Blockchain is a public ledger where certain transactions take place and the records of these transactions are stored in a block that is almost impossible to manipulate. The blocks in the chain are interconnected. Every time a new transaction occurs in the blockchain that transaction will be mined and included in a so-called block there could be lots of other transactions as well. The ledger of transactions is duplicated and distributed among all the computer networks, and a record of each transaction is added to every participant ledger holder or so-called node.
Blockchain technology is fully decentralized and run by several participants or nodes. The higher the number of nodes involved the better security will be and things will be more solid and impossible to tamper with that is known as DLT ( Decentralized Ledger Technology). Nowadays Bitcoin, Etherium is the prominent blockchain application that we use daily for money transactions and smart contract applications. What prevents a hacker to crack the blockchain is the way it is built if he/she want to tamper with any block he/she should make the change on all the nodes which is almost impossible, unless something like a DAO attack happens.
How does the transaction get into the blockchain?
- The blockchain is not centralized but still, the transactions need validation. The users enter into the blockchain by using cryptographic keys, a string of data that is used to lock or unlock crypto functions, including authentication, authorization, and encryption. Each of the users will have their own public and private keys.
- Once the transaction is agreed between the nodes, it needs to be approved before it is added as a block in the chain. This means the majority of the computer networks need to approve that the transaction is valid.
- The miners who own the nodes in the network need to resolve a complex mathematical problem for adding a block to the existing chain. Solving this problem is called mining and, they will get rewarded for their work.
- After all these processes, a real transaction generates.
What is mining?
Mining is a process of solving a complex mathematical problem that is required to add a block into the chain. It requires substantial computing power that consumes considerable amounts of energy and thus expensive. A normal computer alone would take lots of time to find a solution to the problem, so the reward must outweigh the cost of the computing power and the electricity cost for running them.
As the blockchain grows more computers join the network and will be involved in the mining process. This makes the problem becomes harder and the network gets larger.
DAO Attack
DAO – Decentralized Autonomous Organization, launched in April 2016 with ICO on Ethereum blockchain. It’s a computer code through which a set of contractors are connected together and function as a governance mechanism.
After rising an amount of 150 million USD through the token sale, DAO got hacked and around 3.5 million ether was taken through a loophole in the contract code. It was a breakthrough at that time and was called “recursive call exploit”. After a long debate, the Ethereum community decided to perform a hard fork on the blockchain to restore the stolen funds. That caused in splitting the Blockchain into two, Ethereum and Ethereum Classic.
Let’s wrap up
Blockchain is a type of DLT in which the transactions are stored in a cryptographic signature called a hash. Years ago there have been many attempts to create digital money, but the main problem was “trust”, and blockchain solves that in a trustless way of the process.
The key advantage of this technology is that blockchain is decentralized. It’s run by the people who use it and, it cannot be faked, hacked, and prevents double-spent so the people can transact confidently.
