How Does the Blockchain Network Work


Blockchain pic

Blockchain technology was immediately recognized as a revolutionary method for data storage and data sharing because it offered a genius solution for keeping the data secure. The principle of ultimate data security was actually the cradle in which this technology was born. The idea behind blockchain technology was to create a system that would prevent data tampering. So this prevention of unrecorded changes in the data was what initialized the creation of this revolutionary technology. But how does this happen? How does blockchain secure the data and everything that happens to it? How does blockchain work?

Before we explain the simple, but the ingenious principle behind this technology, we need to explain how blockchain looks like. We need to visualize it. Just as the name says, this is a chain — it follows the chronological order. However, at the same time, blockchain is a network. So there are two main principles in the core of blockchain.

  • Chronology — Visualize it as a chain
  • Decentralization — Visualize it as a network

So a chain and web work together to bring us this amazing data storage method. Both of these principles, the supply chain and a web, together provide this fantastic level of security that is blockchain technology. Now, let’s explain how.

This technology was first designed to be an open ledger. Naturally, it uses the principle of a simple ledger — this is the chronological part of blockchain. What did blockchain borrow from leger, and what did it improve?

  • Borrowed principle — Recording each change chronologically
  • Innovative principle — Crypring the change

As we can see, blockchain consists of something borrowed and something new. The old principle in blockchain is the idea of building trust by impartially recording each change that occurs over time. Think about owning an old stamp collection. At some point, you would go to a lawyer and notary to record the date when you started to own this collection. You would want to have this information recorded so that you could, later on, pass it on to someone from your family or sell it. The lawyer would need to find the previous, old record of the owner before you. This would all lead to the creation of a ledger-like document that would have a chain of chronological data like the following simplified rendering.

  • Person A owned the collection.
  • In 1995, person A sold the collection to person B.
  • Person B proved ownership.
  • Person B died and passed the collection on to person C.
  • Person C, as the rightful owner, sells the collection.

So this example paints the picture nicely — a ledger shows all chronological changes that have happened to an item of value and presents the dates of the changes. In blockchain technology, things work quite similar but with ingenious improvements.

Blockchain is seen as such an important advancement in our technology because it invented a new way of securing data and simplifying the leger principle. This technology excludes the middleman, thus doing two things:

  1. Absolutely preventing any tempering and providing trust
  2. Saving resources, time, and money

This is where the web part of blockchain comes into play. The old system of legal and financial communication had the following form.

  • Client — Impartial representative — Client

Due to the innovative, networking principle, blockchain jumps over the “impartial representative.” Blockchain views the middleman as obsolete. So now we have the following form.

  • Client — Client

Or, as it is called in blockchain technology:

  • Peer — Peer

This is why blockchain is called an open ledger — it still is a chronological ledger, but it is based on a direct (open) communication. Now, we have said that one of the things that blockchain is celebrated for is the outstanding level of security. Let’s see how this part works, how blockchain protects the date while stored and during the transfer.

Data that is a part of a blockchain can’t be changed, or it is extremely difficult to change it. Plus, each change is automatically recorded. This is achieved by one smart principle — writing each entry in code. So behind the blockchain, security is math. Each piece of data that is created in blockchain is one block. This block has three levels.

  1. Data
  2. Hash
  3. The Hash for the previous block

So a block is secured by Hash. It has its own data part, and it keeps a record of the Hash from the previous block. Now, imagine a chain of blocks — each block has a hash from a previous block, and so on, and so on. What about the first block? Every blockchain network as an initial block is the genesis block.

How does this advanced coding help security? There are three cornerstones of security in the blockchain communication system.

  1. Proof of work — Performed by solving cryptographic puzzles
  2. Peer to peer communication
  3. Nodes that communicate simultaneously, in real time

The first principle of security is proof of work. Each action or a change in blockchain comes with the proof of work that is based on solving complex crypts. At this part, blockchain actually slows down, intentionally. Proof of work takes time, and that’s why it takes longer for a let’s say Bitcoin to be processed. Blockchain operates by solving extremely complex crypts each time when an action is performed inside the chain — this way, this technology proofs the authenticity, validates the block in question.

After this, the peer to peer communication takes care of the next level of security. This is the most fun part about the blockchain – the decentralization. Blockchain doesn’t have a center, and thus, it doesn’t have a weakness. You can’t attack data in the blockchain, because that data doesn’t exist in any place, it exists in the network. In the peer to peer principle, each data exists in real-time on the entire network. So, each action performed on some data immediately takes effect in all blocks on the network. Nodes help the data security because they react on the basis of the whole network, not on a singular basis. In the case that someone tries to tamper with data in blockchain, nodes would delete the data from the whole network. Nodes operate on a large scale in blockchain. So one tempered block is removed by all nodes.

What Are the Benefits of Blockchain Technology

Now, let’s talk about the potential of blockchain technology. We explained how blockchain looks like, what it is, how it originated, and how it works. Since we learned all of that, let’s talk about what this technology can be used for.

Basically, blockchain can be used for validating, protecting, and transferring anything of value. Each action that includes something of value and communication can be performed by blockchain. This means that this technology can be used for currency, smart contracts, elections, and web development.

We all know that this technology is used by cryptocurrencies. However, it has a larger potential — currencies are just the beginning. This communication method can be used to process anything of value, including various information, legal data, private information, etc. Blockchain can substitute for legal actions, such as contract validation and keeping track of contract violations. Also, it can be applied for validation and keeping track of property ownership, or ownership of anything of value. Basically, anything that needs to be validated and secured or kept track of can be done by blockchain. So you need to think big when it comes to blockchain — its most popular application is in the world of digital currencies, but it can be used for much more.

One of the important potentials of blockchain technology has already been recognized by multiple experts in elections. Blockchain could be used for voting because it would remove any possibility of data tampering. Also, it would exclude the need for monitoring and spending huge resources for the organization of elections. Blockchain would make things obsolete — everything from a middleman to large spending of time and funds.

Bitcoin floating

Blockchain would be a perfect solution for elections, governments, legal matters, and large and small companies because it can be designed in three different ways.

  1. Public ledger
  2. Private ledger
  3. Hybrid ledger

The first form of blockchain, the public form, means that each user would have all the access to the data. The second form would mean that access to the data would belong to a private group — this is ideal for private companies. Now, the third form is something that would be amazing for blockchain that would be used by governments.

A hybrid form of blockchain means that a certain blockchain system has both parts that are open and those that are private. This way, some users would be able to see everything, while others would see only the public data. The distributed ledger can be controlled on multiple levels, thus creating the more complex hybrid networking systems. Also, this system allows users who have all privileges to dictate who would have the right to change some data and which one. This hybrid system is a great solution for all circumstances in which a group of people wants to keep some information open and some private at the same time.

However, blockchain has one more extremely important potential. A cryptocurrency, based on blockchain, can be used for the development of completely decentralized apps. Such applications would prevent not just data tempering, but they would secure the new level of liberty for web developers — the content itself wouldn’t be controlled by any center! This is something like heaven for open-source coding, but we will talk about that later in the text. Now, let’s see how this technology works regarding cryptos.

Cryptos and Blockchain

When Satoshi Nakamoto created the digital currency Bitcoin, the way we understand and use currency was revolutionized. As with the blockchain principle, in the Bitcoin too, there is something old and something new. Let’s see what Bitcoin borrowed from the past and what it innovated.

  • Old — Currency that is backed up by something
  • New — Currency that can be exchanged without a middleman all over the globe

As we have seen so far, blockchain is all about security and cutting expenses. The same goes for Bitcoin. Now, Bitcoin is not just a digital currency. It’s also a system, more precisely, a payment system. As a currency, Bitcoin uses the old, ancient, principle of securing the value of the currency by something unchangeable. For centuries, that was gold. This substance was chosen to represent currency because it was hard to tamper with it. It doesn’t react, and it’s hard to alter it. Bitcoin was created with the same idea behind it – finding something unchangeable to backup the currency. So what is gold for Bitcoin? It’s impenetrable crypto!

Just as in any other blockchain, in the Bitcoin payment system, you need proof of work to validate the transaction. Also, just as in other blockchain-based systems, in Bitcoin, the communication is direct peer to peer. This peer to peer contact in Bitcoin means no bank fees, no taxes, no additional expenses, just clean data transfer. So in the Bitcoin network, if a person A sends a person B five coins, person A has five coins less, and person B gains five coins more. It’s simple as that. There are no hidden expenses, and situations in which person A sends 5.4 coins, and person B gets 4.99 points because some middleman earns on a simple transaction. This is one of the reasons why people fell in love with blockchain-based currencies.

With Bitcoin, just as with torrents, the system operates on a large network of computers. There is no central database where Bitcoin is — it is on the grid. Due to this absence of central authority, expenses fall, and trust rises — it’s a win-win situation. Peers trust one another due to the proof of work, crypto, and the nodes that would identify the altercation on a network level. Also, as you probably already know, each user has their own private key that they can use for financial transactions. In the real world, you need to trust the middleman, while in the Bitcoin world, you trust the nodes — more precisely, the encryption that exists on the entire grid. The biggest strength of Bitcoin is that it’s based on a network of thousands and thousands of computers. There is no center that can be taken down.

Smart Contracts

As we have mentioned before, one of the smart uses of blockchain technology was the creation of smart contracts. This form of blockchain system secures the contract between two or multiple peers by both keeping track of chronological changes and encrypting the value in question. The smart contract also bypasses the middleman, which increases the trust level between the peers. However, this technology has more to offer besides smart contracts. It opens the doors for a new form of web development — the decentralized blockchain applications.

Decentralized Applications

Platforms like Etherum offer a new option for web developers. Now, web applications can be developed on cryptocurrency blockchain technology. This way, there is an opportunity to translocate applications into a decentralized system. This new option is one of the reasons why there are so many cryptocurrencies out there — web developers are launching their own crypto so that they can build decentralized apps. Now, how can these decentralized apps, as they are popularly called DApps, be developed?

How to Develop Apps Using Blockchain

There are two main types of blockchain development.

  • Core blockchain development
  • DApp development on a blockchain platform

The first type of development is all about the technology itself — core blockchain developer develops the technology, improves the algorithms, and works on the code. The second type of development is app development the uses a blockchain platform. One of the most popular such platforms today is Ethereum.

When you work on Ethereum platform, you can use Erc 20 tokens to build your own tokens and develop your own app that would use those tokens. Many businesses today are run on this token principle. They operate the fundings and transactions in these tokens. This method of running the business is based on ICO, Initial Currency Offering. ICO is basically a revolutionary funding mechanism that has gained global popularity in the virtual world.

Now, when it comes to DApps development, blockchain is your oyster. The technology itself is pretty young and still unexplored. Plus, the technology offers so many possibilities that creativity and innovation in the realm of DApps are highly valuable. You can use blockchain technology for so many different purposes. There are virtually endless possibilities.

The two main uses of DApps today are for business and entertainment. So under the first business category fall all financial DApps or DApps that deal with legal matters. There are decentralized applications that work exclusively for fundings. Besides this, DApps gained popularity in the world of entertainment too. So there are many decentralized games today, and one of the most popular is the CryptoKitties.

As you can see, decentralized applications can be used for many things — it all comes down to the developer’s creativity. The popularity of some DApps rose rapidly, and they started to record an amazing number of users. Now, let’s take a look at the current DApp situation. Let’s meet the most popular DApps.

From gambling and gaming to financial matters, DApps can cover many different areas of business and entertainment. Basically, any action that includes value and communication can be translated into this technology. The world of DApps is vast, young, and full of potential.

Final Words

Although blockchain technology is mostly known for its application in the world of digital currencies, it has many other potentials. The technology deals with value, security, and direct communication between users while providing an outstanding sense of trust and stability. At the same time, a blockchain network can provide date transparency or keep the data private. It depends on the purpose it’s assigned to. This is why developers, economists, and scientists have already recognized the potential of this networking system. It can be used for things as serious as state elections and for other ones as well, such as decentralized token-based games.

One of the most beautiful things about blockchain technology is that we are still about too see its next applications — there is so much to be explored. Blockchain is a smart harmony between old methods of protecting the value and absolutely innovative direct communication. The principle of the open ledger can be applied to all matters that need chronological data tracking and a high level of data encryption. Blockchain technology provides a new level of trust that is born out of the simple, yet such a genius principle of grid communication. Besides this, each block in the chain has its own complex encryption that promises the protection of both the uniqueness of the value and security of the data.

Throughout our article, we have talked a lot about the popularity of blockchain. However, even though it is true that blockchain grabbed the attention of many, a small percentage of people today uses this technology. Statistical data estimates that approximately 0.5% use and benefit from blockchain technology. Due to this current situation, we still can’t see the full potential of blockchain technology at work. The way we run our finances and legal matters will truly change only when more people get on the blockchain grid. While the value of this technology is in its design, its potential will truly shine when the number of its beneficiaries rises. As we have said before, the world is yet to see the full potential of this revolutionary technology.

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