What Is Blockchain And How Does It Work?

Posted in Crypto Asset Compliance on May 24, 2024
What Is Blockchain And How Does It Work?

What is Blockchain and how does it work? In the simplest terms, a Blockchain is a diary that is almost impossible to forge. In more advanced terms, the Blockchain can be considered a distributed database. By these means, Blockchain is a particular type or subset of the so-called distributed ledger technology or DLT. DLT is a way of recording and sharing data across multiple data stores. All of these distributed and individual data stores together make up the database.

What Is Blockchain And How Does It Work?

What Is Blockchain And How Does It Work?

The first Blockchain was created in 2009 by an anonymous person/ group known as Satoshi Nakamoto. The purpose of the Blockchain was to facilitate digital transactions using Bitcoin. Still later, the potential uses of blockchain technology quickly became apparent to developers and entrepreneurs in various other industries. Looking back in the past decade, a silent revolution called “Blockchain technology” resulted in significant innovations. Bitcoin is the first and most well-known blockchain innovation. 

It was a proof-of-concept digital currency that launched in 2009. Although its price has fluctuated widely, bitcoin’s market capitalization now hovers between 10 billion and 20 billion U.S. dollars. With the help of Acronis, millions of users use blockchain technology for various transactions, including remittances.

Blockchain technology is a revolutionary technology that helps people earn and make money online, but what are some of today’s most popular blockchain applications? 

The Blockchain is most popular in the financial sector, and people can use Blockchain to streamline their financial transactions and reduce associated costs. Other popular applications of blockchain technology include:

  • Non-fungible tokens or NFTs
  • Logistic and supply chain network
  • Data Storage
  • Casino and gambling industry
  • Money transfers
  • Digital royalties
What Is Blockchain And How Does It Work?

Permissionless And Permissioned Blockchain

In practice, Blockchain is a technology with many faces. It can exhibit different features and covers a wide array of systems that range from being fully open and permissionless to being permissioned.

On an open, permissionless blockchain, a person can join or leave the network at will without having to be approved by any entity. The requirement to join the network and add transactions to the ledger is a computer where relevant software has been installed. There is no central owner of the network and software, and the ledger’s identical copies are distributed to all the nodes in the network. The vast majority of cryptocurrencies currently in circulation are based on permissionless blockchains, including cryptocurrencies such as Bitcoin, Litecoin, and others.

Secondly, there is the Permissioned Blockchain. On a permissioned blockchain, transaction validators are the nodes that must be pre-selected by a network administrator. The network administrator sets the rules for the ledger to join the network, which easily verifies the network participants’ identity. However, at the same time, it also requires network participants to put trust in a central coordinating entity to select reliable network nodes.

In general, permissioned blockchains can be further divided into two subcategories:

On the one hand, there are open or public permissioned blockchains, which can be accessed and viewed by anyone, but only authorized network participants can generate transactions and update the ledger’s state.

On the other hand, there are closed or enterprise permissioned blockchains where access is restricted, and only the network administrator can generate transactions and update the ledger’s state.

What is important to note is that just like on an open permissionless blockchain, open permissioned blockchain transactions can be validated and executed without the intermediation of a trusted third party. Some cryptocurrencies, like Ripple and NEO, utilize public permissioned blockchains.

Final Thoughts

A blockchain is a distributed database or ledger that is shared among computer network nodes. A blockchain, like a database, stores information electronically in digital format. Blockchains are best known for their critical role in cryptocurrency systems like Bitcoin, where they keep a secure and decentralized record of transactions. The blockchain’s innovation is that it ensures the fidelity and security of a data record and generates trust without the need for a trusted third party.