How blockchain works and its key features (decentralization, immutability, transparency)
In the first article of this series, we learned about blockchain technology and its history. If you want to memorize what I wrote, you can check the article from here.
In this article, I will go into more detail about how blockchain technology works and what its key features are. I will also cover some easy examples to help you understand better the technology.
Blockchain technology is a digital ledger that records transactions. It’s maintained by a network of computers instead of a central authority. Transactions are grouped together in blocks and added to the existing chain of blocks, that’s the reason we call it “blockchain.” Each block contains a list of transactions and a reference to the previous block, forming a chain of blocks that can be traced back to the first block.
Decentralization
One of the most important features of blockchain technology is decentralization. This means that there is no central point of control or failure, and the network is maintained by multiple computers. For example, imagine a marketplace, such as OpenBazaar, which allows individuals to buy and sell goods and services directly with each other without the need for a central authority or intermediary, such as a bank or marketplace platform. If any of the parties in the system disappears, it doesn’t affect the others. Transactions are recorded on a decentralized blockchain ledger, ensuring transparency and security, and allowing for a more fair and efficient marketplace.
Immutability
Another feature of blockchain technology is immutability. This means that once a transaction is added to the blockchain, it cannot be altered or deleted. For example, imagine a student record-keeping system, the student’s grades and attendance are recorded in a blockchain. The teacher can add new information, but it’s impossible to alter or remove existing information, this way the student’s records are tamper-proof.
Transparency
Transparency is also a key feature of blockchain technology. The ledger is publicly accessible, and all transactions on the network can be viewed by anyone. For example, imagine a charity organization, that can use blockchain to keep track of donations and expenses. The ledger will be publicly accessible, and anyone can see where the money is going, this way people can trust the organization and see that their donations are being used for the intended purpose. This added transparency helps to build trust and accountability within the system.
Security
In addition to these key features, blockchain technology also uses complex mathematical algorithms and cryptographic techniques to secure the data and ensure the integrity of the ledger. This makes it a highly secure and tamper-proof system.
It’s worth noting that while blockchain technology is often associated with digital currencies, it has the potential to be used in a wide range of industries and applications, such as supply chain management, voting systems, and even land registry. The use cases for blockchain technology are endless and its potential is still being explored. I will write a little bit about these use cases in the upcoming articles.
In the next article, I will discuss the types of blockchains like private, public and consortium.
