We hate third parties, in relationships and in our other transactions. We can just get rid of third parties in relationships! But can we get rid of third parties in real estate, banks, and currency exchanges with our same old traditional methods? The answer is a strong no! But hey that’s where blockchain technology comes to play, there are no intermediaries or third parties! So what is blockchain technology and why is it disrupting each and every sector?!
What is Blockchain Technology?
Blockchain is basically a secure and distributed database. Blockchain Technology enables transparent information sharing inside a network. Data is kept in blocks that are connected together in a chain and stored in a blockchain database. Due to the inability to delete or alter the chain without network consensus, the data remains chronologically consistent. In order to manage orders, payments, accounts, and other transactions, you can utilize blockchain technology to establish an unchangeable or immutable ledger.
How Does Blockchain Work?
Although the workings of blockchain are more complex, the steps can be broken down to provide a clearer understanding of the procedure. Here is a simple 6 step process to know how a blockchain works.
Step 1: Requesting A Transaction
Consider a scenario where B requests a transaction from B.
Step 2: Formation Of A New Block
A new block is created to store all the records of the transactions such as,
- Who was involved in the transaction?
- What happened during the transaction?
- When did the transaction occur?
- Where did the transaction occur?
- Why did the transaction occur?
- How much of the asset was exchanged?
- How many pre-conditions were met during the transaction?
Step 3: Broadcasting To All The Nodes
The requested transaction is broadcasted to a P2P network, that is the transaction is broadcasted to all the nodes in the blockchain network.
Step 4: Gain consensus
A majority of nodes on the distributed blockchain network must agree that the transaction was recorded as legitimate. Rules of agreement can differ depending on the type of network, but they are usually defined at the beginning of the network. A blockchain network has to agree on a transaction to make sure the transaction is valid. To come to a conclusion it uses certain consensus algorithms. When all or majority of the nodes come to a conclusion after running the consensus algorithm.
Consensus Algorithms: There are many popular consensus algorithms in the marked, some of them are,
- Proof Of Work
- Proof Of Stake
- Proof Of Authority
- Proof Of Burn
- Byzantine Fault Tolerance
- Direct Acyclic Graph
- Proof Of Capacity
- Proof Of Identity
- Proof Of Activity
- Proof Of Elapsed Time
- Proof Of Importance
Step 5: Addition Of The The New Block To The Blockchain
The new block is then added to the existing block in such a way that is permanent and unalterable., i.e Immutable.
Step 6: Transaction Complete
For example, the user B receives the amount from A, this indicates the end of transaction.
Step 7: Share the ledger
Since a new block is added, the updated ledger is now shared with all the nodes in the blockchain network, so that each node is aware of the real time status of the blockchain network.
Building Trust with blockchain:
Blockchain improves trust in a business network. That’s why all the major sectors are adopting blockchain and blockchain applications. It’s not that you can’t trust the people with whom you do business; rather, when using a Blockchain network, you don’t have to. Blockchain establishes confidence by virtue of the following five features:
- Distributed: Among the nodes linked to the Blockchain, the distributed ledger is shared and updated with each incoming transaction. Since there is no centralized server in charge of the data, everything is done in real time.
- Secure: Permissions and cryptography prevent any unwanted access to the blockchain.
- Transparent: All transaction data is accessible to all nodes or participants in Blockchain since each node or participant has a copy of the Blockchain data.
- Consensus-based: For a transaction to be valid, all pertinent network members must concur. Consensus algorithms are used to accomplish this.
You can develop blockchain applications and digital services with the help of blockchain development companies. We at BSEtec, as the blockchain development company, customize blockchain technology based on your organization’s needs and tailor them to make blockchain adoption faster and more efficient.