What is a blockchain and the concept behind it? Let's take a closer look at how a blockchain works in principle. This will take us to the participants and utilities of the Blockchain, including Nodes, Blocks and the consensus mechanism.

A blockchain is defined as “a distributed database that maintains an ever-growing list of ordered records, known as blocks,” that are “linked by cryptography.” Each block includes a cryptographic hash of the previous block, as well as a timestamp and transaction data.

A blockchain is a decentralized, distributed, public digital ledger used to record transactions across many computers in such a way that the record cannot be modified retroactively without affecting all subsequent blocks and the consensus. of the network."

What is a Blockchain?

In simpler terms, a Blockchain is a journal that is almost impossible to forge. In more advanced terms, the blockchain can be thought of as a distributed database. Therefore, Blockchain is a particular type or subset of so-called distributed ledger technology or DLT. DLT is a way to record and share data across multiple data stores. All of these distributed and individual data stores make up the database.

How does the blockchain work?

Many companies around the world have incorporated Blockchain technology in recent years. But how does Blockchain technology really work? Is this a major modification or a minor addition? Blockchain advancements are still in their infancy and have the potential to be revolutionary in the future; Therefore, let's start demystifying this technology.

Blockchain is a hybrid of three cutting-edge technologies:

• Cryptographic keys

• A peer-to-peer network containing a shared ledger

• A computing medium, to store network transactions and records

Cryptographic keys are made up of two keys: a private key and a public key. These keys help complete successful transactions between two parties. Each person has these two keys, which he uses to generate a secure digital identity reference.

The digital signature is integrated into the peer network; Digital signatures are used by a large number of individuals acting as authorities to reach agreement on transactions and other matters. When they approve a transaction, it is mathematically validated, resulting in a secure and successful transaction between the two parties connected to the network. In short, Blockchain development company users use cryptographic keys to perform various types of digital interactions on the peer-to-peer network.

Permissionless Blockchain:

Let's talk about permissionless blockchain first. A person can join or leave the network at will without being approved by any entity on an open, permissionless blockchain. All that is needed to join the network and add transactions to the ledger is a computer on which the corresponding software has been installed. There is no central owner of the network and software, and identical copies of the ledger are distributed to all nodes in the network. The vast majority of cryptocurrencies currently circulating are based on permissionless blockchains. This includes cryptocurrencies such as Bitcoin , ZCash, Litecoin and others.

Permissioned Blockchain:

Secondly, there is the permissioned Blockchain. In a permissioned blockchain, transaction validators – which are nodes – have to be preselected by a network administrator. The network administrator sets the rules so that the ledger can join the network. This allows the identity of network participants to be easily verified. However, at the same time, it also requires network participants to trust a central coordinating entity to select reliable network nodes .

In general, permissioned blockchains can be divided into two subcategories:

Permission-less public blockchains:

On the one hand, there are open or publicly permitted blockchains, which anyone can access and view, but only authorized network participants can generate transactions and update the state of the ledger.

Permission-Closed Blockchains:

On the other hand, there are closed blockchains or blockchains with enterprise permissions in which access is restricted. Only the network administrator can generate transactions and update the ledger status.

It is important to note that, just like in an open, permissions blockchain, transactions in an open, permission blockchain can be validated and executed without the inter-mediation of trusted third parties. Some cryptocurrencies, such as Ripple and NEO, use public permission blockchains.

Blockchain basics:

Now, let's take a closer look at how a blockchain works in principle. So, essentially, you can think of the Blockchain as a distributed database . Additions to this database are initiated by one of the members, which are the nodes of the network. These nodes usually exist in the form of computers. Each node maintains a copy of the entire Blockchain.

Nodes also create new blocks of data, which can contain all kinds of information. Among other information, the block contains a hash. The hash not only depends on the block itself, but also on the hash of the previous block. This is one of the reasons why the order of blocks is important and why blocks are added to the Blockchain in the order in which they are produced. Even a small change to a block creates a completely new hash.

After its creation, a new block is transmitted to all parties on the network in encrypted form to protect the transaction details. The network nodes check the validity of each new block that is added. Once a block reaches a certain number of approved transactions, a new block is formed. Determination of block validity is done following a predefined algorithmic validation method. This is commonly called the “consensus mechanism.” Nodes check the hash of a block to ensure that it has not been modified.

Once validated, the new “block” is added to the blockchain. As soon as the nodes have approved the new block , the Blockchain or ledger is updated with it, and it can no longer be modified or deleted. Therefore, it is considered impossible to fake it. Only new entries can be added to it, and the registry is updated on all computers on the network at the same time.

Blocks are also signed with a digital signature using a private key. Each user on a blockchain network has a set of two keys: First, a private key, which is used to create a digital signature for a block, and second, a public key , which is known to everyone on the network. . A public key has two uses. On the one hand, it serves as an address on the blockchain network. On the other hand, it is used to verify a digital signature and validate the identity of the sender.

A user's public and private keys are stored in a digital wallet or electronic wallet. These wallets can be stored or saved online and offline. Online storage is often called hot storage, and offline storage is often called cold storage.

What are the business benefits of Blockchain?

The main benefit of Blockchain development service is as a database to record transactions, but its advantages go far beyond those of a traditional database. In particular, it eliminates the possibility of manipulation by malicious actors, while providing the following business advantages :

• Time is saved: Blockchain technology reduces transaction times from days to minutes.Settlement of transactions is faster because it does not require the intervention of a central authority.

• Saving money: Transactions require less supervision. Participants can directly exchange valuables. Because participants have access to a shared ledger, blockchain eliminates duplication of effort.

• Greater security: Blockchain security features protect against manipulation, fraud, and cybercrime.