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What is Blockchain? How is it revolutionizing everyday life?

1 August, 2022 Blockchain

What is Blockchain? Why do we need it? In recent years, Blockchain has always been a hot topic in the technology world as it has opened a new trend for fields such as finance and banking, electronics and telecommunications, logistics, accounting and auditing… In today’s article, we will find out about this revolutionary technology and how it is applied in everyday life. 

I. What is Blockchain?

To have a deep understanding about this technology, let’s start by figuring out its definition.

1.1. Definition: What is Blockchain?

Blockchain is a decentralized database that stores information in blocks that are linked together by encryption and expanded over time to form a chain. Each block in the Blockchain will be linked to the previous block, containing information about the time that block was created along with a timecode and transaction data.

It can be understood simply that Blockchain is an electronic ledger distributed on many different computers, storing all transaction information and ensuring that information cannot be changed in any way. The information stored on that ledger will be verified by a series of computers connected in a common network, no machine can change, overwrite or delete the data in that ledger.

Blockchain Trilemma includes three key factors of blockchain: Decentralization, Security and Scalability.

1.2. History of Blockchain

Blockchain was born in 2008 with the first announcement of invention and design by Satoshi Nakamoto, this technology was accomplished the following year after the introduction of Bitcoin, when Blockchain technology acted as a ledger for all transactions. Through the use of a peer-to-peer network and a decentralized data system, the Bitcoin Blockchain is managed fully automatically.

The invention of Blockchain and its application to Bitcoin made it the first digital currency to solve the problem of Double Spending. This technology of Bitcoin has become the inspiration for a series of other applications in many different fields.

II. Structure of Blockchain

Blockchain consists of 2 main parts:

  • Block: you can imagine it as a box that is responsible for storing data.
  • Chain: blocks containing data link together to form a chain. It also  indicates that these blocks are linked together to form an inseparable link. The creation of the chain (chain) is also the way that the Blockchain can resist the modification of data information contained in the blocks (Block).
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Structure of Blockchain

Each block consists of 3 main components: Data , Hash Code of the current and previous block.

Data: Your verified data records are protected by cryptographic algorithms that depend on each block chain (Sender information, recipients, number of coins sent,…)

Current block Hash Code: A randomly generated string of different characters and numbers. It specifically represents the block and uses a cryptographic algorithm to encrypt it. This code is used to detect changes in the block. These codes are unique, never overlap.

Previous block Hash code: Used to help adjacent blocks know which block is before, which block is after, in order to properly link together. However, the first block has no block before it, so its Hash code is a string of zeros. This first block is called the Genesis Block.

III. What problem does blockchain solve?

Blockchain was originally created with the main purpose of transparently and sustainably storing data over time. To have a better understanding of the importance of blockchain in human life, let’s take a look at how the change in the transaction system has taken place!

3.1. Agreements and papers

In the past when technology was not developed yet, the transaction between person A and person B was an agreement on paper. This document will then be verified by a third person (C) and recorded as evidence.

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The risks of an transaction agreement on paper

=> The limitation exists because:

  • It can possibly turn into a fake transaction.
  • Papers can deteriorate over time.
  • No one can guarantee 100% the third-party’s reputation.

Therefore, at this stage, the transaction between person A and B has a lot of risks to ensure the interests of both parties, which completely depend on the third-party.

3.2. Banks as Financial Intermediaries

Over time, technology has helped society develop to a new level. To be more specific, computer technology has been applied in the banking and financial system. Transactions are now not recorded on paper, but instead, information will be stored on a bank’s server.

At this stage, technology has made the information stored in a more secure way and the security will be guaranteed by banks and governments.

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Transactions in banks

However, a major problem that still exists is that all data is stored on one main server. Therefore, this will be a “prey” that hackers can exploit and edit data. As can be seen, the most important issue remains unresolved.

3.3. The invention of Blockchain has solved these difficult problems

Information is seen as the key element to solve these existing problems. So the question is:

– How can I store that information in the most sustainable way?

– How to keep the information safe, no one can affect it?

Through the process of changing the above transaction system, it can be seen that with the support of technology, the bank’s transaction system is still not really complete. This is the reason for the next step of development – Blockchain.

As in the definition, Blockchain is a database stored distributed on computers. The data will be stored in blocks and these blocks will be linked together, lasting forever. In particular, no one can modify them.

With these outstanding features, this revolutionary technology can help the payment system solve most of the above difficult problems such as:

  • The data will be stored and distributed on many computers ⇒ Information is kept and hacking is extremely unlikely.
  • Transaction information is public and transparent.
  • In particular, Blockchain eliminates the controlling role of the 3rd person in the transaction.

Moveover, the common blockchain technology that enhances connectivity between blockchain networks enabling information and value exchange is Cross-chain technology. Cross-chain is a solution that allows the transfer of assets or data between different blockchains, thereby optimizing the ability to combine and interact between blockchains…

IV. How does Blockchain work?

Until now, we must have understood what is Blockchain and the important characteristics that make it be expected to be an essential change for the future. In this part, let’s figure out how a Blockchain works!

4 stages show the process of how Blockchain works

Stage 1: Person A makes a transaction to Person B on Blockchain. Information will be recorded on the system in the form of a Record

Stage 2: This Record will be encrypted and validated by participating Nodes to put data on the block. Specifically, the nodes will verify the amount of assets that person A transfers to person B, put on the network and compare to see if the balance in the wallet is reasonable or not and then proceed to approve the transaction.

Stage 3: Transaction is validated, data is encrypted and put into block.

Stage 4: After being filled with data (transactions between person A and B and others’ transactions), a new block is created and linked to the blockchain.

V. Advantages and disadvantages of Blockchain

This technology also has advantages and disadvantages which are briefly listed below.

5.1. Advantages

It is impossible to forge and destroy the chains: In theory, only quantum computers can decode Blockchain, and this technology will only disappear when there is no Internet in the world.

Immutable: Data in Blockchain cannot be changed (can be edited but will leave a trace) and will be stored forever.

Security: The information and data in the Blockchain are distributed and absolutely safe.

Transparency: Anyone can track data going from one address to another and can track the entire history on that address.

Smart Contracts: are digital contracts embedded in If-This-Then-That (IFTTT) code, allowing them to self-execute without 3rd person.

5.2. Disadvantages

Transactions limit per second: Blockchain depends on a larger network to approve transactions so there is a limit on how fast it moves.

High energy costs: Making all nodes active to verify transactions consumes more electricity than a single database or spreadsheet. This not only makes blockchain-based transactions more expensive, but also places a greater burden on the environment.

Risk of asset loss: Some digital assets are secured by a cryptographic key like cryptocurrency in a blockchain wallet. You need to carefully protect this key. If the owner of a digital asset loses the private cryptographic key that gives them access to their asset, there will be no way to recover it and the asset will be gone forever.

Potential of illegal activity: Decentralization of blockchain adds privacy and security. This unfortunately makes it attractive to criminals. It’s harder to track illegal transactions on the blockchain than it is through banking transactions that tied to a name.

Conclusion

Although there are still disadvantages, this technology offers a number of unique advantages, occupying an important position in today’s life. Hopefully this article has provided you with a better understanding of what is blockchain technology and how it works.

If you want to apply this technology to your business, you’re coming to the right place. Pando Infinity is a leading company in the software development industry in Vietnam. We specialize in blockchain development resources, especially Blockchain Integration, Decentralized Application and Smart Contracts Development. Contact our experts to figure out what values we can bring to you and your business.

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