In the past year, the hype surrounding blockchain technology has increased significantly. The constantly increasing awareness of the blockchain process is due to the high demand in the field of cryptocurrencies such as Bitcoin, Ethereum & Co. In today’s article we will explain what blockchain technology is all about, give an overview of how it works and explain the history of the technology.
The Opportunity For Trade! Blockchain Opens New Opportunities To The Market
The economic cycle lives on the supply and demand of a respective market. Blockchain technology is particularly suitable for fast-moving markets that have to react quickly and, above all, in good time to changes. The required information is made available to the authorized market participants in the network in a transparent, complete and public manner.
Authorized participants of a blockchain network can see the details about the changes in accounts, transactions of payments, orders and the production of values that are tracked and recorded by a blockchain network. Blockchain technology creates market transparency, trust and opens up new opportunities on the economic market.
History – Blockchain As a Trading Solution on The Internet
Transactions on the Internet are currently carried out on the basis of trust in intermediary authorities or an intermediary person. For example, buyers and providers must trust a payment service, marketplace or bank. The prerequisite here is the certainty that the desired transaction is carried out correctly and properly. However, these mediating positions can attain a position of power due to their central position, exploit this and thus represent their own interests by trying to control desired transactions. This happened in 2010, among other things, when the payment service PayPal blocked the account of the WikiLeaks disclosure platform.
With the development of unwanted third-party influence, the solution of blockchain was developed to make the internet more democratic. One could count the basics of cryptographically secured concatenation of individual blocks among the beginnings towards blockchain as described by Stuart Haber and W. Scott Stornetta in 1991, 1996 by Ross J. Anderson and 1998 by Bruce Schneier and John Kelsey.
In 1997, the computer scientist and former law professor Nick Szabo proposed a concrete solution to the topic “Mechanism for a decentralized digital currency”, which he himself called “Bit Gold”. In Szabo’s view, business contracts are based on mutual trust between business partners and on the recognized legal framework, which can be interpreted according to different opinions and can therefore lead to problems. Therefore, according to Szabo, contracts of the future should be software-based and so he developed the first “smart contracts”, an algorithm that automatically checks the legal framework for a purchase or sale to determine whether a rule has been violated and informs both parties accordingly about how to proceed .
A general theory on cryptographically secured concatenations was developed by Stefan Konst in 2000. The roughly developed blockchain concept as a distributed database management system was first described in 2008 under the pseudonym “Satoshi Nakamoto” in the White Paper on Bitcoin. Nakamoto combined established technologies such as peer-2-peer, hashing and encryption and presented a cryptographic method that makes it possible to link data sets irreversibly and in a tamper-proof manner.
What Is a Blockchain?
As the name suggests, a blockchain is a continuously expandable sequence of data blocks that records transactions in a chronological order in a decentralized data structure (network) in a traceable and unchangeable manner.
This foundation is a shared, unchangeable and therefore tamper-proof database that records all transactions and ensures the tracking of assets (assets) in the network. These assets, or assets named in a blockchain, can be tangible (money, a house, car, or land) or intangible (intellectual property, patents, copyrights, or a trademark). These can be traded practically and traceable in a blockchain network, usually digital currency equivalents such as Bitcoin, Ether, Litecoin or Dash.
How Each “Block” Works In a Blockchain
As already explained in the section above, the transactions of the data are stored in the “block”. The stored “block” includes information about the movement of a tangible or intangible asset of information, who, what, when, where, how much and even the state of the asset – like the temperature of a food item can be recorded in a block on a blockchain.
New blocks in a blockchain are created by consensus and attached to the existing chain using cryptographic methods. Each block contains a cryptographically secure hash value (scatter value) of the previous block with the corresponding data.
“A hash value is a checksum with a fixed length. Hash values are tools that can be thought of as keys that encrypt and decrypt data and messages. The recipient and sender must speak the same language (= deliver the same hash value) so that smooth communication or encryption and decryption is guaranteed.”
Each individual block is linked to the priority block and forms a data chain to prevent possible alteration or manipulation of the information. The information stored in the blocks confirms the exact timing and order of the transactions. Thus, transactions are blocked in an irreversible chain, hence the name.
Each additional block reinforces the verification of the previous block and thus the entire blockchain network. This means that any manipulation of the blockchain is visible, since each block contains the information of the previous one. This immutability is the greatest strength. This eliminates the possibility of tampering by a malicious actor and creates a ledger that you and other network members can trust.
A Closer Look at Key Elements of The Blockchain
The key components of the blockchain technology can be called the distributed ledger technology, the immutable and tamper-proof data set and the smart contracts.
- The distributed ledger technology used in a blockchain is a decentralized ledger technology, or DLT, and you can think of it in terms of how a journal of accounts works. Therefore, the blockchain is also referred to as the “Internet of Values” (Internet of Values), since it only lists transactions and values, so to speak. Blockchain defines the technical basis for cryptocurrencies such as Bitcoin, Ethereum and Co. With the shared ledger, transactions are recorded only once, eliminating the duplication of effort typical of traditional business networks.
- The unique selling point of the blockchain is the immutable data records : no participant in the blockchain network can change, falsify or correct a transaction after it has been recorded in the common register. In this case, if a transaction record contains an error, a new transaction must be added to correct the error. Both transactions can be viewed by the blockchain participants and are therefore traceable.
- In the blockchain there is a set of rules (algorithms) called “smart contracts”. This algorithm includes and sets conditions for the transfer of corporate bonds, conditions for payment of travel insurance and much more. As a result, transactions are accelerated and the corresponding action is carried out automatically.
Also Read: Blockchain Importance Is Growing Every Day & Its Benefits For Companies And Countries