is resist and take a second. Although the details of your new transaction will look almost identical to your previous purchase, we can still distinguish blocks based on their unique codes.

Although the block in the example above is used to store a purchase on Amazon, the reality is a little different. A single block on the blockchain can actually store up to 1MB of data. Depending on the size of the transactions, a block can contain several thousand transactions under one roof.

How does blockchain work?

When a block stores new data, it is added to the blockchain. As the name suggests, blockchain consists of many chained blocks. However, in order for a block to be added to the blockchain, four things must happen:

1. A transaction must take place. Let’s continue with your example of impulsive Amazon purchases. After hastily clicking your way through several payment requests, you are shopping against your better judgment.

2. The transaction must be verified. After purchase, your transaction must be verified. Other public information directories, such as the Securities and Exchange Commission, Wikipedia, or your local library, have a person responsible for reviewing new records. With the blockchain, however, this work is left to a network of computers. These networks typically consist of thousands (or around 5 million in the case of Bitcoin) computers spread around the world. When you buy something from Amazon, this computer network quickly checks that your transaction went as you announced it. That is, they confirm the details of the purchase, including the time of the transaction, the amount, and who participated in the transaction.

3. The transaction must be saved in a block. Once your transaction has been verified as correct, it will be given the green light. The dollar amount of the transaction, your digital signature, and Amazon’s digital signature, all stored in one block. There, the transaction is likely to join hundreds or thousands of other people.

4. A hash must be assigned to the block. In contrast to an angel who earns his wings, a unique identifier, a so-called hash, must be assigned to him after all block transactions have been verified. The block also receives the hash of the last block that was added to the blockchain. After hashing, the block can be added to the blockchain.

Once this new block is added to the blockchain, it will be visible to everyone – even you. If you look at Bitcoin’s blockchain, you can see that you have access to transaction data, along with information about when (game time), where (speedway), and by whom (transfer). followed by) is added to the blockchain.

Detailed article about: How does blockchain work?

Types of blockchain

Blockchain systems are divided into 3 main types:

Public

Everyone has the right to read and write data on the blockchain. The process of validating transactions on this blockchain requires thousands or thousands of participating nodes. Hence, it is impossible to attack this blockchain system as the cost is quite high. For example: Bitcoin, Ethereum …

Private

Users are only allowed to read data, not to write it, as it belongs to a completely trustworthy third party. This organization may or may not allow users to read data in some cases. The third party has full authority to make changes to the blockchain. Since it is a private blockchain, the transaction confirmation time is pretty fast as only a small number of devices are required to validate the transaction. Ripple, for example, is a form of private blockchain, this system allows 20% of the nodes to be fraudulent and only the remaining 80% are stable.

Permitted

Also known as consortium, a form of private, but adds certain characteristics, a combination of “belief” when participating in public and “absolute belief” when participating in private. For example, banks or joint venture financial institutions will use their own blockchain.

Versions of blockchain

Blockchain 1.0 – currencies and payments

The main application of this version is cryptocurrency: including currency conversion, transfer and creation of a digital payment system. This is also the area we are most familiar with, where sometimes many people mistakenly believe that Bitcoin and Blockchain are the same thing.

Blockchain 2.0 – Finance and Markets

Banking and financial processing applications: scaling blockchain, incorporating financial and market applications. Assets include stocks, checks, debts, titles, and anything related to an agreement or contract.

Blockchain 3.0 design and operational monitoring

Take blockchain beyond financial boundaries and into areas like education, government, health, and the arts. These areas will be of many types, such as physical, digital, or human.

Consensus mechanism in blockchain

The consensus mechanism in blockchain can be understood as the way Byzantine generals can reach consensus to take over the city together. The following are common types of consensus mechanisms:

Proof of work

Popular with Bitcoin, Ethereum, Litecoin, Dogecoin and most cryptocurrencies. Consumes a lot of electrical energy.

Proof of commitment

Popular with Decred, Peercoin and in the future Ethereum and many other cryptocurrencies. More decentralized, uses less energy and is not so easily intimidated.

Delegated proof of stake.

Popular with Steemit, EOS, BitShares. Low transaction costs; Expandable; high energy efficiency. However, it’s still a bit centralized as this algorithm selects trustworthy people for authorization.

Proof of authority.

This is the centralized model often used in the POA.Network, Ethereum Kovan Testnet. High performance, good scalability.

Weight verification (volume verification / the bigger the better)

Popular in Algorand, Filecoin. Adaptable and easy to expand. However, the process of accelerating development will be a major challenge.

Byzantine fault tolerance

Popular in Hyperledger, Stellar, Dispatch, and Ripple. High productivity; inexpensive; Expandable. However, it is still not completely reliable. This algorithm has 2 versions:

• Practical Byzantine fault tolerance
  
• Federated Byzantine Agreement (Byzantine Consensus).

Directed acyclic graphs (topical algorithms).

Hashgraph, Raiblocks / Nano (block-lattice technology) often found in Iota (tangle technology) is a blockchain competitor.

Main features of the blockchain

A distributed database

Imagine a spreadsheet duplicated thousands of times over a computer network. This network is designed to update the spreadsheet so you already understand the fundamentals of blockchain.

Information that is stored on a blockchain exists as a continuously synchronized and shared database. How to use the network with obvious advantages. The blockchain database is not stored in a single location, which means the records are stored publicly and verifiably. There is no centralized version of this database, so hackers have no chance of attacking it. Blockchain is stored by millions of computers at the same time, and their data is accessible to everyone on the Internet.

Blockchain sustainability

Blockchain technology is like the internet because it has a built-in power. By storing identical blocks of information on their network, blockchains cannot:

• Controlled by some entity
• No omission, no single mistake.

Bitcoin was released in 2008, and the Bitcoin blockchain has been running without noticeable disruptions since then. Up to this point, any problem related to Bitcoin is due to hacking or mismanagement. In other words, these problems stem from bad intentions and human error, not Bitcoin’s mistakes.

The internet has proven to be durable for nearly 30 years. This is a good track record for blockchain technology as it is constantly evolving

A network of nodes

A network of compute nodes …