blockchain

Blockchain Basics: Your Gateway to Web3 Technology

blockchain

If you’ve been paying attention to the latest tech news or interacting with tech enthusiasts, chances are that you’ve probably come across the buzz about blockchain.

Blockchain is popularly known as the technology behind cryptocurrency and non-fungible tokens (NFTs). There have been frequent mentions of blockchain, especially on tech blogs, but only a few resources explain what they do.

The goal of this article is to break down the concept and also provide you with a high-level understanding of what a blockchain is and how it works. If you know little or nothing about blockchain technology, then this article is just for you.

Now let’s dive into it.

What is a Blockchain? 

Let’s paint a picture: Do you still remember the old bank ledger used in the past? That’s a bit like a blockchain.

A blockchain is similar to the old bank ledger, with the same function of keeping records and providing a system that tracks assets and transactions. But then, a blockchain is quite different from a traditional ledger in some ways:

  1. A blockchain operates digitally.
  2. Does not require human interference and
  3. Records are distributed and cannot be altered.

So, Why Blockchain?

Blockchain started as a revolutionary solution to the shortcomings of traditional ledger systems. All transactions in a traditional ledger system are based on trust, which is placed in the hands of whatever institution is handling your transactions.

Take for instance, your bank if you deposit at your bank, you are automatically trusting the words of your bank for the safety of your funds and transactions.

Blockchain, on the other hand, guarantees full control over your funds and provides transparency and tamper-proof records that can be publicly verified. In general, Blockchain technology is born out of the need for a system where trust isn’t in the hands of an individual or an organization. 

How Does Blockchain Work?

blockchain transaction

Blockchain owes its name to the way it stores records. What sets blockchain apart as a ledger technology is how it stores and provides access to records

A blockchain stores records of information in blocks which are linked together to form a chain. The blockchain expands as the number of transactions increases.

Bocks in a blockchain are responsible for capturing details of a transaction when initiated—time, sender, and receiver’s information. This data is then encrypted by a hash function (a unique identifier model that prevents the alteration of records). Once encrypted, the data is then passed down to the next block in the chain matching the transaction for validation.

When a transaction is validated and thus complete, copies are distributed to multiple computers interconnected to the blockchain network. These interconnected computers are what we refer to as nodes.

If it still sounds a bit technical to you, here is a step-by-step explanation of the entire process.

A Glimpse of a Blockchain Transaction

Imagine that you want to send money to your sibling in another country using blockchain.

Step 1: It starts with you initiating the transaction.

Step 2: A block captures the details of this transaction and encrypts the information using a hash (a method of security to avoid alteration). 

Step 3: The encrypted block passes its information to the next block, which tries to validate the transaction. This happens over and over until 5–10 blocks (depending on the blockchain) validate the transaction. 

Step 4: Upon completion, copies of the transaction are sent to multiple computers (Nodes) on the network for record-keeping.

I believe this provides a clearer explanation of how blockchain works. So, let’s look at the different types of blockchains. 

Types of Blockchains

There are three main types of blockchains, which are based on how they operate.

Private Blockchain: A private blockchain, just like the name suggests, requires permission from a central authority that determines what rights a member has on the network.

Public Blockchain: A public blockchain, on the other hand, is permissionless. Anyone, anywhere, can join the network. There is no hierarchy in the system, and all members have equal rights. 

Hybrid Blockchain: A hybrid blockchain combines the features of both private and public networks. An organization in control of a hybrid blockchain can set up permission requirements on the blockchain to enable it to control access to specific areas of the blockchain.

Where is Blockchain Used?

One of the most prominent uses of a blockchain is cryptocurrencies. Invariably, Bitcoin and cryptocurrencies made blockchains popular, but that is not the only use case for a blockchain. There are so many other sectors where the technology has proven to be helpful too. 

  1. Educational Sector: Many educational organizations are now issuing certificates in the form of NFTs, a technology made possible by blockchain. This certification prevents fraud in CVs, as they can be easily verified. 
  1. Real Estate: Blockchain technology is currently being explored in real estate for the issuance of certificates of ownership for their customers. It reduces rigorous paperwork in the process. 
  1. Financial sector: Blockchain has completely revolutionized the financial sector and has made financial services readily available and without restrictions. 
  1. Voting Process: Since records on blockchain can’t be altered, blockchain could facilitate the modern voting process by eliminating election fraud and boosting voter turnout. 

These are just a few examples of where blockchain is being used, the technology is almost limitless and can be explored in other sectors just think of it.

Examples of Blockchain

There are many examples of blockchains out there, let’s cite the two most popular examples.

Bitcoin: Bitcoin blockchain is the technology behind the most popular cryptocurrency, Bitcoin. The blockchain is designed to handle payment. 

Ethereum: Ethereum is a decentralized open-source blockchain that enables people to build applications that can run on a blockchain. Ethereum is designed for business use.

Benefits of Blockchain

  1. Accuracy: Blockchain limits the ability to alter records and less human interference, this makes records free from errors. 
  1. Security: Blockchain is designed to ensure tamper-proof records, and boost confidence in data integrity, particularly in finance. 
  1. Reduced Cost: Banks are known for attaching fees to every transaction, but blockchain cuts down the cost of transactions since there are no third parties involved.
  1.  Decentralization: Records on blockchains are not stored in central storage but rather on multiple computers on the network. Any tampering on any block does not affect the transaction records.
  1.  Swift Transaction: Blockchain transactions are faster, and transactions are not limited to weekdays.

Drawbacks of Blockchain

  1. High Cost of Technology: Even though blockchain saves you money as a user, the computational power used by millions of computers to validate transactions is usually large and costly. 
  1. Low Transaction Per Second: Blockchain processes transactions faster than the traditional system, however, it has a limit on the number of transactions it can handle per second. If there are multiple transactions, the network slows down.
  1. Illegal Activity: Blockchain is designed to protect privacy and promote anonymity. This has given people who indulge in illegal activities the leverage of not being traced.

Getting Started With Blockchain

To get started using blockchain, you need a wallet. A wallet is a software application that enables you to store, send, and receive cryptocurrencies. It also assigns you a unique address, serving as your identity on the blockchain. 

There are various types of wallets you can get, which include: desktop wallets, mobile wallets, hardware wallets, and web wallets. Each with its distinct features. Further information regarding blockchain wallets can be acquired through additional resources available here.

Setting Up a Wallet

To set up a wallet, you typically need to download the wallet software or app from a trusted provider. Once installed, you’ll have to set up and generate a unique private key, acting as your digital signature that grants you access. Keeping this key secure and backing it up is crucial to prevent loss. 

Once your wallet is set up, you can begin accessing blockchain services: sending and receiving cryptocurrencies, and exploring various decentralized applications (DApps) offering services ranging from finance to gaming.

Conclusion

As we wrap up our exploration of blockchain basics, it’s clear that blockchain technology holds transformative potential, with many possibilities still yet to be discovered. The potential of blockchain technology extends beyond the sectors we’ve mentioned in this article.

So, as someone just taking their first steps into blockchain, there is a need to dive deeper into exploring the technology. Consider reading more articles on blockchain. The Uniscope blog is a great start; there are several articles on this topic. Thank you for joining us on this insightful journey.

Author

  • Odera

    Odera is a Web3 writer who enjoys exploring the world of blockchain. With his focus on providing clarity, he excels at breaking down complex Web3 terminology and concepts into simpler and more understandable ideas.

Similar Posts

Leave a Reply

Your email address will not be published. Required fields are marked *