People often hail blockchain technology as the backbone of the digital economy, but do you really understand what makes it tick? The concept of blockchain can be complex and confusing for those who are not familiar with its inner workings. But, by breaking down the key elements, or building blocks of blockchain, we can gain a deeper understanding of how blockchain works and the potential it holds for revolutionizing industries. Let’s take a closer look at the building blocks of blockchain, and see how they come together to create a secure and transparent network.
Distributed Ledger
A distributed ledger is one of the key building blocks of blockchain technology. A distributed ledger is a database that a blockchain network uses to record and validate transactions. Every network node has a copy of the ledger. Whenever a new transaction is added, it broadcasts to all nodes for verification and recording. Once a majority of nodes have concurred that a transaction is genuine, it records in the ledger. Due to the decentralised architecture, it is challenging for a single party to alter the ledger without the cooperation of a majority of nodes. This makes the distributed ledger a crucial component of blockchain technology, as it enables the creation of a transparent and tamper-proof record of transactions.
Cryptography
A blockchain network uses cryptography to safeguard transactions and prevent illegal access to data. For instance, the sender’s private key digitally signs every transaction on the network to ensure its legitimacy and prevent tampering.Users can also confirm the accuracy of data on the blockchain by using cryptographic hash functions. Any attempt to edit the data will affect the hash value, which is easily detected.
Consensus
The blockchain requires individuals to confirm and verify transactions in a decentralised network, as there is no central authority to do so. The network’s nodes must agree that a transaction is genuine before it can be added to the blockchain. To achieve consensus, various techniques such as proof-of-work, proof-of-stake, and delegated proof-of-stake are utilized. The particular algorithm used can significantly impact the security and functionality of the blockchain.
Once a smart contract is published on the blockchain, it becomes immutable, which means nobody can change or tamper with it. This provides an additional measure of security and trust to the contract.
Blockchain technology enables the creation of digital tokens that stand in for a particular asset or utility. A blockchain platform makes it simple to buy, sell, and exchange these tokens, enabling the digitization of a variety of assets and streamlining of financial transactions.