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Being new to the crypto world, you must have come across the word “blockchain”, and you’ve been wondering what it is. You have come to the right place. This article will give you a beginner’s guide to blockchain technology and how it works.
What Is a Blockchain and How Does It Work?
In simple terms, a blockchain is an online ledger and collection of records linked together and cannot be changed.
As we have seen and even experienced with traditional banking, there are various issues surrounding it that may make a transaction denied, such as hacking, technical issues, exceeded transfer limits or added transaction charges. With all these problems, cryptocurrency was introduced. Thousands of cryptocurrencies are currently in existence and built on blockchains.
Blockchains are also known as distributed ledger technology, and this is because they cannot be deleted or altered. They are highly secure, and it is unimaginable for the system to be changed, hacked, or manipulated as the data within the blocks are encrypted by complex algorithms.
When cryptocurrency transactions are made, the record of it is stored on a block. This block contains how much crypto was sent and how much crypto the sender and receiver have.
Each block is tied to the ones prior to it and after it.
When an asset moves from one place to another or ownership changes, these blocks form a chain.
Each block confirms the time and sequence of transactions, and the blocks link securely together so no block can be altered or inserted between two blocks.
Advantages of Blockchain Technology
- It provides a high level of security as blocks cannot be tampered with.
- Blockchain technology offers quick transactions
- Acts as an alternative to the traditional banking system
- There is an absence of third parties
Disadvantages of Blockchain Technology
- Because of the use of private keys, you lose access to their cryptocurrency wallet if they are lost.
- It is time-consuming to finish multiple transactions due to the limited number of transactions on a node.
- It costs a lot of money to mine bitcoin.
Types of Blockchain
1. Public Blockchain:
With this type of blockchain, anybody can participate in the network, as long as they have a computer and access to the internet.
Although the process of transaction is relatively slow due to its large size, which makes the verification of each node a long process, there is an even greater distribution of records.
The public blockchain can be secured with proof-of-work or proof-of-stake but proof-of-work and it consumes high energy. It would help if you had suitable computer hardware to participate in this blockchain network.
2. Private Blockchain:
Because just one authority manages a private blockchain network, it works well for private businesses and organizations. Using this blockchain network, only selected nodes can participate in the process, making it more secure than others.
Because of its small size, its transaction rate is high, and it takes less time to verify each node.
3. Hybrid Blockchain:
As the name implies, this blockchain network bears the features of both public and private blockchains. It is also known as a Permissioned blockchain. Some of these blockchain network is controlled and managed by an organization, while others are visible to people outside the organization.
4. Consortium Blockchain:
This blockchain network is also known as Federated Blockchain. This blockchain possesses components of both public and private blockchain, but numerous organizations manage a unique consortium blockchain network. Despite their complexity when they are first set up, these blockchains can provide better security once running.
Cryptocurrency systems, such as Bitcoin, rely heavily on blockchains to maintain a secure and decentralized record of transactions.
Business and government operations can be made more accurate, efficient, secure, and cheap with blockchain.
With blockchain technology, transactions have been made more accessible, and we look forward to the future.