How Does Blockchain Technology Work?

Imagine a future where you can send money to someone who doesn’t have access to a bank in seconds rather than days, and you don’t have to pay expensive bank fees.

Alternatively, you might keep your money in an online wallet that isn’t linked to a bank, allowing you to act as your bank and control your funds. You never have to worry about a third party taking it away or a government’s economic policy distorting it because you don’t need a bank’s permission to access or move it.

This is not a future world; it is a world where a small but growing group of early adopters live right now. These are just a few of the key blockchain technology applications revolutionizing the way we trust and exchange money. We’ll get to the rest of it later.

Yet, blockchain technology remains a perplexing or even frightening concept for many people, and some people are even skeptical that we will ever employ this technology. This criticism is natural, given that blockchain technology is still in its early stages of development and widespread usage.

What the late 1990s were to the internet, 2021 will be to the blockchain. Blockchain technology, like the internet, isn’t a passing trend; it’s here to stay, and if you’re reading this, you’re ahead of the curve.

Blockchain 101: A Beginner’s Guide to Blockchain

Blockchain technology is the concept or protocol that supports the blockchain’s operation. Blockchain technology enables cryptocurrencies (digital currencies secured by cryptography), such as Bitcoin, while email facilitates email.

Beyond cryptocurrencies, the blockchain is a distributed digital ledger (a digital record of transactions or data kept in multiple locations on a computer network) with a wide range of uses.

Two essential blockchain qualities are immutability and distributed news. You can always trust the ledger to be correct since it is immutable, and the blockchain’s decentralized nature protects it against network threats.

Each transaction or record is stored in a “block” on the ledger. The Bitcoin blockchain, for example, frequently contains over 500 Bitcoin transactions every block.

The Different Types of Blockchains

Blockchains can be divided into four categories and there are many types of tech used in it:

Blockchains that are open to the public

Anyone who wants to request or validate a transaction can use open public blockchains decentralized networks of computers (check for accuracy). Those who validate transactions (miners) get rewarded.

In public blockchains, proof-of-work or proof-of-stake consensus techniques are used (discussed later). Bitcoin (BTC) and Ethereum (ETH) are two well-known examples of public blockchains.

private Blockchains

Private blockchains aren’t public, and access is restricted. The system administrator must permit everybody who wants to join. They are usually centralized and managed by a single entity. Hyperledger, for example, is permission, private blockchain.

Hybrid Blockchains or Consortiums

Consortiums are a cross between public and private blockchains, offering centralized and decentralized capabilities. R3, Dragonchain, and the Energy Web Foundation are just a few examples.

Keep in mind that there isn’t universal agreement on whether these concepts are synonymous. Some people distinguish between the two, while others believe they are interchangeable.

Use of sidechains

A sidechain is a blockchain that follows the same path as the main chain but in the opposite direction. It improves scalability and efficiency by allowing users to move digital assets between two separate blockchains. The Liquid Network is an example of a sidechain.

Blockchain’s History

Blockchain isn’t simply a database; it’s a new technology stack with ‘digital trust’ that’s changing the way we exchange currency and information over the internet by eliminating the need for ‘gatekeepers.’ Check out our article for a more comprehensive and in-depth look: A Quick Overview of Blockchain Technology.