What is Blockchain Technology? A Step-by-Step Guide

What is Blockchain Technology?

Blockchain is a shared and unchangeable digital ledger that is used to store information on accounts or transactions on computer networks. Information about each transaction or account is stored in a block, and upon completion block is closed. Then for further information, the previous block is attached to the next block of information, hence forming a chain of blocks which is called blockchain technology.

Imagine sending a payment overseas by utilizing banks or other financial regulators, you’ll need days and weeks which will have to go through different financial institutions. But on the other hand, using blockchain technology and decentralized finance you can do so in seconds with any intermediary hustles.

Blockchain technology came into existence with the launch of the crypto asset Bitcoin (BTC) and Satoshi Nakamoto first ever used this technology. This technology revolutionized the information processing scenarios and now blockchain technology is employed for global payments, transactions, and information storage.  

Types of Blockchain?

Blockchain technology has various types tailored according to the use cases and requirements. Four of them are common and known categories to the people and are discussed below;

• Public Blockchains

Public Blockchains are decentralized and open networks which are available for the people for transactions and verification of information. This type of blockchain gives easy access to everybody for crypto transactions across the world.

Moreover, these Blockchains can be used for miners as well in which they validate transactions and get rewards. Public Blockchains allow people to trade and exchange cryptocurrencies across borders. Litecoin, Bitcoin and Ethereum Blockchains are the best examples of public blockchains.

• Private Blockchains

Private Blockchains can be regarded as centralized as these are only accessible by a specific organization or an individual. Only a particular person or institution has the access to add a node, to store the information or validate the records.

It is not accessible by others except the ones who get permission to access it. It is commonly used for B2B exchanges and Hyperledger is the best example of it.

• Consortium Blockchains

The Blockchain which is mutually shared by a group of organizations or companies instead of at an individual level is called consortium blockchain. These are far more decentralized than a private blockchain as it is more secure and professionally oriented.

Consortium blockchains have validator nodes for initiating, transferring, receiving and verifying the transactions. Corda and Quorum come under Consortium Blockchains for payments and banking purposes.

• Hybrid Blockchain

Hybrid Blockchain is the combined version of public and private blockchains. They can be either centralized or decentralized based on the needs of the parties to employ them for their respective purposes. Authorization and access can only be given to the relevant party or publically.  It is used for retail industries and real estate.

Components of a Blockchain?

Blockchain is made of several layers i.e., hardware, data, infrastructure, networking like hashing, nodes, verification, distribution and storage of information and applications. It’s a complex concept that how blockchain technology is developed, however, some of its components are given below;

• Block

As discussed before, the block is created whenever a transaction is carried out or information is shared. After the information is completed, the block is closed and is connected to the next block, making a chain of blocks. So, block is a basically a piece full of information.

• Hashing

A hash is just like the fingerprints of the block or the shared information which is unique to every single block. It is in mathematical form.

Also Read: What Is Web3? – A Comprehensive Guide

• Assets

Assets can be tangible (physical) or intangible (non-physical), and notably, money can fall into both categories.

• Distributed P2P Network

In a blockchain’s decentralized Peer-to-Peer (P2P) network, every transaction is verified and added to the chain by nodes, ensuring transparency and consensus.

How Does Blockchain Work?

Blockchain technology works in four simple and transparent steps;

• Step 1: A transaction request is made for various different purposes.
• Step 2: Distribution– The request is distributed across a global peer-to-peer (P2P) network.
• Step 3: Validation – Nodes validate the transaction using algorithms, and if legitimate, record it in blocks.
• Step 4: Adding New Blocks to Blockchains – The new block is linked to the previous one with cryptography, forming an unchangeable and transparent chain of transactions in the blockchain.

Conclusion

Blockchain technology is the most advanced technology which ensures transparency and a higher level of security. With the increasing demand and awareness of this technology, it is more likely that blockchain will replace the traditional technology of storing and processing information.