What is Blockchain? How is it used in cryptocurrency?
In layman terms, blockchain is a ledger. A record of sorts. What sets it apart is the fact that data on a blockchain ledger cannot be tampered with. Data once entered cannot be changed.
In slightly technical terms, blockchain is a decentralized peer-to-peer network. In simple terms, it is a shared database; a distributed, immutable ledger.
The blockchain concept was first proposed in 1991 as a research project, years before its first prominent implementation in 2009 in the case of Bitcoin. Since then, blockchain adoption has accelerated tremendously, owing to the creation of various cryptocurrencies, decentralized finance (DeFi) applications, non-fungible tokens (NFTs), and smart contracts.
How does blockchain work?
Each transaction is recorded as a “block” of data.
Each block is related to the ones that came before it and those that came after it. The blocks are securely linked together to prevent any one block from being modified or placed between two others, and they certify the exact timing and sequence of transactions. Transactions are linked in an irreversible chain which is a system of distributed ledgers. Each successive block confirms the prior block’s verification, and hence the entire blockchain. As a result, the blockchain becomes tamper resistant, giving it the critical strength of immutability.
Double spending problem and the need for blockchain in cryptocurrencies
The earlier attempts at creating a cryptocurrency, BitGold by Nick Szabo, faced the double spending problem. Double spending occurs when a user tries to spend the same cryptocurrency twice. With an immutable, changeable ledger, blockchain completely eliminated the double spending problem.
TYPES OF BLOCKCHAIN NETWORKS
The Public Blockchain
These blockchains are accessible by all. This is the case of cryptocurrency blockchains like Ethereum, Solana, etc. Significant processing power is required in public blockchains.
A private blockchain network is a decentralized peer-to-peer network, just like the public blockchain network. Despite that, the network is run by a single organization that selects participants, conducts consensus, and maintains the shared ledger.
When businesses create a private blockchain, they frequently create a permissioned blockchain network. This limits who may access the network and what transactions they may conduct. To participate, participants must first get an invitation or authorization.
The maintenance of a blockchain can be delegated to multiple companies. These organizations control who is permitted to submit transactions or access data. Interested participants need to seek permission and are then granted authorization.
Also Read: Walk through the India Art Fair in the metaverse
Also Read: Goldman Sachs bullish on crypto