How Does Blockchain Technology Work?

What Is Blockchain?

by DailyCryptoInfo 379 Views

How Does Blockchain Technology Work?

What Is Blockchain?

by DailyCryptoInfo 379 Views

“The first thing that is interesting about the blockchain ledger is every record that is written on a blockchain ledger has a unique key that goes with it.

If a majority of the nodes come to a consensus that the history and signature is valid, the new block of transactions is accepted into the ledger and a new block is added to the chain of transactions. If a majority does not concede to the addition or modification of the ledger entry, it is denied and not added to the chain.

Blockchain is based on three essential technologies:

1) Private key cryptography

  1. Two people wish to transact over the internet.Each of them holds a private key and a public key.
  2. The main purpose of this component of blockchain technology is to create a secure digital identity reference. Identity is based on possession of a combination of private and public cryptographic keys.
  3. The combination of these keys can be seen as a dexterous form of consent, creating an extremely useful digital signature.

2) A distributed network with a shared ledger

  1. The distributed network of nodes that need to reach consensus makes fraud almost impossible within the Blockchain.
  2. The benefit and need for a distributed network can be understood by the ‘if a tree falls in the forest’ thought experiment.If a tree falls in a forest, with cameras to record its fall, we can be pretty certain that the tree fell. We have visual evidence, even if the particulars (why or how) may be unclear.In short, the size of the network is important to secure the network.
  3. Much of the value of the bitcoin blockchain is that it is a large network where validators, like the cameras in the analogy, reach a consensus that they witnessed the same thing at the same time. Instead of cameras, they use mathematical verification.

3) An incentive to service the network’s transactions, record-keeping and security. It's called mining rewards.

If you want to know more about Blockchain here is the Top 5 Things To Know About The Blockchain.

What is a wallet?

A wallet is a string of numbers and letters, such as 136f226735550973303c3b71800e4. This is an address that will appear in various blocks within the Blockchain as transactions take place. No visible records of who did what transaction with who, only the number of a wallet. The address of each particular wallet is also a public key.

How can blockchains be structured?

Blockchains can be configured to work in a number of ways that use different mechanisms to achieve consensus on transactions and, in particular, to define known participants in the chain and exclude everyone else. The largest example of blockchain in use, Bitcoin, employs an anonymous public ledger in which anyone can participate. For more private uses of blockchain among a smaller number of known actors, many organizations are deploying permissioned blockchains to control who participates in transaction activity.

Proof of Work

The placing of a transaction in a block is called a successful conclusion to a proof of work challenge, and is carried out by special nodes called miners.

Proof of Work is a system that requires some work from the service requester, usually meaning processing time by a computer. Producing a proof of work is a random process with low probability, so normally a lot of trial and error is required for a valid proof of work to be generated. When it comes to Bitcoins, hash is what serves as a proof of work.

Why it is impossible to turn off the network?

Theoreticaly it is possible but practically it is not possible. It is impossible to turned off all node in a block-chain. If it is done then the block-chain will freeze, that means you will not be able to do any transaction in the block-chain. Since the block-chain is not deleted your account will not be lost. At the same time Block-chain can split. But that will depend on the Block-chain technology used.

As there are nodes throughout the world it is virtually impossible for the entire network to be taken over by a single party.

If all nodes are turned off, it means that now you are completely in control of the network by yourself! A decentralized cryptocurrency works because its decentralized. by removing all other nodes and you being the only one in the network, the currency now becomes centralized, where your node is the central node since no one else is running a node. So this means you can arbitrarily create transactions and do whatever you want on the network.

Also though considering no one else is running a node, the currency becomes virtually useless. So now you can create infinitely many coins of a worthless currency and use it for yourself

Why is it almost impossible to fake a block?

In the case of bitcoin, transactions added to a block must be valid; that is, they must reference unspent outputs from previous valid transactions, and they cannot be duplicates. If someone tries to add invalid transactions to a block, other members of the network will reject it.

Also, in order to create a new block, a block creator must include a correct answer to a problem that cannot be solved without significant computational work. Bad actors cannot simply add a block without solving this problem; again, if they try, other members of the network will reject it.

The reason that faking a block is almost impossible is that the validity of the block and, by extension, its inclusion into the Blockchain is determined by an electronic consensus of nodes. There are thousands of these nodes, scattered all over the world, and as a consequence capturing the network would require a computer with impossible power.

Effectively, it is so expensive to try add fake data to the blockchain that it makes more sense to play by the rules, or find easier ways to make money.