What Is Blockchain

Imagine a registry that contains the entire digital database of all participants of any network on the Internet. Well, it's simple - many Internet communities are organized this way, with all the information is stored on one central server. However, participants of such communities who have unique or even simply sought-after information constantly face hacking of their accounts, fraudulent appropriation of this information and its malicious distribution. This is offensive even in relation to recipes for some unusual dish, but what if we are talking about business information, government, military contacts?

In order to prevent malicious theft and use of other people's information, the blockchain ecosystem was developed. And it is used for purely utilitarian purposes - the introduction of cryptocurrency into the modern financial system.

The name of the author of this development cannot be named, since the first version of the software was created by a group of people who still hide under the pseudonym Satoshi Nakamoto. This "man" was credited with creating a peer-to-peer digital currency - Bitcoin, and most importantly - a platform that helped to eliminate the intermediation of centralized financial institutions.

The principle of blockchain was developed for this digital currency, which excluded any intermediaries between the parties to the transaction. Moreover, a "transaction" is understood to mean any interactions that are formalized by contracts in the ordinary sphere: purchase, exchange, lease, etc. As the further development of the blockchain platform has shown, the "subject" of a transaction can also be (in addition to cryptocurrency) both material and non-material resources.

A blockchain platform is a register of all transactions carried out by ecosystem participants. This digital information is contained in blocks and stored there as a chain of these blocks. Blocks are linked into a common chain cryptographically.

The purpose of cryptography in a blockchain system is to protect information from those for whom it is not intended. Without the key, it is impossible to understand the meaning of the information, since it represents encrypted data: an unidentified file or a jumble of characters. But the recipient who has the key can easily decrypt the information.

In addition to this task (protection from third parties), cryptography also pursues an important goal - the immutability of information by third parties. Parties exchanging information in a blockchain system can be sure that the message has not been changed during its transmission.

Cryptography is also widely used in other areas:

· financial transactions – all transactions, from paying for a purchase in a supermarket with a bank card to money transfers, are coded by banks using cryptographic methods of information protection;

· security of personal data – sites that collect users’ personal information (name, gender, age, contacts) use data encryption, which is especially important for resources that collect passport data and bank card details;

· confidentiality of communication - most popular instant messengers encrypt user correspondence so that only participants in the dialogue can read it;

· secure connection to a Wi-Fi network without the fear that your data will be leaked to third parties;

· electronic document management, such as accounting reports, electronic signatures, etc.;

· correspondence contacts of government officials;

· army negotiations.

It is the cryptographic method of linking blocks in a blockchain platform that has caused its use to expand beyond the cryptocurrency community, and it is this method that has formed the main advantages of the blockchain.

Key Aspects of Blockchain

The most important thing in the blockchain structure is the principle of storing information in the chain of blocks. That is, the blockchain platform demonstrates all the advantages of the cryptographic principle, but in addition to this, it has a number of other advantages.

Decentralization

For this property, the blockchain technology was conceived and then developed. The developers sought to avoid any mediation between the parties directly involved in the transaction. When transferring funds in the classic terms of the transaction, there are parties and an intermediary - a bank that controls the relationship, ensures the transaction and receives a certain share for its services. In a more complex transaction, a notary may be present, and later, when resolving disputes - lawyers, court, etc.

To avoid such a complex system, the principle of decentralized storage of the register of all transactions was invented. This means that each user of the blockchain network can see the same version of this register for everyone through their device (PC, smartphone, tablet). That is, this table with information is simultaneously stored on all devices connected to the blockchain.

This aspect does not depend on the method by which the ecosystem participants obtain cryptocurrency - by mining or stakng . Regardless of the type of crypto tokens, the method of obtaining them and the ownership of the cryptocurrency blockchain itself, no one can change the data in this registry unless all community members agree. And decisions on such issues are made by voting of representatives from the entire blockchain community.

Agree, hacking such a system and obtaining information that is located in thousands of devices scattered randomly around the world is simply unthinkable in terms of the time it would take to hack. Not to mention the cost of such an operation.

Such an effective principle could not but penetrate into other niches of human activity. Decentralized data storage finds application in various fields, including forms of effective use of this technology that are not related to crypto-instruments:

· financial technologies – transaction data can be stored in decentralized systems, which increases their security, an example of which is the crypto industry , which gave birth to the very principle of the blockchain platform;

· media platforms for storing and distributing entertainment and intellectual content use decentralized technologies;

· identification – systems based on decentralized storage can be used to create digital identifiers that underlie the digitalization of society – real estate registries, electronic voting systems, etc.;

· management of transport, healthcare, logistics, energy, etc.

And of course, the global growth of popularity of this technology in the crypto industry was facilitated by the use of blockchain when launching the world's first cryptocurrency - Bitcoin. Based on this blockchain, its tokens, other cryptocurrencies appeared, as well as their varieties by the method of obtaining coins - mining and staking.

But their main principle is common - decentralization, that is, the absence of intermediaries and a single controlling body for decision-making.

Data Immutability

Why did we call the principle of decentralization the main one? The above-described aspect implies the following feature of the blockchain – data immutability. The blockchain is an open ecosystem, so it is impossible to delete any element from the existing register of data entered into the system or replace existing data with other data.

Any attempt to do so is doomed to failure. The operation will be rejected because changing even one character in the block hash will result in changes that will not match the subsequent block, and so on down the chain. That is, one change requires further changes throughout the entire chain of blocks.

This process is controlled by community members, or rather, their representatives – miners or super representatives, depending on what consensus algorithms are used in the cryptocurrency blockchain.

Consensus Algorithms

What who adds new blocks to the blockchain then? How does this happen? As we mentioned above, there are two types of consensus mechanisms in modern cryptocurrency blockchains. To add a new block to the chain, the network community must reach a consensus through its representatives. In mining, these are miners, in staking, they are super representatives.

The algorithms on the basis of which consensus is reached are different for these methods of “mining” cryptocurrency. In the first case, it is Proof of Work, and in the second – Proof of Stake. This is due to the fact that the first method of obtaining crypto involves significant technological capacities, and also requires a large consumption of electricity. Therefore, miners must prove the amount of work performed.

Staking is essentially a redistribution of a fixed amount of tokens between community members. Therefore, those who can prove the largest share of token ownership are chosen to participate in important voting.

This is, of course, a rather simple explanation of the meaning of consensus algorithms in the blockchain system, so to speak, in simple terms - for beginners who are getting their bearings in the cryptocurrency community.

You just need to understand that the blockchain network uses the transmission of two types of messages - transactions and blocks. Blocks consist of a list (register) of transactions. So, to conduct transactions, no consensus algorithms need to be followed: to transfer crypto, say, it is enough to know the key.

But blocks determine the order in which transactions will be included in the registry, and “comparing” these registries helps avoid duplicate transactions and other errors. Consensus algorithms ensure “agreement” between network nodes when adding new blocks and help maintain the fault tolerance of the blockchain platform.

Transparency

The same main principle of decentralization of the blockchain is the basis for its transparency for all participants in the ecosystem. It consists in the fact that any user who has an account in the blockchain network can view the contents of any block and even each transaction.

This not only ensures control by all network users, but also supports the principle of database distribution based on their transparency.

Safety

The basis for ensuring the security of the blockchain principle is decentralization and distribution of the database, as well as open access for each network participant to both blocks and each transaction. This ensures double control - from the validators and from each network participant.

The use of the cryptographic principle of data protection is one of the most progressive, although known since ancient times, ways to prevent both theft and modification of information.

As a result, the blockchain system is an opportunity to securely protect data, ensure transparency of block formation in the case of cryptocurrency, and eliminate any manipulations or malicious attacks. This makes the open key ecosystem a more secure structure than traditional systems.

Proof of Stake and Proof of Work consensus algorithms, which are used in blockchains of different purposes, serve one purpose - to maintain fault tolerance of the system and eliminate double spending.

Due to the advantages described, the blockchain principle is now actively used not only for cryptocurrency projects, although it was for this purpose that it was first created. Many modern decentralized applications and systems have already gone beyond the narrow cryptocurrency specialization.