Imagine being able to perform financial transactions, send and receive money with out any bank or third party intervention ,great right?
Well, this is very possible since the invention of block chain technology. Today we will be looking a little into block chain and what it is all about.
A block chain is the technology on which digital currencies such as crypto currencies run. Through blockchain technology, crypto currencies eliminate the three major issues with using bank notes. Thanks to blockchain technology, crypto currencies are immune to counterfeiting, they do not require a central authority and they are protected by advanced complex encryptions therefore ensuring security.
Blockchain can be best and simply described as a collection of records linked with each other, which can not be altered and is strongly encrypted.
HOW DOES BLOCKCHAIN WORK?
Let us use a simple senario to understand how blockchain technology works.
Lets say there is a classroom of five students. Each is to contribute for buying a class monitor and projector for learning and this contribution has to be paid via crypto using BTC. Each of the students’ name is Jane, Rita, Billi, Ken and Zill. An agreement is reached for each student to send their contributions to Jane the class monitor.
Now when Rita send 1BTC to Jane, a transaction record in form of a block is created for that transaction showing how many BTC Rita sent to Jane. Billi send 3BTC to Jane and a transaction record in form of a block is also created for that transaction. Ken and Zill send 5BTC each to Jane and as usual a block is created for each of these transactions again.
Each of these different transaction blocks among these students are joined and linked together by nodes to form this long chain of transaction blocks. This long chain is called a ledger. Each of the five students each have a copy of this ledger, that way it ensures that the information is safe and hard to alter since all the ledger each student has is expected to read the same information. Now what happens when Rita tries to claim she sent 6BTC when she indeed send just 1BTC?That information will read invalid to the rest of the students because it does not correspond with the ledger info that rest of the student have. Each student that has a copy of the ledger has to give their approval before any transaction or claim is successful in that classroom.
THIS IS SIMPLY THE BASIS OF HOW BLOCKCHAIN TECHNOLOGY WORKS.
All financial transactions involving a crypto currency is recorded in blocks per transaction. These blocks are linked together by nodes forming a long chain of blocks called a ledger.
A copy of the ledger is given to each person on that blockchain and an approval of all holders of that ledger has to be digitally
signed before any transaction can be successful on that blockchain and crypto currency. Crypto currencies are built on blockchains.
The block chain is difficult to hack since millions of computers have a copy of the ledger and every one of them has to give approval of any transaction before that transaction can be successful.
Every user in a blockchain network has two keys.
A public key and a private key. The public key is known to every one on the network but the private key is only known to that specific user (like a password). when a user wants to send crypto on a blockchain to another user, this is how it goes ; The sender states how much crypto eg. BTC he will like to send together with his and the recievers wallet address through a hashing algorithim.
These details and information is digitally encrypted using the senders private key.
Then the contract is digitally signed to indicate that the transaction came from the sender.
The output is transmitted across the world using the receivers public key.
This message can now be decrypted to the receiver and the receiver alone by the receivers private
Different crypto currencies use differnt hashing algorithms to send crypto. Bitcoin uses SHA256
Algorithms and Ethereum uses ETHASH .
The people who validate and approve the blocks on a blockchain are called minners . These minner have to solve complex mathematical problems . The minner who solves this problem first adds the block to the ledger of the blockchain and gets rewarded with the crypto currency of that blockchain. The process of solving these problems is called Proof of Work and the act of adding a block to the ledger is called minning.
With this ,every other minner in the block chain is updated.