What Is Blockchain?

Any troubles you face when understanding blockchain aren’t worth giving up. The benefits and implementations of this technology expand to far more areas than cryptocurrencies. We know how difficult it is to dive into this world of complex technical jargon and understand the different types of networks existing, especially if you plan to open a crypto wallet.

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Key Takeaways

Here is a short summary of the most important points regarding the concept of a distributed ledger, its key elements, types of networks and its security:

  • A distributed ledger is a database or system for recording any type of information in an accessible, but safe and secure way;
  • Binany is a perfect platform for a smooth start in cryptocurrencies trading and understanding what is a blockchain;
  • Cryptography, distributed ledger, smart contracts, and immutable records are the main components of blockchain technology;
  • There are 4 types of networks existing: private, hybrid, public, and consortium;
  • 51% attack is one of the most dangerous cyber threats that can result in losing access to the network.

Move on and get the most detailed analysis of this concept and its main nuances. 

Blockchain Definition: The First Step To Understanding The Technology

The simplest and shortest way to answer what a blockchain is is to say that it’s a database or system for recording information. But this explanation reveals only 1% of the concept. This technology is literally a chain of blocks containing various information, for example, transaction details that can’t be changed. The blocks are connected via cryptography algorithms, but they don’t impact each other.

One more important thing for understanding what blockchain technology is is its decentralized nature. Instead of being stored in one server, the information here is distributed across the net of computers, which boosts safety and fairness. Everyone can access the data but without the opportunity to alter it.

What Makes Blockchain Important?

A lot of how our world evolves depends on the information. Data security and the speed at which it’s shared and processed play a big role in how business runs. And it applies to every sphere of human life. If you gained at least a basic understanding of blockchain definition, you should already understand that this technology is the top choice for delivering information. And its importance lies in this. 

The technology has no analogs or solutions that work similarly. A distributed ledger builds trust and promotes transparency of the information. As it was mentioned in the previous paragraph explaining blockchain and  blockchain meaning, the information is accessible to all network participants. It builds trust as no other database does. You can access all the details of transactions or other encrypted information to gain confidence. 

Finally, it’s possible to use blockchain to track many more things besides the transactions. Orders, production, accounts, and other pieces of information can be encrypted into the system. 

What Does The Blockchain Consist Of?

After you’ve learned what is blockchain, it’s time to go deeper and understand the key elements it consists of. The technology is very complicated and it’s impossible to cover the smallest nuances of it here, but the basic concepts important for its understanding are explained below. 

  • Cryptography. The security of data within the network is ensured by this aspect. Cryptography in this context is a set of mathematical algorithms that encrypt the information in blocks. Due to this technology, only one person can access the information encrypted.
  • Distributed ledger technology (DLT). This technology lies in the basis of all networks. DLT is a shared database where all transaction records are stored. All participants can find this information, and check it, but can’t delete it as it’s possible in many other technologies.
  • Smart contracts. This is a set of automatic rules that help companies process transactions faster. Smart contracts are activated automatically when the specific preset conditions are met. With smart contracts, no third party is necessary to manage transactions.
  • Immutable records. No one can change the information recorded in the public ledger. All information in it is permanent and visible to all participants. It also applies to any attempts to make changes or errors that occur during transaction recording.

After you’ve discovered the main elements of this technology, you get even closer to understanding what is the blockchain and how it works.

What Is Blockchain?

How Can Businesses Benefit From a Distributed Ledger?

The integration of this technology is an important step for a business. It shows that the company follows the latest trends and constantly develops the quality of services. But this step has plenty of benefits the business owners can get:

  • Faster supply chain management. It’s achieved due to the smart contracts in technology. In this case, less human effort is needed to streamline business processes. 
  • Reduced expenses. Again, less human efforts are necessary for transaction processing with block chain. Despite the investments in computers and software, this technology is anyway considered the way to reduce costs for business.
  • Lower risks. Top-notch security is the best word combination to define blockchain. By integrating it, businesses ensure themselves exceptional security and the lowest risks of unauthorized access to important information. 
  • Increased trust. Distributed ledger is known to be a safe, secure, and transparent database. This is why its integration builds better trust between businesses and their partners. It also applies to payments made with Bitcoin and other cryptocurrencies.

All the advantages described come from the block chain definition and its nature. This system is transparent, safe, and convenient, so all these aspects are transferred to the users of the blockchain.

The Concept of Blockchain Explained

The nature of it lies in block chain meaning: the chain of blocks. Each element in the chain contains a certain set of information, for example, the transaction details. Besides that, the blocks contain a hash a unique identifier. The blocks are connected in chronological order. The hash of each new block added contains the hash of the previous block. This is why the chain is unique and can’t be faked. 

Are there any other important aspects of how does blockchain work? Yes, it’s referred to as consensus. Adding any new block to the chain must be verified by all nodes in it. It means checking the information in the block and adding only those containing the correct data. 

Blocks can contain different information, but they are always connected to each other. If someone tries to make changes to the hash, the chain will be destroyed which is impossible. 

How Blockchain Works? 

If it’s still tough to understand what is blockchain technology and how does it work, this is a more detailed breakdown of this technology:

  1. Transaction initiation. At first, the user initiates a transaction, for example, money transfer or data sharing. As it occurs, it’s transformed into a block of data. The use of the distributed ledger goes far beyond the cryptocurrencies, so blocks can contain information about products or even intellectual property. Block chain users are free to set what information to encrypt in blocks.
  2. Transaction verification. Either it’s a new block creation or adding the new element to the existing chain, all nodes should verify it. The transaction and data validity is checked and verified via Proof of Work, Proof of Stake, and other consensus mechanisms. 
  3. Block integration. After the successful validation, the new block is integrated into the chain and connected to elements before and after it. Usually, it contains transaction data, time of the block creation and a hash element. 
  4. Сhain formation. When the transaction is complete, the block is integrated. Adding each new element to the block chain improves the verification and security of the previous one and the whole distributed ledger. After that, the chain is updated and each block in it receives the new information.

What is the purpose of blockchain technology? Record transactions in simple but safe way and ensure transparent information exchange within the network. 

Types of Networks

Note that there are some nuances in how this technology operates, depending on its type. There are 4 most commonly used types you should be aware of to understand what blockchain is in simple words.

  • Private. The private network is very similar to the public one. In a private distributed ledger, there’s an organization that governs how the block chain operates. It defines who’ll be allowed to participate in the network. Due to its nature, a private distributed ledger is more secure and trustworthy. However, the presence of a governing organization may pose a higher risk of manipulation.
  • Public. This is a popular type, accessible to anyone. A public block chain is a transparent and decentralized technology used in many cryptocurrencies in Bitcoin, Litecoin, and many other coins. This one is safe and can be trusted, but has a substantial energy consumption. You should be aware of slow transaction speeds in public networks before integrating or using them.
  • Hybrid. This type uses the features and benefits of private and public blockchains. This is where the type of access can be changed. Hybrid networks also strike a perfect balance between decentralization and third-party control. Such block chain can be used by organizations that need to select the data to be shared and encrypted.
  • Consortium. These are similar to hybrid networks but with some differences. Consortium block chains are managed by a group of organizations. They are responsible for how the system functions and who can access it. Note that all members of a consortium usually have equal rights. It’s often for consortium distributed ledgers to face problems due to differences in members’ goals and strategies. 

Understanding the network types is crucial for getting the blockchain technology explained. As you know the basic nuances of each type, it becomes easier for you or your business to choose the block chain network to operate on.

Types of Networks Blockchain?

Blockchain-Protocols: Hyperledger Fabric

As you discover what is a block chain, it’s the right moment to deepen your understanding. This technology is widely used in application development and transformed into protocols. Hyperledger Fabric is the most commonly used one. The project was released by Linux Foundation in 2015 as an initiative to support the development of blockchain-based ledgers. 

This platform can be used by businesses operating in any area. Hyperledger has a modular architecture and allows creation of private networks with predefined permissions for participants. In Hyperledger, you can apply and set all features and mechanisms that are related to blockchain technology meaning: smart contracts, consensus, and many more. Hyperledger Fabric is a multipurpose solution. Businesses can use Hyperledger for supply chain tracking, trade finance, performing cashless transactions, and many other purposes. 

Understanding The Distributed Ledger Security

Do you already know what a blockchain is? Well, now it’s time to get to another level and pose more complicated questions. For example, is distributed ledger as secure as it claims to be? Generally, the following elements are responsible for the security:

  • Cryptography;
  • Decentralization;
  • Consensus. 

These should make the network unhackable, but some cases show there are some gaps in block chain security. The industry faced several successful types of cyber attacks: sybil, routing, phishing, and 51% attacks. The concept of 51% attack is the most well-known in this relation. This term refers to a situation, even a potential one, where hackers may gain control of over 50% of the network. The results of such an attack may be deplorable for network owners since the chain can be completely altered. 

Security Levels of Different Blockchain Types

Private and public networks are the most commonly used ones. And they have many differences in the security they ensure. The main difference lies in users who can access the distributed ledger. In public, any computer connected to the Internet can be used to validate transactions. Private networks allow only known users to join the network. 

A different attitude to participants’ identity makes these network types different as well. Public block chains are usually anonymous, but the same can’t be said about private. Here, the validation occurs via a selective endorsement process. This is where members with proven identities can participate in consensus. 

Key Considerations For Improving The Security

Even though outstanding security is considered the most popular answer to what does blockchain mean, business owners still have some measures to be taken. The technology is constantly improved, and the malicious parties are developing their capabilities as well. 

Everyone who uses this technology should do their best to protect and secure other elements of the system, for example, the application. It’s crucial to perform regular risk assessments and other activities to ensure that safety remains at a high level

The Bottom Line

What is blockchain? It’s a database, technology, or system to record transactions in a revolutionary way. This is a public ledger existing in the network and consisting of connected blocks with encrypted information. It’s a revolution in how data is stored and secured. 

The stable work of multiple components like cryptography, smart contracts, distributed ledgers, etc. ensures the network operation and existence. Although security, anonymity, and decentralized nature are what does blockchain mean, you should be aware of various network types and their features. 

Distributed ledger has great potential to develop businesses and human lives, but there are some drawbacks like security breaches to consider. If your purpose was to discover the technology and apply this knowledge to trading purposes, start your journey with Binany. It requires low investments to start and gives you access to around 80 assets. Use the latest trading tools and knowledge base to master the cryptocurrency world. 

FAQ

What is a blockchain in simple words?

This is a digital ledger containing records regarding transactions or other operations. It keeps them secure and stores the data across the network of computers. In block chain, no one can alter or hack the elements, and the risk of manipulation is also minimized.

Where can blockchain be used?

Considered the main building power for cryptocurrencies, distributed ledger has plenty of other implementations. For example, it’s possible to integrate it into smart contracts, supply chain management, healthcare and a plenty of other industries due to Hyperledger.

How do Bitcoin and blockchain differ?

Although they are mentioned in one context, these are two different concepts. A distributed ledger is a technology, and Bitcoin is a cryptocurrency that is built on it. This coin was the first concept where the technology was applied after its emergence.

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