January 2, 2019 | Updated on: June 11, 2020

For many people, the blockchain is strongly associated with crypto-currencies. This is not surprising, because the first practical application of the new technology found in bitcoin. However, in fact, this is just a principle of recording and storing information, which is already use in other spheres.

What is blockchain?

What is blockchain

What is blockchain

Blockchain is an ever-growing database in which information is record in consecutive blocks and each next block is connect with the previous ones. Thus, to change the data in one block, you need to rewrite the entire chain.

Building blockchain projects reminds of the collection of puzzles. Like a puzzle, which has a unique shape of protuberances and notches, the block has its own beginning, completely suitable to the ending of the previous one. In turn, the previous block is join with standing in front of him, and so on to the first.

If the block is incorrect the system participants that storing a complete chain on their computers reject it. In addition, it is not necessary that all nodes are active all the time. Some of them may be temporarily inaccessible. If one of those nodes is return to the network, upon receipt of the newly created block, it will request all the previous ones. Thus, the reconciliation of the database to the current version occurs automatically. Therefore, if an attacker managed to replace data on one device, then it is easy to restore them, since all other users have the correct copies.

Bitcoin as one of the ways to implementing blockchain

How does Blockchain work

How does Blockchain work

The main advantage of the blockchain is security. In addition, most of all it is interested in the financial sector. Therefore, we will consider some of the principles of operation of the technology using bitcoin as an example. Crypto currency is gaining popularity for a number of reasons:

  • No binding to location.
    If you want to transfer part of your coins to someone, it doesn`t matter where he or she is, because the transfer is carried out anywhere in the world with Internet. You only have to wait a little for confirmation of the transaction (from 10 minutes). For comparison, in existing money transfer systems (for example, Western Union) the same procedure takes up to several days.

    Electronic money like Webmoney are transfer instantly but they are not so secure because the system is completely centralized. Therefore, in its work sometimes, failures occur payments are charge for commissions and not all countries with them work comfortably.;

  • Blockchain transactions are anonymous.
    Do not forget that traditional financial institutions need to provide their documents, which can be trivial at the right time, or the verification procedure (for online systems) has its difficulties.

    On the contrary, all manipulations with bitcoin occur anonymously and openly. Each member of the system is available information about all operations with the crypto currency, but it`s not clear who is carrying out the transfer. Of course, with a strong desire, you can trace the entire transaction chain, and go to the wallet owner. However, this is not always effective, and not easy.;

  • You can`t cancel an operation.
    Another advantage of crypto currency is the irreversibility of actions, that means that transfer sent to someone can`t be canceled. This completely excludes the option when the buyer transfers money to the seller, receives the goods, cancels the transfer and regains the money.;
  • Everyone is equal.
    The bitcoin network built on the equality of its participants: all transfers carry out between people directly without intermediaries. This is reminiscent of buying on the market for paper money. Nevertheless, bitcoin can`t be touched because it’s just a digital code.;
  • Security.
    In order for you, to be sure that the coins were transferred to the recipient, the power of all the miners in the system used to confirm the transaction.;
  • The number of bitcoins is limited.
    As is known, the Bitcoins are obtained in the process of mining. One block is mined in 10 minutes (the system limits the extraction speed increasing the complexity of the calculations), as a reward for its creation system give a certain amount of Bitcoins. It all started with 50 coins per block, but every four years this amount halved. As a result, the network was create in such a way that the number of coins is limited to 21 million. In addition, some of the coins in the wallet to which users have lost access are lost forever.;
  • Stability of work.
    The algorithm for constructing the chain was create in such a way that approximately every 10 minutes a new block is formed, containing a certain number of transactions. That`s why every 10 minutes a lot of transactions processed by the system.