A short insight into what is cryptocurrency had been explained in our last blog Cryptocurrency and Network Marketing. Now let us understand more about the format and how does it work in the market scenario? What are its requirements to develop peace and transparency among the investor’s forum? How it can be better transformed through the involvement of the base software to reduce the risk of fraud to the minimum? Some related terms to the Blockchain and their importance.
Before anything let me first introduce you to the controlling element of cryptocurrency i.e. the Blockchain technology. Adopted by the world of technology investors, Blockchain technology has played its key role since the initial introduction of the most powerful cryptocurrency Bitcoin.
This technology left a huge impact on the advancement of the technology that was the particularly low mark at the time of its introduction. It was back again the previous decade when the name of cryptocurrency was not so profound, and the dealings that were done on the concrete level also did not have a solid backing.
Importance of Blockchain Technology
It disseminates useful information without getting copied; the potential seekers of this business have sorted other uses of the technology, let alone leave for digital currency setup and management. Blockchain technology stores the immutable series of data records, which is managed by a batch of computers not necessarily owned under a single name or entity. All these big chunks of data are disciplined by the cryptographic principles.
They become valued once there is some data stored in Blockchain. It is neither easy to replicate it nor to falsify the same. So how does that work? Well, let’s take a focused look on a single block. What is it?
A Blockchain is a distributed ledger that is completely open to anyone. Particularly speaking, this network of computers enjoys a decentralized autonomy, the information and the ledger folios maintained in it are open to the wide public. This makes it appear as an invincible platform with crystal clear knowledge and validity of the transaction which makes those involved are individually accountable for their actions.
A Safe transaction with no cost involved
This method is safe secure yet so primitive used for passing particular information through a string i.e. from A to B in an absolute automated and the safest way.
- Herein Party A initiates the process by creating a block.
- This gets verified by multiple hundreds of computers distributed globally on the net.
- The verified block then enters a chain, which is stocked over the network. This creates a unique record with a unique history.
- The contradiction of one record does mean tampering the entire chain system which appears to be less realistic.
This network model used by Bitcoin for monetary business dealing but can be unfolded to many useful advantages.
How does Blockchain work?
Each block carries some data, the hash of the block, and the hash of the previous block.
Data: The data that the block carries depends typically on the type of Blockchain it emanates. The Bitcoin Blockchain, for instance, stores the details about the particular transaction stated therein, such as the sender, receiver, and the value of coins.
Hash: A Blockchain also contains a hash, which you can assume as a particular identity or a fingerprint. It carries the identity or fingerprints of the block it has managed to pass through. All of its contents are undeniably unique just like a fingerprint in the case of humans. On the creation of the block, its hash is calculated.
If efforts are made to change something inside the block, it will cause the hash to change. So, indirectly speaking they are a very useful piece of evidence when you want to detect any changes done to any particular block, without any knowledge. It shows that if the hash changes the information inside the particular block is no longer the same as it followed from its origin.
Hash of the previous block: It is the third element of the Blockchain. This is especially responsible for the creation of the chain of blocks, and this is what makes the Blockchain technology safe and secure.
Let’s just understand this through a case study.
If you take a look on three blocks of a Blockchain:
1. Block 1
2. Block 2
Hash: **** Previous Hash: ####
3. Block 3
Hash: @@@@ Previous Hash: ****
So, you can see that Block no. 3 points its address to Block No. 2, and similarly Block No. 2 points to Block No. 1. Now the first block is a bit exceptional, as it cannot address or point towards any as it is the first one. We call it the genesis block, or the originating block. Now, let’s assume somebody in between tampers with the second block, and thereby the hash of the same block would change as well, and as a result, this will turn the subsequent block i.e. Block No. 3 and the following blocks invalid because in actual they no longer store the same data or information originally transmitted and a valid hash of the previous block. So changing a single block will make all the other in-line typically invalid at the same time.
But using this single layer is not enough to safeguard the confidentiality of information carried inside the block, from being invaded. As this whole system is excelled by computers which is quite fast and effective to create and calculate several hundred thousands of hashes at a single go.
As you can assume that by this, one can effectively tamper the hash of a block and recalculate all the hashes of other blocks at another second of the minute to make the Blockchain appear valid. So to pacify this, Blockchains utilize something known as proof-of-work. It is a procedure that typically slows down the creation of new blocks. For example, in the case of a Bitcoin, it requires a minimum of 10 minutes to calculate the needed proof-of-work and add a new block to the chain.
This procedure is quite hard to tamper with the blocks as if you dare to intrude with one Block; you are required to recalculate the proof-of-work, for all the successive blocks. So the security quotient of Blockchain is derived from the smart use of hashing technique and the proof-of-work, which makes it practically an impossible task to mess with.
Not ending with this, there stands one more mechanism that the Blockchains use to securitize itself and stand out and i.e. by being distributed among the wide audience. Since there stands no centralized technology to control or regulate the Blockchain; it acquires a peer-to-peer (P2P) network connected through computers where everyone is allowed to participate on a regulated membership basis.
On the initial joining of the network, they get a full copy of the Blockchain. And the different nodes can use the same to verify any changes done or any kind of changes made can be visualized by the respected computers and the orderliness can still be reassured.
In the above situation, let’s take an insight into what will happen if someone will create a new block. The new block will be distributed to everyone in the network. On receiving, each node individually verifies the block to assure that it hasn’t been tampered with. After the proper checkout, if everything returns okay, then each node add this block to their own Blockchain. So this is how all the nodes in the network create unison. They agree in a group to find out which all blocks are still valid and which are not.
And if this general agreement is not achieved, then the blocks that are tampered or have a problem with will be rejected by all the other nodes of the network. So, the invader needs to not just tamper the Blockchain but all the blocks on the chain, rebuild the proof-of-work for the entire block, and barge in the control of more than half of the peers of the network. Only then the act of the intruder will pass through with no proof of falsification to the complete network chain, which is seemingly impracticable.
Blockchains are said to be continuously improvising. The recent developments are the generation of the smart contract list, which are simply stored on the Blockchain network, and can be utilized automatically to exchange coins, based on some pre-determined conditions.
This Blockchain technology has attracted the interests of a lot of people, not only for storing digital assets but also used for other things, like storing medical records, maintaining a digital e-notary, and even collecting the revenue taxes. So now we hope you got the basic understanding of the block and its securitization techniques, and the problems it effectively deals with accuracy.