Blockchain technology network – the basics you need to know
The torch bearer of the web 3.0 world order, blockchain technology is an era-defining revolution of the 21st century. It’s a form of Distributed-Ledger-Technology that has proven to improve the efficiency, speed, and security of an organizational structure. From the military to banks, almost every institution today counts on blockchain technology. Propelled by the rising interest, the blockchain industry is poised to grow at 65% CAGR from 2022 to 2030. Cryptocurrency is the most significant application of blockchain technology. In fact, crypto and blockchain together are poised to herald a new era in the contemporary world.
Basics of blockchain tech
More often than not, crypto and blockchain are used interchangeably yet these are two different entities. While crypto is a digital asset, blockchain is its foundational platform.
Essentially, blockchain can be defined as a type of Distributed-Ledger-Technology that features a public shared virtual ledger, developed in a decentralized network. The ledger keeps record of all kinds of data entered into the blockchain, guarded by cutting-edge encryption security.
Salient features of blockchain technology
Distributed ledger
At the heart of blockchain tech, you have a decentralized ledger- an electronic database that keeps record of every transaction taking place over a blockchain network, say a crypto and blockchain network. The ledger is composed of several blocks (minimum one transaction per block) that are connected together in a long chain. Every data recorded in every single block is guarded by cryptography. A new block added to the chain would carry cryptography data of the previous block.
The “distributed” open ledger quotient assures transparency throughout a blockchain network.
Decentralized infrastructure
The blockchain platform is based on a decentralized environment that eliminates centralized authority and facilitates the P2P transaction and communication model among the participants of the blockchain network. These participants are called peer nodes (participating computers) that function independently, without being under the authority of any kind of central server.
Consensus mechanism
This refers to the rules or protocols that participating nodes in a blockchain network have to follow to arrive at a consensual and seamless form of operation. As 0f 2022, the most popular consensus mechanisms followed by blockchain networks are Proof-of-Work and Proof-of-Stake.
Cryptography
As mentioned before, the blockchain blocks are safeguarded by state-of-the-art cryptography protection. Cryptography technology is a combination of mathematical formulae and game theory that have altogether helped to develop impenetrable encryption methods.
History of blockchain technology
Blockchain technology sounds like a new concept but it has its roots in the 20th century. It was in 1991 when two visionary scientists, W. Stornetta and Stuart Haber, introduced blockchain tech to the world for the first time. Their goal was to develop a realistic computational solution that would help to time-stamp digital documents to prevent tampering. The theory led them to develop the primitive infrastructure of blockchain backed by cryptographically-guarded blocks.
The very next year, the blockchain world witnessed the incorporation of Merkle Trees that helped to improve efficiency of blockchain by enabling collection of multiple documents into one single block.
Cut to 2004, Hal Finney, renowned cryptographic activist and computer scientist launched RPoW (Reusable-Proof-of-Work) that came as a digital cash prototype. It can be claimed that Finney’s work laid the groundwork for cryptocurrencies. In fact the RPoW even resolved the double-spending glitch present with the previous forms of blockchain.
In 2008, the great Satoshi Nakamoto forayed into the blockchain scene with the concept of next-gen distributed blockchain. Nakamoto introduced certain improvisations that helped a blockchain platform to add on blocks to genesis chain sans the need of signing by the trusted parties. This platform would allow time-stamping and easy verification of each block- in a completely decentralized environment.
Cryptocurrencies- the most significant blockchain application
It was Satoshi Nakamoto who brought the concept of cryptocurrencies on blockchain in the way we know about crypto and blockchain today. The first cryptocurrency is Bitcoin that was launched in 2009. As of 2022, you have over 20,000 cryptocurrencies.
How do cryptocurrencies work?
Cryptocurrencies work in a decentralized blockchain environment that follows a P2P transaction process. Every transaction is recorded on a block which is further time-stamped and guarded by cryptography. Unlike fiat currency, cryptocurrency is not governed by any centralized authority and thus crypto shares universal value all across the world. The value of 1 ETH will be the same in every country across the globe. But, the value of 1 Euro will not be the same in Europe and Asia.
Essentially, cryptocurrencies operate as electronic cash that can be utilized as payment mode. Over 15,000 businesses across the world accept cryptocurrency as a payment system today. However, the most popular cryptos for payment currently are BTC and ETH. Otherwise, you can utilize them as investment assets as well. Crypto investors and traders need to sign up with crypto exchanges for buying as well as selling cryptos. The crypto exchanges also help with the staking process.
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Cryptocurrencies have made way for passive income opportunities as well, such as staking.
Unlike fiat currencies, cryptocurrencies don’t have a physical existence. It is always stored and transacted online only. The process of introducing cryptocurrency into the market is called “minting”, but it bears no similarity with the physical process of minting fiat.
PoW and PoS blockchains
When it comes to crypto and blockchain, there are two kinds of blockchain platforms. One follows PoW (Proof-of-Work) mechanism while the other complies with PoS (Proof-of-Stake) protocol. The PoW blockchains verify new blocks through the process of mining. This process demands miners to solve a complicated mathematical problem. The miner who would be able to come up with the solution in the fastest possible time, will receive new cryptos as reward. And that’s how new cryptos will come to circulation.
The PoS blockchains verify blocks through staking. In staking, the blockchain needs cryptos from crypto holders and use them to verify new blocks prior to adding them to the genesis chain. In return, the stakers receive new cryptos. And, that’s how PoS cryptos are launched in the market.
Crypto industry is evolving at a fast pace and will grow by 5x by 2030.
