Everything You Need to Know About Blockchain Development
Blockchain technology first appeared in 2009 as a cryptocurrency platform and within a year it became a viral sensation. The most authoritative media business influencers predicted a great disruptive potential of Blockchain for financial and banking systems.
By the end of December 2020, Bitcoin has reached over 63 million wallet users. With all that, only some banks and financial institutions accept virtual currency today. However, their number is steadily growing as well as the number of businesses that create their own cryptocurrencies. As for the Blockchain, it has evolved into a standalone technology that went beyond the borders of cryptocurrencies.
Nowadays, many companies are incorporating Blockchain into their workflow, making their business even more stable, efficient, better protected, and lucrative. In this article, we cover all you need to know about blockchain technology and how to implement it successfully into your business.
What is Blockchain?
Blockchain represents a shared, transparent, decentralized, replicated, and immutable ledger that helps to record transactions and track assets in a business network.
This Blockchain technology definition may be quite confusing, therefore, let’s break it down.
Simply put, Blockchain is a ledger that documents each transaction conducted by the Blockchain participants also known as nodes. This ledger has a set of specific qualities, it is:
- shared. It means that each Blockchain node receives and stores a copy with complete information on all the transactions performed;
- transparent. It implies that more participants can join Blockchain any time and view all the data in the network. Being transparent Blockchain allows its participants to stay anonymous as it records a wallet address in the ledger but not the identity of the owner;
- decentralized. It signifies that there is no head administrator that decides whether a transaction can or can’t be performed. Instead, Blockchain nodes decide if to conduct the transaction. Once it receives 51% of votes the transaction becomes approved. Moreover, if any participant decides to withdraw from the network, the Blockchain will continue to operate;
- replicated. It means that all the new data is updated and synchronized with all the nodes automatically;
- immutable. It implies that the data on the conducted and documented transactions can’t be changed or deleted.
How Blockchain Works
A Blockchain consists of blocks that are linked in a chain. Each block of this chain collects transactions. Each transaction contains some data, including the address of the sender, what was paid, and the address of the receiver.
Here are the steps to perform a transaction in a Blockchain:
- A participant requests a transaction. It can be a cryptocurrency exchange, data exchange, or initiation of a smart contract.
- The requested transaction is sent into a network of nodes called a P2P network.
- The nodes should validate the transaction and its user’s status. Once 51% of nodes agree to complete the transaction, it’s considered validated.
- The transaction gets into the latest block and after added to the Blockchain.
Blocks stockpile transactions for some period of time until it fills up. Once the block is full, it gets stamped into the Blockchain with all the data on each transaction recorded in it.
All the blocks in a Blockchain are linked to each other with hashes. Hash is a unique code that defines the content of each block. When a block is generated it includes its own hash and the hash of the previous block.
Hashes are important as they prevent any changes in a block. If any dishonest user decides to change any data in a block, this block will change its hash and won’t fit in the Blockchain anymore. The concept of joining blocks with unique hashes makes Blockchain a super-secure technology with a high level of data protection.
Another concept that enhances Blockchain security is proof-of-work. A proof-of-work is a mechanism that slows down the creation and adding of new blocks to the Blockchain. It prevents hackers to quickly recalculate and change hashes in a new block. For example, in Bitcoin, it takes almost 10 minutes to add a block to the chain. This way, any changes done to a block will be implemented really slowly.
Although Blockchain is a secure and powerful system, software developers couldn’t put it to practical use apart from cryptocurrency exchange. However, with the emergence of Smart Сontracts, things started to change.
A Smart Contract represents a self-executing program that works once an agreement between a buyer and a seller has been reached. For example, after a company provides a service, a smart contract works, and the company receives the money from its customer.
An agreement between a seller and a buyer is incorporated into the lines of code and represents an ‘if-then statement’, e.g. ‘If the service is provided, then the money is sent to the company’.
Smart Contracts made it possible to apply Blockchain in various industries and perform secure data and service exchange.
What’s Wrong with the Way We Store Information Now?
To understand the problem of data storing, let’s abstract from Blockchain insides and imagine that it’s a word processing document.
The traditional data storing works like a Word document. If you want to work on a file with your colleagues, you need to get through the following steps:
These procedures are rather time-consuming as you can’t edit the copy before your co-worker at the other end finishes with it. That’s how many banks work right now. To perform money transfers and maintain money balances, banks lock the access to make a transfer and after the other end updates it, they open the access to the data again.
Blockchain technology can speed this process up many times. It works like Google Docs when the access is shared with many users and they can amend the document simultaneously.
This way, Blockchain allows many participants to work on one business document without losing the track of versions as their data is updated and synchronized accordingly.
Today, we store our data mainly in electronic form. La