What is Blockchain?
Blockchain is a digital transaction storage system that records all transactions stored in a public database indefinitely (or ledger). In essence, this technology ensures that the trustworthiness and validity of previous transactions are forever stored in its database.
This enables the Blockchain to digitally store and transfer value because any monetary input in the transaction can be considered correct. Blockchain has a blockchain network that relies on the community and uses a consensus method.
There is no central authority or entity in this network that has control over other entities. As a result, all entities in the network are in the same position to make decisions.
How does blockchain work?
Simply put, blockchain literally means "block chain." In other words, this technology is a collection of transactions (blocks) stored in a public database (chain).
The block contains information about all transactions that have taken place, such as date, time, dollar amount, participant's digital signature, and unique transaction code. Each block can store hundreds of transactions.
The block that has been created will be added to the block chain. Each block contains its own unique code (also called a hash) and also contains the previous block's unique code. Each block is tied to the previous block, thus creating a chain of interlinked blocks.
If imagined vertically, the new block will be stacked on top of the existing block. Because the next block contains information from pre-existing blocks, hackers who want to change the transaction information in a particular block change not only one, but all the blocks stacked on top of it. Of course, it takes enormous computing power to run this, so this technology becomes almost impossible to hack.
Blocks are created by a worldwide network of computers (also called miners or nodes). Thousands of computers around the world compete to create blocks by solving mathematically complex algorithms. Each miner who successfully solves the problem and creates a new block will receive a reward in the form of Bitcoin. This ensures that blocks are continuously created and that transactions are stored on the blockchain.
Simultaneously, the participating computer networks go through a process called consensus, where they confirm transaction information in each block and store it independently. Since transactions are stored independently on each computer, it is almost impossible to change transaction details because all computers need to provide approval.
Contrary to one source of failure facing central authorities, blockchain does not depend on a single computer. This means that hackers must hack or control at least 51% of all participating computers, which is similar to hacking a stack of blocks.
This process creates a loop (looping) which naturally strengthens the security of the Blockchain and protects the information stored in the block.
Correlation between Blockchain and Bitcoin
Because transactions stored in blocks are essentially data, Blockchain can be applied to any field that requires online storage of predefined values, such as property rights, identity records, and so on. One successful application of this technology is the birth of cryptocurrency, or digital currency.
Bitcoin was the first cryptocurrency in the world.
The transactions mentioned above are money transfers between people in the case of Bitcoin. Although the internet allows us to transmit information, it cannot guarantee the immutability of information. This means that the internet cannot be used to provide monetary value because it is subject to change.
Bitcoin ensures that the value of transactions sent between individuals does not change by leveraging the blockchain. Furthermore, transaction fees for entering transactions into the Blockchain using Bitcoin are significantly lower than those charged by financial services today. This increases the effectiveness of Bitcoin use.
3 Key Characteristics of Blockchain
1. Decentralization
In a decentralized system, information is not stored by a single entity. Everyone on the network has the information. In a decentralized network, if you want to interact with friends, you can do it directly without using a third party. For example, you have your own money, you are responsible for the asset, and you are free to send it to anyone independently. That's decentralized on the blockchain.
2. Transparency
Some people think that blockchain is private and confidential, but some people say that it is transparent. In reality, the real identity of blockchain users can be hidden through complex cryptography. User identity can be hidden, but not with transactions. All transactions and changes in the blockchain can be seen making it difficult for manipulation to occur.
3. Eternal
What is meant by immutable here is that if the data has been entered into the blockchain, it cannot be tampered with. This can happen because there is a hash function, for example, if a hacker attacks block 3 and tries to change the data. Due to the nature of hash functions, a slight change in the data will drastically change the hash. Every small change will completely change the chain, which is nearly impossible. This is what makes the blockchain immutable.
Application of Blockchain Technology
1. Smart contracts
With blockchain technology it is possible to code a simple contract that will be executed when the specified conditions are met. Smart contracts can be programmed to perform simple functions.
For example, derivatives can be paid out when a financial instrument meets certain benchmarks, with the use of blockchain and Bitcoin technology allowing payments to be made automatically. This smart contract can be useful for work contracts, businesses, and so on.
2. Sharing Economy
By using a peer-to-peer system like blockchain, it can open the door for interaction between industries more easily. Blockchain is also useful for the financial sector or financial institutions for more transparent transactions.
3. Fundraising/Charity
can make the fundraising process easier and has the potential to generate more funds with transparent distribution.
4. Government Database
By using blockchain, governments can create databases that are transparent, distributed and accessible to the public.
5. Data Storage
This technology can be used for digital data storage systems that are able to store data securely and avoid hacking because data is decentralized to multiple networks.
6. Copyright Protection
Blockchain can store smart contracts containing copyright data to help inventors avoid idea theft, minimizing the risk of idea theft and redistribution. as well as helping inventors to sell their copyrights.
7. Identity Management
The shared ledger on the blockchain offers a more complex method of proving personal identity. It can also be a way to securely digitize personal documents, especially for online interactions.
Conclusion
Blockchain is a digital transaction storage system that records all transactions stored in a public database indefinitely (or ledger). There is no central authority or entity in this network that has control over other entities. Blocks are created by a worldwide network of computers (also called miners or nodes). The key characteristics of a decentralized system include: decentralization, transparency, and immutability. The technology can be used for smart contracts, government databases, financial institutions, charities and more.
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