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Home Academy Blockchain: what is it and how to use it?
Blockchain: what is it and how to use it?

Blockchain: what is it and how to use it?

Blockchain is the latest technology, the interest in which has grown along with the popularity of cryptocurrencies. Today it is widely discussed not only in the world of finance. People are already trying to use blockchain for storing and processing personal data and identification, in marketing and computer games. But what is blockchain?

 

Literally translated, a blockchain is a continuous chain of blocks. It contains all the transaction records. Unlike regular databases, you cannot change or delete these records, you can only add new ones.

 

If the grain has become smaller (frozen or eaten by rodents), then the accounting book stores information on how much grain there was before. It is not edited or deleted, but a new record appears that the grain has become smaller and where it disappeared.

 

Blockchain is also called the technology of distributed ledgers because the entire chain of transactions and the current list of owners are stored on their computers by many independent users. Even if one or more computers fail, the information will not be lost.

 

We have collected concepts that are often used when discussing blockchain. They will help you understand how distributed ledger technology works:

ASSETS

Something of value: for example, money, property, securities, information. Assets can exist in the real world, such as an apartment or a car, or they can be completely digital.

TRANSACTION

When people transfer assets to each other, it is called a transaction. And the main thing here is transaction accounting.

TRANSACTIONS ACCOUNTING

Transaction accounting is the recording of all transfers of an asset or rights to it from one person to another. And here a key question arises: how reliable and confidential is the mechanism for confirming the transfer of rights?

 

Operational risks are inevitable if specific organizations keep records and transaction records are kept in only one place. Blockchain technology mitigates such risks because it offers a distributed ledger-based accounting system.

DISTRIBUTED LEDGERS

In the blockchain, the owner register is not stored on the server of one organization. Its copies are simultaneously updated on many independent computers connected via the Internet.

 

As a result, in the blockchain, registries with data on asset owners cannot be faked. After all, this data is stored on the computers of a huge number of network participants. And so that the information for all users was absolutely complete and correct, the concept of consensus was introduced in the blockchain.

CONSENSUS

If some network participants turn off their computers and some of the transactions are not reflected or their records turn out to be incorrect, this will not affect the operation of the network. The consensus procedure, that is, reaching an agreement, will restore the correct information.

 

In real blockchain networks, several transactions occur over a certain period of time. And transaction records are included in one block.

BLOCK

A block is a distributed ledger record of multiple transactions. It reflects who transferred to whom and which amount of assets.

 

All blocks are connected in series into one serial chain.

CHAIN

The blockchain is inseparable since each block contains a link to the previous one. Blocks cannot be changed or deleted, only new ones can be added. Thus, you can always restore the history of transfers of a specific asset from hand to hand and find out its current owner.

 

New blocks are added to the chain by miners.

MINERS

Miners perform several functions in the blockchain:

 

  • store copies of the blockchain and thereby protect information from loss or forgery;
  • confirm transactions;
  • verifies transactions that have been registered by other miners.

 

As a rule, the number of miners is not limited. The more, the better – such a network is more reliable. Anyone can become a miner. To do this, they need specialized computers and software.

 

But what motivates miners to register new transactions? For maintaining the network, miners receive a reward.

REWARD

As a rule, these are commissions from all participants in transactions recorded in the block, and rewards from the network itself. The network generates this reward according to a specific algorithm.

 

Each block contains the time and result of all previous transactions. The algorithm is set up so that every 10 minutes a miner adds a new block to the chain and mines 5 new units of cryptocurrency.

WALLET

A wallet is a special identifier. It stores a record of the member’s account status (and this is not necessarily money, but any assets). The wallet also allows you to find out the entire history of transactions of a particular participant.

 

Most often, such wallets are anonymous – they do not allow you to find out exactly who accepts or sends assets from him.

 

There is also a danger in this. If the owner of the wallet, for example, forgets his number, then he will in no way be able to prove that the account belongs to him. Everything that was stored in the wallet will be lost forever.

 

E-wallet data and blockchain transactions are protected by encryption.

ENCRYPTION

How can you ensure that transaction and wallet status information is correct, complete and confidential? How to get access to your assets in anonymity? There is a whole science of how to solve these problems – cryptography. Encryption is one of its methods.

 

In blockchain networks, the buyer and seller of an asset confirm the transaction using cryptographic keys – special unique digital codes

 

It is almost impossible to guess the sequence of characters of the digital code of cryptographic keys. This makes blockchain technology one of the best for financial transactions. But at the same time, there have already been cases of hacking wallets, so it is better to connect them to the network only for the duration of transactions, and store them offline the rest of the time.