Blockchain is a shared public ledger system that is signed digitally and is available openly to ascertain its authenticity and integrity. It is backed by technology and it shows huge potential for businesses. This explains why there has been so much noise about the system in recent times, making many business owners to start wondering what blockchain is and how it works.
Read on to find more about blockchain technology and how it works.
What is a Blockchain Technology?
A blockchain is a data structure or a record of transaction that shows a financial ledger entry. It is in the public domain and each of the transactions is digitally signed to ascertain its genuineness. In this case, the transaction details are well secured as no one will be able to tamper with it, thereby given the ledger a high level of integrity.
In order to maintain the integrity, entries in the digital ledger are distributed among a deployment or infrastructure with additional nodes and layers. This help to create a consensus about the state of every transaction at any given time. Copies of the existing authenticated ledger are openly distributed within the blockchain. Now, how does blockchain work? Let’s find out.
How do blockchain technologies work?
The blockchain process is simple. It consists of three principal technologies that can be combined to make a blockchain. As soon as a new transaction is initiated or when an edit is made to an existing transaction, the protocol begins immediately as certain activities start to take place simultaneously.
The three principal technologies in a blockchain include:
1) Private key cryptography,
2) A distributed network with a shared ledger, and
3) An incentive to service the network's transactions, record-keeping and security.
Of course, none of the above-listed technologies are new, but the application in blockchain is new. The following step explains how these technologies work together to create secured digital relationships.
- Cryptographic Keys: Assuming two people are about to initiate a transaction via the internet. Each of them is expected to have a private key as well as a public key. The possession of a combination of private and public cryptographic keys is essential to guarantee a secure digital identity reference. These keys constitute a form of consent, which serve as your digital signature. The digital signature is what gives you ownership control. However, control of ownership alone is not sufficient for you to secure digital transactions; you also need permissions or authorization. This takes us to the issue of a distributed network.
- A Distributed Network: The essence of a distributed network is to have a pool of validators. As soon as a new transaction is initiated or when an edit is made to an existing transaction, it is being witnessed at the same time on different computers. This provides a mathematical verification and endorsement. The bigger the size of the network, the better it is to ensure secured transactions. This is why the bitcoin blockchain is so attractive.
- System of Record and Security: Once the cryptographic keys and the network are combined, a digital interaction emerges. For instance, when Mr. A takes a private key, he makes announcement by attaching Mr. B’s public key. This constitutes a kind of notification of a transaction to all nodes in the network. So, a block containing a digital signature, timestamp and other relevant information is broadcast to all nodes within the network to complete the transaction and make it visible to all.
Although blockchain’ public ledger makes it easy to verify and secure your transactions, most of its protocols are still under experimentations. The blockchain protocols are yet to be fully understood, hence, modifications can still be made to improve the process in the future.