What is Blockchain?
Blockchains use a peer-to-peer network called Ethereum to
exchange ledger data with participants in the same cryptocurrency. The main
advantage of blockchains over traditional financial systems like banks and
insurance companies is that blockchains are more secure and can provide people
greater transparency into their transactions. In this blog post, we will discuss
several important concepts associated with blockchain, including its
components and uses, its most salient characteristics, the key challenges, and
how they could transform our world.
Blockchain Basics
Blockchains are open source, which means anyone can download them and put them to good use. Any private data, such as medical or social security numbers, can be stored on the blockchain for public access to view.
Because of the decentralized nature of the blockchain, it provides significant security against fraud. Additionally, the open-source nature enables users to collaborate on improving the functionality of the system, thus creating an ecosystem. Blocks are created every ten minutes, and new ones are added to the chain on average once a day. For comparison, Bitcoin is a fixed-length sequence of 0s and 1s but has no way of adding other sequences of zeros and ones because blockchains are not continuously updated, but instead are based on proof-of-work (PoW) consensus algorithms that constantly check and verify the signatures associated with every transaction. Thus, any valid transaction from a miner on the blockchain can be checked against all valid signatures to ensure authenticity.
There are two ways blockchain networks work. They are either fully transparent (which all nodes broadcast to all peers of the network), or completely open source. Each node owns one or more blocks and makes them available to its peers in the form of a Proof of Stake (PoS). This allows each user and peers to independently determine and confirm the ownership status of each block on the blockchain. Also, since each blockchain is based on PoW consensus, there is only one way to validate the validity of any transaction from a given block (see figure below for illustration), unlike the case with cryptocurrencies where everyone chooses when new coins are minted.
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