Introduced initially to disrupt the financial sector, the blockchain technology can transform various industries including supply chain, healthcare, agriculture, legal, intellectual property and much more. By enabling digital information to be distributed across the systems, but not copied made this technology a backbone of a new internet.
To understand what is blockchain and how it works and how can applications are built on top of it; you need to learn what is blockchain and what are its key concepts.
Fundamentals of Blockchain Development
The blockchain is defined as an incorruptible chain of blocks where every block includes data validated by nodes in the network.
In blockchain, you do not require a centralized authority or party to approve the data to be recorded. Preferably, the data is validated through consensus of all nodes within the network. Each block contains its hash value and that of the previous block, linking it with other blocks in the network. Hash acts like a unique fingerprint which ensures that data has not been tampered or altered.
Information once added to the blockchain cannot be deleted or modified. You need to add a new block for updating the information.
Before Bitcoin was introduced, we only knew about the centralized services. A centralized entity stores all the data and users have to interact with it solely to fetch information they want. For example, a bank is a centralized system where people store their money and to send money to someone; they need to make a transaction through the bank. But the centralized systems deal with a lot of issues and challenges including a single point of failure.
Unlike centralized systems, not a single entity stores the information in a decentralized system. Every participant in the network owns the data. A blockchain is a decentralized system where no centralized party has the authority to control the information exchange.
- Smart Contracts
Smart contracts are the foundation of blockchain-based applications. They execute only when specific conditions are met and are programmed to perform functions of the application. For example, a person can be paid out automatically when specific financial requirements are met with the use of blockchain technology.
Transparency is one of the most interesting concepts in blockchain technology. Let’s consider an example to understand how blockchain offers transparency.
Every time a person makes transactions and sends money to another user, his identity is hidden using cryptography. You cannot see “Alice sent 1ETH to Bob”. Rather, you will see it like “1bhsFLkBzzzMMYEmvwT2TbyCt7NZJ sent 1 ETH “.
While the person’s identity is kept secure, you can still find what all transactions has been made with their public address. This level of transparency offers enormous opportunities to various industries.
Consensus mechanisms are a decision-making process for a group of individuals. Individuals have to support the majority decision whether they like it or not. In the case of the blockchain, consensus algorithms do not always support the majority of votes, but it also agrees on one that benefits all.
Therefore, blockchain consensus algorithms bring fairness and equality to the digital world.
Following are some of the consensus algorithms used for blockchain development:
- Proof of Elapsed Time
- Byzantine Fault Toleranc
- Delegated Proof of Stake
Ensure that you have a good grasp of the blockchain key concepts before you proceed with the blockchain development for your business.