How to Use Blockchain Technology
Do you know how to use blockchain technology? Find out how a blockchain development company can help you.
Blockchain is one of those concepts that on its own is meaningless, but when applied to a sector or community, it revolutionizes everything. In fact, the financial sector has never been the same since the emergence of cryptocurrencies in 2009, at least in terms of security and transparency.
And the automotive, healthcare, legal, food, and investment industries, among many others, probably won’t be either after learning how blockchain works, its most common uses, and the advantages it brings.
What is blockchain?
It literally means blockchain. It is a database or public record that can be shared by a multitude of users in peer-to-peer mode (P2P or peer-to-peer network) and that allows the storage of information in an immutable and organized way.
It is a term associated with cryptocurrencies because, apart from being the technology that supports them, it was born with the first virtual currency in history in 2009, Bitcoin. In this case, the data added to the blockchain is public and can be consulted at any time by network users.
However, it is important to remember that cryptocurrencies are just that, currencies! Just as is the case with the euro, the dollar, or any type of paper currency. Each is a simple material with a printed value, but what enables their use and generates value is the economic laws behind them.
Something similar happens with virtual currencies. In this case, it is blockchain technology that enables their operation. Its main objective is to create an unmodifiable record of everything that happens in the blockchain, so we are talking about a secure and transparent system.
Bitcoin (BTC), Ethereum (ETH), or any other cryptocurrency is simply a virtual currency built on the blockchain and used to send or receive the amount of money that each participant owns. It is this technology that keeps transactions publicly recorded but keeps the identity of the participants anonymous.
However, although it was created to store the history of Bitcoin transactions, over the years it has identified a great potential to be applied in other areas and sectors due to the possibilities it offers.
Characteristics of blockchain technology
The progress of this system has been unknown since its origin, but little by little we are learning more details about how it works:
Cryptography is a fundamental pillar in the functioning of the blockchain, which provides security over the data stored in the system, as well as in the information shared between the nodes of the network. When we are going to perform a transaction, we need a set of valid asymmetric keys in order to carry it out in the blockchain. It is also known as public key cryptography.
By representing a shared record of events, this technology generates trust in users. Not only that, but it eliminates the possibility of manipulation by hackers and generates a ledger of transactions that all members of the network can access.
Once information is added to the distributed database, it is virtually impossible to modify it. Thanks to asymmetric cryptography and hash functions, a distributed ledger can be implemented to ensure security. In addition, it allows consensus on data integrity to be reached among network participants without having to resort to an entity that centralizes the information.
This is one of the basic requirements for building trust. In the blockchain, transparency is achieved by making public the software code to execute the chain, as well as generating a community of nodes that apply it. Its application in different activities, such as supply chains, allows product traceability from the origin.
Allows knowledge of all operations performed, as well as the review of transactions made at a specific time. Traceability is a procedure that makes it possible to follow the evolution of a product in each of its stages, as well as who, how, when, and where it has been intervened on. This is one of the main reasons why many sectors are starting to apply blockchain technology.
Keys to understanding how the blockchain works
You are one step away from knowing everything about the blockchain. Now that you know its definition and the main characteristics and related terms, it’s time to put everything you’ve learned together to discover how it works. Take note!
The jack, horse, king of transactions
Networks use peer-to-peer data exchange technology to connect different users who share information. In other words, the data is not centralized in a central system but shared by all users of the network. When a transaction is made, it is recorded as a block of data transmitted to all parties for validation.
The transaction is the movement of an asset and the block can record whatever information is chosen, from what, who, when, where, how much and how. Each block is connected to the previous and subsequent ones forming a chain (blockchain), as a kind of indelible record. Each additional block reinforces the verification of the previous one and eliminates the possibility of being manipulated. Finally, the transaction is carried out.
The structure of the blocks
The chain stores a lot of information, which allows it to grow over time. This is why it has been necessary to create efficient query mechanisms without the need to download all the information: the Merkle hash tree.
This is a tree data structure that allows a large number of separate pieces of data to be related to a single hash value, providing a very efficient verification method for the contents of large information structures.
Generating the blocks of the chain
First of all, this is a decentralized process. And for this, a distributed consensus is needed in which nodes have the ability to generate valid data. Users must become nodes within the system in order to issue new transactions. If they want to become miners and create blocks, then they must compete with others. The validation process is based on asymmetric cryptography, with a public and a private key. The transactions issued are validated by the nodes in the newly mined block, as well as its correct linkage to the previous block (it must contain the hash).