What is blockchain?
What is blockchain?

Blockchain is an information storage system. Its key difference lies in the unique decentralized system of operation. We are not going to plunge into the technical details at this stage, since you need to understand its essence first.

About the blockchain in simple words

Imagine a group of friends who harvest apples and put them into a large common basket. Everyone puts in the certain quantity of apples writing this number into a notebook.

Andrey comes first putting 10 apples into the common basket and makes a record — this is going to be the first data block. Nastya comes up next pre-writing in her notebook a record of Andrey’s 10 apples and adding her own 15 apples into the basket, writing them down as well. Andrey watches this, counts the apples, confirms the total number and puts the Nastya’s record into his notebook. Now, in the notebooks of Andrey and Nastya there are the same records and the same result — 25 apples and two confirmed blocks.

Then it is Sergey’s turn to come to the basket, he rewrites the data about the apples added earlier by his friends, Nastya and Andrey check his record to confirm its correctness. Then Sergey puts his own 20 apples into the basket, makes a record about it, while others check, confirm and record the data in their notebooks again. In the end the system will have three data blocks in total.

As you can see, everything is very simple. Newcomers rewrite the previously recorded results, contribute, then the correctness of the amount is confirmed by all members of the group to make the appropriate changes. As a result, the same data is stored in the notebooks of all group members.

Here is one of the key principles of the blockchain technology — each system participant keeps a copy of all data ever entered into it.

Let’s say Sergey decided to give his 10 apples to Nastya and informed his friends about it. Everyone checked the notes in their notebooks: does Sergey really have these 10 apples? Suppose Anton is the first one to find a record about the number of Sergey’s apples announcing that everything is good. Thus, Sergey can give away 10 apples having 10 more in his balance. The other group members confirm that everything is correct and then everyone includes the record of this operation into the notebook.

This is the second principle of the blockchain technology operation — all operations are open and are controlled by each member of the system.

Now imagine that someone bad has got into this group and claims that he has already contributed 100 apples into the basket. According to his statement it was he who filled the entire basket. Then everyone checks the records and asks him to go away from the garden politely.

Thus we came to the third principle of the blockchain system — no one can single-handedly alter the data in it, neither add nor delete or correct.

Have you noticed the fundamental feature of the blockchain technology? Everything in it is done altogether. No one controls the process from the top standing over the heads of the harvest workers with a barn book. Blockchain is a system that is self-regulated by the common efforts of all its participants.

What does the blockchain look like?

Using a simple example with apples we explained the principle of the blockchain system operation. But what does it look like? Quite probably, it looks like the model of an equal and completely open society of the future, where all people are engaged in the socially useful work, have no secrets and help each other in various ways. However, this is not unusual. Every invention in this world occurs to change it for the better.

Satoshi Nakamoto is the nickname of the blockchain technology inventor. He also created Bitcoin cryptocurrency (BTC) — one of the most popular projects based on it. Satoshi disappeared from the Web shortly after the publication of the BTC technical documentation. The significance of his invention is really great. Numerous attempts to find out something about the personality of Nakamoto did not bring any success. This gave rise to a lot of speculation, myths and a long line of impostors.

The more complicated description. Technical details

Technologically, blockchain is a decentralized repository of information. It consists of a sequential chain of blocks with cryptographic coding, indicating the time of addition and a reference to the preceding block. The virtual account book, a copy of which is kept by each system participant, is permanently updated. The update occurs when a cryptocurrency transaction takes place, someone’s personal data is entered or, for example, the voting results are updated.

The fact that the records are constantly rechecked by all users is crucial. If someone tries to hack the system an automatic request will be immediately sent to thousands of computers. Then the discrepancy in the blocks structure will be detected and such malicious changes will be declined.

If a member of the system makes an entry in the blockchain’s registry about his property with all the necessary documentation, then no one can change it. Partner companies cannot conduct third-party financial transactions without each other’s knowledge and this takes the business to a completely new level. The list of the examples of blockchain capabilities is extremely long.

Main features of the blockchain technology

Based on the mentioned above we may figure out the main advantages of blockchain technology:

  1. Decentralization. No central server of data storage is required. Each participant has the permanent access to all data stored in the system starting with the very first record.
  2. Transparency. Records of all financial transactions, their time and amount are reflected in the open access registry.
  3. Confidentiality. Part of the stored data is encrypted. You can track payment transactions or the fact of data transfer between other users, but you cannot identify the participants of the transaction or find out their location without knowing the e-wallet number.
  4. Security. All attempts of the unauthorized data changes are blocked because of inconsistencies with previous entries. The one-time access key is generated for every single operation.
  5. Accuracy and speed of operations without intermediary services. The smart contracts technology used by many blockchain projects (Ethereum, EOS and others) is based on the principle of accuracy. The whole process is exempt from intermediaries such as banks, payment systems, exchangers, judges, notaries.
  6. Compromise. The newly entered data is checked by the system participants. Within the blockchain industry such verification process is called «hash calculation». It is worth to dwell on this.

Do you remember that Anton, who first counted Sergey’s apples? In the blockchain system this role is assigned to miners. The specific number (hash, set of characters) is assigned to each operation within the network. It must be found by iterating through a variety of options. The powerful computers or special equipment (asic miners) is required to perform such a complex task. In the operating blockchain systems participants compete with each other for the priority of finding the hash. If the search process is successful the new unit is confirmed and the one who found it first receives the well-deserved reward. Miners are those who ensure the stable uninterrupted operation of blockchain networks.

Transactions in blockchain networks by the example of the Bitcoin network

Suppose you want to transfer 0.5 BTC to someone bypassing intermediaries. First, the transaction is automatically moved to the RAM Memory Pool awaiting the confirmation from at least six miners there. The verification is carried out according to the following criteria:

  • the commission amount for 1B of data (in the Bitcoin network participants set the commission amount themselves);
  • the ability to record transactions in the new unit.

After the operation is completed the coins are credited to the addressee’s account, then the system recalculates the balance of the BTC-wallets of the transaction participants and the transaction is entered into the public registry once and for all. When the transaction is recorded the cancellation of the operation becomes impossible. The irreversibility of transactions in blockchain networks requires users to be extremely attentive. It is recommended to double-check the amount and number of the recipient’s wallet and not to transfer funds from gadgets infected with viruses, etc. You can track payments using the guide resource services that operate like common Internet browsers.

Spheres of blockchain applications

The advanced technology of the blockchain promises the revolution in the field of payment transactions and the banking sector as a whole. Thanks to the introduction of the blockchain technology, revolutionary changes will occur in a lot of human activity areas, including business, trade, logistics, cybersecurity and even those that do not exist yet. Nowadays this technology is actively being introduced into everyday life, and, therefore, it is called the greatest invention of the beginning of the XXI century. Whether the brilliant Satoshi Nakamoto observes this process from the outside or participates in it remains unknown as of now.

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