Before we look into Understanding Blockchain Technology, lets just recollect the basics of any financial transaction, be it with individuals or institutions, which requires a certain amount of trust to be exercised by the stakeholders. For example, in banking, an individual or a societal body would select a particular banking or financial entity as the custodian of their financial assets only if the concerned institution lives up to their trust. Even in a digitized world, trust still remains an important factor while selecting a body to deal with financial assets, be it for an individual or for the institution.
It is probably this trust factor, as one of the primary reasons, that has led to the advent of Blockchain Technology. Going back, about a decade and a half ago, when the financial depression engulfed the world starting with the bankruptcy of the Lehman Brothers, it was the trust that was hit the most.
Understanding Blockchain Technology: Blocks and Chains
In Understanding Blockchain Technology, let’s go back to the early years of this millennium. Blockchains and Bitcoins actually made their way into the world for the very first time during the same period. It was actually the loss of faith in the banking system in terms of financial security that had been shaken due to the sudden and unexpected upheaval. Blockchains utilized this particular loophole to make its presence felt in the financial world.
To start with Understanding Blockchain Technology, let us segregate the term Blockchain into 2 equal parts namely, Block and Chain. Understanding the idea of the 2 separate terms to begin with can help us understand how these 2 words work in tandem to create the most trustworthy technology currently available.
The Block: In the pursuit of Understanding Blockchain Technology, a block consists of a series of transactional entries for the ones that have already been processed. The entries in the block is however, time-bound as the network can create only one block at a time.
The Chain: A chain can be defined in this case as a series of blocks put together that forms the entire chain (of the blocks). How exactly are these blocks linked? To answer this question, the objective of linking the blocks are executed by a cryptographic algorithm. Every block is linked to its predecessor using the cryptographic algorithm, which is a time-consuming exercise. However, once the algorithm is executed fully and the linking is done, the block gets locked at its place and will be difficult to make changes with respect to its position or its contents.
Coming back to the information of the transactions stored in the blocks, the information is held inside the block in a ledger. It is very much similar to real life accounting ledger, and this ledger stores all the information pertaining to the transaction details stored it like, transaction details, current balance and bank account information. Whenever a transaction is carried out, the ledger in the block is updated with these details and stored for future reference.
In the next session of the Cryptocurrency tutorial after Understanding Blockchain Technology, we look into the more complex part of the Blockchains and how the entire process is executed over a distributed network.
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