Background
Technologies of decentralized information storage and distributed computing were known at the end of the last century. However, the word "blockchain" became known to the masses only after Bitcoin appeared in 2008, and with it the era of blockchain and blockchain-based applications began.
If you try to understand the essence of blockchain, you can start with its name: "Blockchain" is from English "block" and "chain" - literally "chain of blocks", i.e. in simple words blockchain is information stored in a chain consisting of blocks.
Blockchain
This is a continuous consecutive chain of blocks containing information built according to certain rules. Connection between blocks is provided not only by numbering, but also by the fact that each block contains its own hash sum and the hash sum of the previous block. Changing any information in a block will change its hash sum. To comply with blockchain rules, changes in hash sum must be written to the next block, which will cause its own hash sum to change.
How Blockchain works
Not long ago, value was transmitted via cash, today banks are the main actors in this process, tomorrow it will probably be blockchain-based services.
To begin with, blockchain is a decentralized database that is designed to store sequential blocks with a set of characteristics (version, creation date, information about previous actions in the network). An analog example of its structure appears to be an infinitely long metal chain in which links cannot be broken or swapped.
The basic principles of the technology are:
- decentralization;
- distribution;
- transparency;
- safety;
- immutability.
The whole blockchain chain can be thought of as a book with the ability to add pages, but each new page is written after an existing page, and the others cannot be edited, deleted, or swapped.
New "pages" are added to such a book through transactions, but transactions are not like money transfers, but like the execution of a program script. Besides basic data, each block has a unique set of parameters: nonce, hash of previous block, hash of current block and transaction list.
Several thousands of such records can be stored within one block. When memory in a block runs out it is closed, signed and transferred to a new block as a hash or "fingerprint".
Hash is a certain set of characters that carries a unique fingerprint. It is formed on the basis of what transactions and in what quantity each block holds (read more about this technology in this article).
As transactions are processed in the blockchain, hashes are constantly checked and then, the system goes up to the last hash, where it confirms the integrity and fidelity of all previous codes so that the block closes.
This constant verification eliminates the possibility of someone adding "extra" coins and sending invalid information to the network - such a block will not pass verification and will not be added to the network. Hence the name - a chain that works continuously and adds links.
Miners
If the blockchain network acts as a third party in the transfer of value, then, like a banking system, the network has a support staff, in blockchain this staff is "Nodes". - software code installed on special hardware, and the people who own and maintain such systems are miners.
To make a transaction in a blockchain, you have to create it and put it into a mempool - a special storage that collects transactions waiting to be added to the block and chain.
What miners do
Miners connect to mempool and start processing all transactions in the queue. If you look at the process globally, it looks like this: the system learns about all the transactions in the mempool, processes them, writes to the block and calculates the hashes. To confirm that the block is correct, the miner has to provide a solution to the network, which is checked by other miners and, if all is well and most participants accept the result of the hash calculation, the block is considered correct and is then added to the blockchain.
It turns out that to add a new block, all participants in the network need to agree, and if the majority of miners support the decision and agree with it, the block appears in the network. That is, the blockchain needs a consensus or a decision supported by the majority. That is what miners do, getting a reward from the network for their work.
There are two main types of mining: proof-of-work and proof-of-stake, but most blockchain projects now operate on the proof-of-work principle, which is what miners need highly efficient and productive equipment for.
Private/public key technology
In order to make a bank transfer the user must open an account using his personal data, deposit it and only after that he can make transactions, which in addition must meet the requirements of the financial institutions about which I wrote above.
To make a transaction in the blockchain, the user needs only two keys: a Public Key and a Private Key.
"Public Key" is a set of numbers and symbols available for anyone on the network (e.g. Bitcoin) - this is the number of the wallet, its address used to transfer funds.
The "private key" is the most valuable. All transactions in the wallet are signed with it, so it should be carefully kept in a safe place.
Remember: who owns the private key owns all the funds in the wallet.
All information encrypted with a user's private key can be decrypted by anyone with his/her public key, but he/she cannot open the wallet or transfer funds. This way it is possible to find out information about every transaction of any account, this system is fully transparent but mostly anonymous because blockchain does not store any personal information and it is difficult but not impossible to find out who owns a private key.
What is Blockchain for?
Many people today associate blockchain technology with Bitcoin, but this is not quite the right association as blockchain is simply a way of distributed data storage that can have many applications, for example:
- elections and voting;
- sales;
- insurance;
- document management;
- logistics;
- lending;
- real estate.
Many more things that require reliable protection and can be stored as data. Bitcoin is just one of the many projects that have gained enormous popularity due to the crazy growth of its value, all this "hype" hides a great technology that can make the world a better place.
Thank you for your attention and hope this article was useful to you!
Fortune favor you on your way and see you soon!
Always yours C.J.
