Understanding Blockchain Technology: The Backbone of Cryptocurrency - Part 1
The Blockchain world and technology that is really the major backbone of the cryptocurrency world. It will actually amazed us that so many of us even though we actually operate on the crypto space, we actually know little about how it actually works.
As many of us are aware of, Blockchain technology is really a Decentralised system that records and keeps transactions across different computers. One of the reasons why it keeps those transactions definitely is for transparency and accountability. When it comes to the Blockchain world, there are actually some key components that actually made up the Blockchain which I will briefly be talking about today also.
- Decentralization.
The first terms is the world Decentralization. In fact that is where the uniqueness of Blockchain actually lies. Compared to the other traditional database we might be aware about which control a single entity, blockchain in its own sense operates on a peer-to-peer network where it makes it possible for all the users of participants to actually have this equal control. This helps to promote trust in the users.
- Blocks.
The second key components that made the Blockchain world is what I will call the blocks. In the Blockchain technology world, transactions works in a way whereby it is actually grouped into blocks. Each block works in a way whereby it contains this set of transactions and a unique identifier which is also called hash.
- Hashing.
Hashing is another key components that made up the Blockchain world also. Hashing in its own case works in a way whereby it is a process that helps to convert data into a string of characters for the blocks to have access to. Each hash is gotten depending on the contents and the block data. This helps to protect the data integrity.
- Consensus Mechanisms.
There is something called the consensus mechanisms. For many of us, we are aware of it and for many of us, we might actually be hearing about it for the first time. Consensus mechanisms are referred to as protocols that helps to validate transactions on the blockchain technology. In this case, it includes Proof of Work (PoW), used by Bitcoin, and Proof of Stake (PoS), used by Ethereum 2.0. one of the major benefits of these key components is the fact that it helps to prevent fraud.
- Immutability.
Another key components that made up the Blockchain technology is the immutability factor. What do I mean by that, it made it impossible for any block that was successful added to the Blockchain to be changed or alter thereby maintaining the uniqueness of each block.
- Smart Contracts:
The last key components that I will definitely talk about before concluding are the smart contacts. What are they really? Smart contracts are the self-executing contracts that have this terms of agreement but which are actually written in a code. Smart contracts help to execute agreement terms and help to process automated transactions.
How Blockchain Works.
Having been able to actually establish the key components of the Blockchain technology, I will briefly like to talk about how it actually works. What are the steps by Steps process that makes Blockchain to work?
- Transaction Initiation.
The first one is the transaction initiation. In this case actually, the participants or user start a transaction which might be the transfer of the digital assets and coins we are familiar with and even the executing of the smart contract also.
- Broadcasting to the Network.
The second way it works is the broadcasting to the network or the receiver computer. In this way, the transaction is transferred to the nodes and in this stage, each node helps to check out the transactions using the standard of the consensus rules.
- Validation.
In this particular case, validation takes places using the nodes. This takes place after the broadcasting to the network. This takes place using different criteria though. What I mean by that is that the criteria that will be used for PoW will definitely be different from the one used for PoS.
- Block Creation:
After the validation have taken place using the nodes, then the transaction that has been validated will then be added to the block and which is preferable the new block. In this way, this qualifies the block to be definitely added to the Blockchain in a linear pattern.
- Block Addition and Propagation:
The next one is the block addition and propagation. That particular new block that was created will definitely be spread across the network. So that each node of the network can have their own copy of the Blockchain at hand.
- Consensus and Finality:
The last one is finally the consensus and finality. When the network has now finally gotten to the consensus and the transaction picked is said to be the final stage, then the immutability factor comes in to make sure that the transactions cannot be altered.
I will like to stop here today and hope that in my next post, I will talk more about the Blockchain technology where I will be talking about the application and much more so stay tuned.