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Blockchain Explained In Simple Terms

What Is Blockchain and How Does It Work

Today, everyone has heard of blockchain. It’s practically everywhere – cryptocurrencies, messaging apps, banking systems, and more. Even artwork is sold in the form of NFTs nowadays. Haven’t figured out what blockchain is or how it functions yet? Read this article to discover the features of blockchain technology and its applications.

Earier we wrote: Detailed Review of Binance Crypto Exchange – Registration, Security, Pros and Cons, App

Blockchain Technology In Simple Terms

Blockchain can be viewed as a ledger or a digital system for storing and transferring digital assets. This could be anything – money, stocks, game characters, artworks – anything you can imagine. Since blockchain is immutable, an entry in it can serve as proof of ownership.

Blockchain is a technology that encrypts information, converting it into a sequence of symbols. These sequences form blocks, which then combine into long chains. The system is decentralized, meaning that no block can be altered without the consensus of all participants in the system. Blockchain is something permanent and highly secure.

Due to this property, the technology was initially used for signing digital documents. Later, its application expanded. Enthusiasts figured out how to use it to transfer money between people without intermediaries. That’s how cryptocurrencies came to be, with Bitcoin being the first.

How Blockchain Works

Blockchain works as follows: every transaction is recorded in a block that is added to the overall chain. For instance, if you decide to transfer money, information about the amount and recipient is recorded as a block and added to the general chain, copies of which are held by all system participants. Now, no one can alter it, dispute ownership, or simply steal the money from the account.

Why are changes impossible? Because it would require altering it on all computers in the network – and there are millions of them. This feature is called decentralization. Imagine a bank where every client holds a copy of all transactions and payments. Such a system is highly resistant to changes and hacks.

How Blockchain Works

The way blocks are linked together is also noteworthy. Every new block contains the hash of the previous block. What is a hash? It’s encrypted transaction data in the form of a unique string of letters and numbers.

What does it look like? In Bitcoin, for instance, all transaction information is hashed using the SHA-256 algorithm. Any data is converted into a string of 64 hexadecimal characters, weighing 256 bits. This code looks something like this: f9b5885b36c8b7921df481af415e7b3b3ccdc02d6c1239b2a364e6d61458ab79.

The next block includes the complete information from the previous one, only encrypted. If you try to change one of the blocks, the hash of the next one won’t match, and the system won’t accept such changes. The same goes for attempts to add an extra block – it’s simply impossible.

Simple Explanation Of Blockchain Technology – Video

To better understand what blockchain is and how this technology works, watch this video:

Blockchain Technology Simple Explanation – YouTube Video

How Blockchain Technology Is Applied

The stability and immutability of blockchain immediately suggest its use in protecting digital assets. It’s extremely difficult to hack or forge, making files, agreements, and transactions highly secure from external malicious interference. Here are the most common sectors where blockchain is applied:

  • Cryptocurrencies. They are fully based on blockchain technology. Despite skepticism from many economists, cryptocurrencies are in demand and are gradually expanding their use.
  • Smart Contracts. Blockchain allows for the secure signing of contracts. A fascinating feature is that the document can be configured for a specific action and embedded in a smart device’s firmware. For example, access to a car can be blocked if its rental is not paid for.
  • Government Management. Some governments, like highly tech-forward Taiwan, rely on blockchain technology to protect critical secrets.
  • Data Protection. Banks, financial institutions, and all sectors that require thorough protection from hackers are slowly transitioning to blockchain. A good example is the Internet of Things. If a hacker breaches a server controlling smart home devices, they can gain access to it. This is why many companies store user data in a decentralized manner. Medical facilities are also gradually transferring their data there, as confidential information about patients requires special protection.
Blockchain Applications

Blockchain Technology Drawbacks

No technology today is completely invulnerable. Blockchain, despite its advantages, also has drawbacks:

  • 51% Attack. To add a new block to a blockchain, more than half of the participants must approve it. Imagine a hacker connecting hardware more powerful than the combined computing power of half the users. They can now create fake blocks. Such situations have occurred, but they are rare. Attackers need very powerful and expensive equipment. Theoretically, this attack threatens small networks.
  • Irreversible Transactions. The system does not allow for transaction reversals. If you accidentally send crypto to the wrong address, there’s no way to get the funds back.
  • Risk Of Losing Private Keys. A special key – a sequence of words – is used to protect the data. If it is forgotten or lost, access to the crypto wallet may be lost forever – there’s no other way to enter the blockchain.
  • Expensive Maintenance. Creating a fully functional blockchain requires powerful hardware and a lot of electricity.

Conclusion

Blockchain is a promising technology that allows for the secure storage and transfer of digital assets. It greatly expands the possibilities of signing agreements, licensing, proving ownership, and protecting data, but it has drawbacks that should be considered before using it.

Frequently Asked Questions About Blockchain

What Is The Difference Between Blockchain and Cryptocurrency?

Blockchain is the technology behind cryptocurrencies and more.

Where Can Blockchain Be Used Besides Cryptocurrency?

Blockchain is used for data protection, voting, licensing, and many other sectors beyond finance.

Why Is Blockchain Important?

Because it ensures maximum honesty and transparency in all operations, making fraud or forgery impossible.

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