Newsletter Insights

Your Weekly Dose of Diverse Insights

Blockchain Explained: What is blockchain

Aug 14, 2021 | Newsletter Posts

In simple terms, the blockchain is similar to a large database: it stores, transmits, and updates information of all kinds.

Each time the database is updated, the new changes are shared simultaneously between several individuals who have access. Each participant then has access to a copy of this database, as well as to all the history it contains. Its architecture is decentralized, meaning it is not hosted by a single server, but operates in “peer-to-peer” mode, from user to user.

The blockchain evolves autonomously, without a control body: users are authorized to modify this database at any time (add information, verify a transaction, etc.), only after having been previously identified by a cryptographic system.

The blockchain is made up of 3 key elements:

Blocks: blocks are defined as groupings of transactions. More or less important depending on the amount of data they contain, they are distinguished from each other by an identifier, a unique code called a “hash”.
Nodes: these are computers connected to the blockchain. Each of them hosts a copy of the database. This copy is downloaded automatically when connecting to the network and contains all the exchanges between users.
Miners: they are responsible for checking whether the new blocks created correspond to security standards. They have an essential role within the blockchain, since they guarantee the authenticity of the blocks, and therefore of the entire chain.

Why Blockchain?

Before the advent of blockchain, doing an online transaction relied on two parties and an intermediary. Take the case of online shopping: a user wants to buy a product. He makes the payment on the commercial site in question. He is obliged to go through his bank to be able to carry out this action. The entire validity of the transaction depends on this control body and its agreement. He is also the one who keeps track of transactions on his side.

The blockchain now allows users to share information without an intermediary (bank, insurer, government, etc.). The goal? By virtue of its shared and transparent nature, blockchain technology tends to restore the confidence of individuals where it may have been shaken.

Blockchain Technology is used in 3 ways

Transfer assets
Track an asset or a product.
Automatically execute transactions (called “smart contracts”).

How does the blockchain work?

When a transaction is issued, it is immediately pooled with other operations released at the same time: the latter are grouped into a block. Once created, this block must be checked.

For validation, the blockchain does not call on external authority, and this is its strength: it is the users themselves (miners) who are responsible for guaranteeing the authenticity and security of the blocks. This process of analysis is called mining. It involves using calculations and algorithms, in certifying, or not, a new block.

The verification is extremely fast (from a few minutes to a few seconds), even instantaneous. The block is added to the chain, locked to the previous block, and becomes accessible to all users of the registry. Each additional block reinforces the verification of the previous block, and therefore of the entire blockchain. The transaction is then received by the other party.

This process guarantees real security: in the event of a cyber-attack, more than half of the nodes must be hacked simultaneously to penetrate the ecosystem. An almost impossible feat, especially since this hacking attempt would be detected by the nodes very quickly.

Blockchain Data Meets 3 Main Characteristics. 

Chronological: transactions are integrated one after the other over time.
Immutable: information cannot be deleted. Once the transaction is certified, it is indelibly recorded in the history.
Tamper-proof: it is impossible to modify a transaction after its integration into the blockchain. In the event of an error, a second transaction reversing the first should appear. Both will then be visible.

The Advantages of the Blockchain Technology

Traceability: within the chain, no information can be deleted. Each node in the network has a full copy of the blockchain ledger. It is therefore a stable system ensuring data traceability, in which it is complicated, if not impossible, to conceal the slightest action. A fraudulent financial transaction would, in fact, be immediately detected.
Security: Although it is, as stated above, completely transparent, the blockchain system remains inviolable. As cybersecurity is a major issue, this characteristic is one of the main advantages of blockchain.
Efficiency: the blockchain being managed by the users themselves, can operate 24 hours a day. Without an intermediary, transaction times are greatly reduced compared to traditional bodies (banks, government, etc.). The validation of a block, in most cases, is instantaneous. The absence of an intermediary also reduces costs (financial costs, control costs) and possible errors, such as duplicates.

In short: faster, more secure, and transparent transactions for users. 

Conclusion 

Blockchain is a recent technology that presents significant advantages: security, reliability, transparency, productivity, and efficiency. It’s more than a simple technological innovation, it responds above all to a lack of confidence on the part of consumers towards traditional and large institutions and companies.

It promises many developments in the years to come, as much in the economic and political as social fields –and it’s here to stay.

References