Blockchain explanation for dummies – How Blockchain technology works
You might be aware of Bitcoin, you know that Bitcoin work on Blockchain. So this post is about “Blockchain explanation for dummies”. We will learn about the working, usage, and future of blockchain technology.
So let’s start with,
What is blockchain Technology? A Blockchain explanation for dummies
A blockchain is a distributed database or ledger that is shared among the nodes of a computer network. Firstly let’s find out what a distributed database means.
A distributed database is basically a database that is not limited to one system, it is spread over different sites or computers connected over the network.
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Moving to the blockchain,
A blockchain collects information together in groups, known as blocks, that hold sets of information. Every block has storage capacities and, when it is filled, it is closed and linked to the previously filled block, Like the coaches of a train, forming a chain of data known as the blockchain.
As new data comes in, it is entered into a fresh block. Once the block is filled with data, it is chained onto the previous block, which makes the data chained together in chronological order.
Different types of information can be stored on a blockchain, but the most common use of blockchain technology so far has been as a ledger for transactions.
Now let’s find out,
How a Blockchain works as a ledger in transactions.
The Main role of Blockchain technology is to store information permanently and to share it with its user but it does not allow make any changes in Data. This is why blockchains are also known as distributed ledger technology (DLT).
- A New Transaction is entered into the ledger.
- The transaction is then transmitted to a network of peer-to-peer computers around the world.
- All these connected computers solve equations to validate the transaction.
- Once this transaction is validated, this is attached to the Block.
- These blocks are then chained together to create a history of the transaction.
- The transaction is complete.
This is how a transaction is added to a blockchain.
We are clear now about what a blockchain is and how it works. Now, let’s check
What are the uses of Blockchain Technology?
While blockchain technology is widely used to store Cryptocurrency transactions, other things like legal contracts, NFTs, Cryptocurrencies, or product inventories can be stored.
Today, there are more than 10,000 other cryptocurrency systems running on blockchain technology.
Blockchain technology is used in the following ways
- Finance and Banking sector: With blockchain, banks also have the opportunity to exchange funds between institutions more quickly and securely.
- Food Delivery: To track the food traveling from farm to store.
- Currency (Crypto): Blockchain forms the bedrock for crypto.
- Healthcare: Help securely store their patients’ medical records.
- Property Records: If property ownership is stored and verified on the blockchain, owners can trust that their deed is accurate and permanently recorded.
- Smart Contract: A contract on blockchain is very trustworthy.
- Supply chain: As in the IBM Food Trust example, suppliers can use blockchain to record the origins of materials that they have purchased.
- Voting: Voting with blockchain carries the potential to eliminate election fraud and boost voter turnout.
Also, Read about A unique use of Blockchain in Supply Chain Technolgy
Benefits of Blockchain
As blockchain is becoming more popular day by day, lets us first have a look at the benefits of using the technology of blockchain.
- Accuracy of the Chain: if a computer on the network were to make a computational mistake, the error would only be made to one copy of the blockchain.
- Cost Reductions: Blockchain eliminates the need for third-party verification and with it, its associated costs.
- Decentralization: By spreading that information across a network, rather than storing it in one central database, blockchain becomes more difficult to tamper with.
- Efficient Transactions: Blockchain is working 24 hours a day, seven days a week, and 365 days a year. Transactions can be completed in as little as 10 minutes.
- Private Transactions: There is a key to validate a transaction.
- Secure Transactions: Hard to hack a blockchain.
- Transparency: Most blockchains are entirely open-source software.
Drawbacks of Blockchains
Like every technology has some great benefits but they also have a few drawbacks, blockchain also has a few drawbacks, so let us check them.
- Technology Cost: As technology is new, so it is quite expensive for now.
- Speed and Data Inefficiency: Some blockchains take more time to verify the transaction.
- Illegal Activity: due to the decentralization of the blockchain it is not possible to track and can be used for illegal activity.
- Regulation: governments could theoretically make it illegal to own cryptocurrencies or participate in their networks.
Also read, Gita Gopinath suggests no ban but regulation, for cryptocurrency, seeks global policy
In the end, let’s have a look at the
Pros and Cons of the blockchain.
- Improved accuracy by removing human involvement in verification.
- Cost reductions by eliminating third-party verification.
- Decentralization makes it harder to tamper with the information stored.
- Transactions are secure, private, and efficient.
- Transparent technology.
- Provides a banking alternative and a way to secure personal information for citizens of countries with unstable or underdeveloped governments.
- Significant technology costs are associated with mining Bitcoin.
- Low transactions per second.
- History of use in illicit activities, such as on the dark web.
- Regulation varies by jurisdiction and remains uncertain.
- Data storage limitations.
In the end, I would like to summarise all this Blockchain explanation for dummies.
Blockchain technology is the future of technology and it will change the style of working of the system. As it is more secure, hard to hack, efficient, and has multiple fields for its usage. Records are easily maintained on it. Tracking data is easy and quick.
Blockchain technology will store any kind of data exchange on the platform. So, it’s like a ledger system, where every data exchange has a spot in the log. More so, the data exchanges in the system are called transactions. Once the transaction is verified, it gets a place in the ledger system as a block.
Why is blockchain technology so important?
Blockchain increases trust, security, transparency, and the traceability of data shared across a business network and delivers cost savings with new efficiencies. Blockchain for business uses a shared and immutable ledger that can only be accessed by members with permission.
What is the value of blockchain technology?
Blockchain Technology has already demonstrated significant value in terms of moving from centralized data management to decentralized management of data, records, and transactions.
What is the future of blockchain technology?
Blockchain is one of the most talked-about technologies in business right now. Blockchain tech has the potential to drive major changes and create new opportunities across industries – from banking and cybersecurity to intellectual property and healthcare.