Blockchain is the key technology on which the world’s first decentralized cryptocurrency i.e., Bitcoin is based upon.
Many cryptocurrencies which came into existence after Bitcoin, are also based on Blockchain Technology.
After the financial world, various other industries such as Music, Banking, Insurance, Healthcare, Real Estate sectors are also counting upon Blockchain Technology to secure transactions and maximizing returns. Even elections are getting conducted using Blockchain technology.
So What is Blockchain Technology?
Blockchain is an undeniably ingenious invention – the brainchild of a person or group of people known by the pseudonym, Satoshi Nakamoto.
It is often referred to as the “Next Generation of Internet”.
Generally defining, Blockchain technology is a shared, immutable global public ledger for recording the history of transactions. It fosters a new generation of transactional applications that establish trust, accountability, guarantee, and transparency.
In the case of Cryptocurrency or to be specific in the case of Bitcoin, the first product of Blockchain technology, Blockchain is a public digital/online ledger of all the Bitcoin transactions that have ever been made. It is like a bank statement/passbook which records all of the transactions.
A block is the ‘current’ part of a Blockchain which records some or all of the recent transactions, and once completed goes into the Blockchain as a permanent database. Each time a block gets completed, a new block is generated. There are countless blocks in the Blockchain.
Are The Blocks randomly placed in a Blockchain Ledger?
No, they are linked to each other (like a chain) in proper linear, chronological order with every block containing a hash of the previous block.
To make it easy to understand, consider each block of Blockchain like a page of bank statement/passbook which records all transactions and as soon as a page in bank statement/passbook is completed, a new page is used for recording transactions. Obviously, these pages are stored chronologically which saves the transactions from oldest to newest, the same is in the Blockchain.
So the Blockchain is constantly growing, as ‘completed’ blocks are added to it with a new set of recordings forming a chain of blocks and hence the term, Blockchain.
At last, a blockchain is a kind of independent, transparent, and permanent database coexisting in multiple locations and shared by the public. This is why it’s sometimes referred to as a “Mutual Distributed Ledger (MDL)”..
Who Records The Transactions In Blockchain Ledger?
A novel solution accomplishes this task of recording transactions without any central authority. Maintenance of the Blockchain is performed by a network of communicating nodes(computers connected to the bitcoin network) running Bitcoin software or simply called Miners.
Each node (computer connected to the Bitcoin network using a client that performs the task of validating transactions) gets a copy of the Blockchain, which gets downloaded automatically upon joining the Bitcoin network. The Blockchain has complete information about the addresses and their balances right from the first/original block to the most recently completed block.
How Are The Transactions Recorded In Blockchain Ledger?
Suppose Sania sends X amount of Bitcoins to person Mahesh, this transaction would be broadcasted to the Bitcoin network using readily available software applications. Now, the nodes(computers that are connected to the bitcoin network) can validate this transaction, add them to their copy of the ledger, and then will broadcast this transaction which is recorded in a ledger to other nodes, so that they can validate it too. Thus multiple, validations by nodes makes Bitcoin transaction a very safe and secured transaction. Also, this procedure allows Bitcoin software to determine when a particular bitcoin amount has been spent or a transaction has taken place, which is necessary in order to prevent double-spending where there is no trusted central authority to authorize it.
What are nodes?
As mentioned earlier, nodes are simply computers that are programmed to function in the Bitcoin network through some software. These computers are placed by persons who are called Miners in bitcoin terminology.
Miners install computers in the Bitcoin network for validating the transactions in Blockchain.
What’s in it for Miners?
As a bank clerk is rewarded financially for his duties performed in the banking system, a miner is rewarded with bitcoins for performing mining.
With every block, a mathematical problem is linked. Miners(mining nodes) constantly record and validate transactions in a block and then solves the mathematical problem in order to complete the block. The First miner to complete a block is rewarded with Bitcoins by the Bitcoin software program. Also, as soon as the mathematical problem is solved, the answer is shared with other miners and then it is validated by them. It’s like the mining nodes or miners are in a race to “Complete the current block” in order to win Bitcoins.
This payment of Bitcoins as a reward to the mining node by the Bitcoin program is the first transaction that is recorded in the next block.
A mathematical problem is linked with each block. Miners are constantly processing and recording transactions as part of the process of competing in a type of race. They race to ‘complete the current block’ in order to win Bitcoins. When a winning miner is able to solve it, the answer is shared with other mining nodes and it is validated. Every time a miner solves a problem, a newly minted 25 BTC (Bitcoin currency symbol) is awarded to the miner and enters circulation. The first record in that next block is a transaction that awards the winning miner (who completed the previous block) the newly minted BTC. It is the difficulty of the mathematical problem that regulates the creation rate of new Bitcoins since new blocks can’t be submitted to the network without the answer. Based on the fact that it takes around 10 minutes on average to solve the problem, approximately 25 new Bitcoins are minted every 10 minutes.