What Is Blockchain? Understanding Blockchain Technology For Newbies (2022)
What is Blockchain? Things to know about Blockchain technology: history of formation, properties, how it works, Blockchain applications.
In this article, idolmeta.net will provide you with all the knowledge you need to know about Blockchain technology, including:
- What is Blockchain? Who is the creator of the Blockchain?
- Nature and how Blockchain Technology works.
- Blockchain algorithms and applications in practice.
- Blockchain technology versions.
- Investment opportunity with Blockchain.
Let’s find out together!
What is Blockchain?
Blockchain is a decentralized database that stores information in blocks that are linked together by encryption and expanded over time to form a chain.
Each block in the Blockchain will be linked to the previous block, containing information about the time the block was created along with a timecode and transaction data.
Simply put, Blockchain can be seen as an electronic ledger distributed on many different computers, storing all transaction information and ensuring that information cannot be changed in any way any.
All information stored on that ledger will be verified by a series of computers connected in a common network.
No machine will be able to change, overwrite or delete the data in that ledger.
The idea of the birth of Blockchain technology
Here, I take an example of a currency transaction between two people A & B.
Limitations in ancient transactions
In the past, when trading currencies, borrowing money, repaying debts, people would make an agreement (between A and B) and record that transaction information in a book to store it – called a ledger.
Then give this book to a reputable intermediary C to hold. And of course this person C must be trusted by both A and B.
Here we will see the participating components as follows:
- A & B are 2 people involved in a transaction with each other.
- C is a reputable person who acts as an intermediary.
- Ledger (paper).
In this case, we will face some limitations:
- The number pad is usually made of paper and it is susceptible to termites and breaks down over time. That is, the information stored on it does not last forever. Example: A borrows money from B for 12 years. But 10 years later the notebook has rotted and the information on it can no longer be viewed. At that time, A denied that he did not borrow money from B, and B also did not have a notebook to bring as proof that A borrowed his money.
- Information can be changed or destroyed: someone steals a notebook and they can delete a line of information, or tear off a page, then the information is no longer as complete as it was in the beginning. again. That is, information can be changed.
- Existence of a third intermediary: That book is held by a reputable third intermediary. And not everyone can easily find a third person to confirm. And at the same time, the other two traders must completely trust this middleman.
Limitations in transactions through the banking system
Until the society develops, we have a banking system to replace the third intermediary C above. And the paper ledger was replaced by the bank’s computer system.
Advantages of the banking system:
- Usually the government, the state stands out to ensure the interests of traders.
- Information stored in a computer system is stable over time, without fear of being “rotted” over time.
However, transactions through the banking system still have some problems such as:
Risk of data being threatened: Because the bank server contains a lot of important information, it is always the target of many bad guys. Data can still be stolen or altered.
- Transaction fee: The fee when users make transfers to each other is also an issue for transactions.
- There still exists an intermediary third party, which is the bank: The user’s transaction information is held by the bank. And they can exploit, or sell this information to 3rd parties. In addition, centralized management systems, banks or the state can request to freeze users’ accounts. And this is the case that no user wants.
Understanding those risks and limitations, Blockchain was born to solve the above problems.
Who Created Blockchain?
Blockchain was created by Satoshi Nakamoto in 2008.
A year later, Blockchain was realized as a core part of Bitcoin, marking the birth of Blockchain technology and the world’s first cryptocurrency, and laying the foundation for the development of Bitcoin. of the Crypto market.
6 properties of Blockchain technology
Since Blockchain was born to solve the limitations in the normal transaction system, therefore, Blockchain will have the following properties:
- Decentralized: Blockchain operates independently according to computer algorithms, completely not controlled by any one organization. Therefore, blockchain avoids risks from 3rd parties.
- Distributed: Blocks contain the same data but are distributed in many different places. So unfortunately, if one place is lost or damaged, the data is still on the Blockchain.
- Immutable: Once the data has been written into the block of the blockchain, it cannot be changed or modified, because of the characteristics of the consensus algorithm and the hash code (detailed below). .
- Confidentiality: Only the holder of the Private Key (private key) can access the data inside the Blockchain.
- Transparency: The transactions in the blockchain are recorded and everyone can check these transactions. Based on that, we can check and retrieve the transaction history. One can even decentralize to allow others to access part of the information on the Blockchain.
- Smart contract integration: Based on which the terms written in the smart contract will be executed when the previous conditions are satisfied, no one can prevent or cancel it.
Reference: What is a Smart Contract? How smart contracts work
Blockchain mechanism of action
The answer is due to the structure of each block inside the Blockchain and the special working mechanism of the Blockchain. I will detail it right below!
Structure of a Blockchain
Blockchain as its name implies, consists of Block and Chain. Specifically:
- Its structure consists of many blocks (Block).
- These blocks link to each other, the following block links to the previous block to form a chain (Chain).
We have blockchain or Blockchain.
How Blockchain Technology Works
First, your transaction information will be recorded on the system to create a record.
Then, your records are validated as valid by the computers in the system (called nodes or nodes) according to the consensus algorithm on the Blockchain.
- The record shows you selling 3 Bitcoins ⇒ The system confirms that you have 3 bitcoins in your wallet ⇒ Then the record goes into effect.
- If you only have 1 Bitcoin ⇒ The system determines that your wallet does not have enough Bitcoins to make the transaction ⇒ Then the record is invalid.
Next, your valuable authenticated record, along with a series of verified records from other traders, will be grouped into a block.
Finally, the newly created block (Block) will be added to the chain (Chain) by connecting the Previous Hash of the block to be added with the hash of the previous block and forming a Blockchain.
The first block since there is no block before it, its Hash is string zero. And it is called the primordial block or Genesis Block.
Structure of each Block (Block)
Each block consists of 3 components: Data (Data), Hash Code (Hash) and Hash code of the previous block.
- Data: Your verified data records are protected by an encryption algorithm depending on the blockchain.
- Hash: Hash of Block. This is a sequence of characters and numbers that are randomly generated and are not identical. It specifically represents that block and is encrypted using a cryptographic algorithm. The hash is used to detect changes in blocks.
- Previous Hash: The hash of the previous block. It is used to let adjacent blocks know which block is first, which block is next, and connect to each other.
Learn more: What is Hashrate? The Importance of Hash Codes in Blockchain
What is Blockchain Algorithm?
Blockchain consensus algorithm is the agreement to verify that the information in the record is correct by the majority of nodes in the network and allows transaction information to be recorded in the Blockchain.
If there is a change of a block in the network. This data is compared with the data of other blocks. If there is a difference, it will not allow that data to be written inside the Blockchain. That’s how Blockchain is designed to resist data change.
Example: The case if there is a change on 1 block. Here, I assume a hacker attacks and changes information on block A. At that time:
- The hash of block A is changed.
- The system will compare that hash with the previous block hash and detect the difference.
- Thus, the hacker must change the hash of the block before A. The system again detects the error in block A-1. The hacker must keep changing the hash of block A-2.
- So to change the transaction, the hacker has to change all the blocks because of the consensus mechanism.
Popular Blockchain Algorithms
Here are some popular Blockchain algorithms today:
1. Proof of Work (PoW):
- Proof of Work is proof of work. In this consensus mechanism, miners will use computer power to solve problems that generate hashes. Once solved, they will gain the right to validate transactions and create new blocks in the blockchain.
- This is the first consensus mechanism and is attached to Bitcoin (BTC), Ethereum (ETH),…
2. Proof of Stake (PoS):
- Proof of Stake is proof of stake. This consensus mechanism will not have miners like PoW, instead participants validating transactions will have to stake large amounts of coins to gain the right to validate transactions and create blocks. Therefore, PoS does not require the investment of many expensive miners.
- Some projects using this mechanism: Cosmos (ATOM), Binance Coin (BNB), Ontology (ONT),…
3. Delegated Proof of Stake (DPoS):
- Delegated Proof of Stake is a delegated proof of stake. Instead of staking to validate transactions like PoS, token holders vote for a select group to perform the role of validating transactions.
- DPoS helps to ensure honesty and fairness by implementing continuous voting activities and also continuously shuffling in the system, to ensure that the people selected are honest and accountable.
- Some projects using this mechanism are: Bitshares (BTS), EOS (EOS), LISK (LSK), ICON (ICX), Cybermiles (CMT),…
4. Byzantine Fault Tolerance (BFT):
- Byzantine Fault Tolerance is an anti-fraud consensus algorithm on the Blockchain. This algorithm allows verifiers to manage each state of a chain, while also sharing messages with another chain, for accurate transaction records and assurance of fidelity.
- Some projects using the BFT algorithm are: NEO (NEO), Ripple (XPR), Stellar (XLM),…
5. Proof of Authority (PoA):
- Proof of Authority is a consensus algorithm based on reputation. Block validators will not be based on the number of coins they hold, but will be based on their own reputation. Therefore, PoA blockchains are secured by arbitrarily chosen validators as trusted entities.
- Some typical projects using BFT algorithm are: MakerDAO (xDAI), ZINC (ZINC),…
6. Proof of Weight (PoWeight):
- Proof of Weight is a base consensus algorithm that follows the Algorand consensus algorithm.
- Its idea is similar to PoS, which is also based on the number of tokens held in the network, which will be equivalent to the percentage of probability of creating the next block, the calculation mechanism of the PoWeight system with some other values used. .
- Some typical projects using PoWeight algorithm are: Algorand (ALGO), Filecoin (FIL),…
7. Proof of History (PoH):
- Proof of History is a consensus algorithm that verifies the order and timing between transactions. This mechanism is built to solve the problem of timing in decentralized networks where the same timeline is not available.
- Typical projects using PoH algorithm are: Solana (SOL),…
8. Proof of Reputation (PoR):
- Proof of Reputation is a consensus mechanism that relies on the reputation of the participating parties to keep the network secure. A party participating in validating the block must be reputable enough, so that if they intentionally cheat, their reputation will be affected.
- This is a relatively abstract concept because most companies participating in the system if cheating will affect their reputation, large companies will suffer more.
- Some typical projects using PoR algorithm are: GoChain Coin (GO),…
Some typical projects using PoR algorithm are: GoChain Coin (GO),…
With the above characteristics, we can now apply Blockchain in many different fields such as:
Application in production
When Blockchain is applied to production, Blockchain will replace smart devices to provide effective management rights, including: tracking the product creation process, managing transaction information, product quality, and shipping. and deliver it to end-users,… to dramatically increase the productivity of supply chain management processes.
For consumers, they can trace back the history of the product’s formation and transportation, to check whether the product is genuine or not, thereby avoiding counterfeit products. , fake goods on the market.
Blockchain application in e-commerce
The biggest problems in the field of e-commerce are security, supply chain management and the process of transporting goods to consumers, creating many barriers between consumers and manufacturers.
However, Blockchain has helped solve that problem with smart contracts, creating conditions for parties to sign easily, saving costs by eliminating intermediaries when linking with businesses. multinational industry.
Applications of Blockchain in Health
Health is a fairly sensitive field to data, as the data always fluctuates in a tightly controlled range.
When applying Blockchain in healthcare, all authorized parties can access the same exact and verified information in seconds.
Patients have control of their data at all times and can grant access to others on request, reducing the risk of abuse and theft.
Blockchain in Education
Blockchain application in education helps to store data about each individual’s transcript, training process, teaching experience & history, thereby avoiding fraud when applying for scholarships and promotions. , or make false statements about education or work experience.
In addition, with the nature of smart contracts, Blockchain also allows automatic enforcement of the terms of the training regulations and handling of violations, etc.
Blockchain applications in agriculture
Currently, the issue of origin and quality is at the forefront of the agricultural sector. The application of Blockchain in agriculture with a distributed ledger system will help retailers and consumers store transaction information, the flow of products from the place of production to retailers and consumers. end use.
Besides, the data during production and sales is also stored and updated continuously in Blockchain such as quality management, financial management, price management, etc. This helps to increase transparency. transparency of products and create trust of consumers
Blockchain Application in Banking & Payment
As I mentioned at the beginning of the article, the biggest disadvantage of banking transactions is the risk of data being threatened, transaction fees, and the existence of a third intermediary. Security and smart contracts of Blockchain. will help bypass the 3rd intermediaries and limit security risks for customers.
People can access and transfer coins to each other anywhere in the world and with relatively fast speeds and low costs. This helps people in countries that do not have access to the banking system to transact and transfer money to each other.
In addition, Blockchain is also applied in many other fields such as: IoT – Internet of Things, Decentralized Storage, Charity, Entertainment, etc. You can learn more below:
Learn: Applications of Blockchain technology
Blockchain technology versions
Blockchain technology goes through 4 stages as shown below:
Blockchain Technology 1.0 – Currency
This is the first version of blockchain technology. Thanks to the application of decentralized distributed ledger technology (Distributed Ledger Technology), transactions taking place on Blockchain are processed quickly and transparently.
A typical example for Blockchain version 1.0 is Bitcoin, the world’s first cryptocurrency and laid the foundation for the development of the Crypto market.
Blockchain 2.0 Technology – Smart Contracts
This is the 2nd version of blockchain technology. With a smart contract (or Smart Contract), transactions on the Blockchain will greatly reduce the costs of authentication, anti-fraud, and operation, and at the same time increase transparency.
This version completely removes the emotional or ethical factors often encountered when working with people, a typical example is Ethereum.
Blockchain technology 3.0 – Decentralized application
Decentralized applications (DApps – Decentralized Applications) are independently deployed software, not on a single server, but distributed in a distributed manner on decentralized repositories, and can be written in any language.
Most of Dapp’s source code runs on peer-to-peer networks, which is the opposite of traditional applications and only runs on a single centralized system.
Blockchain 4.0 technology – Applying it in practice
Blockchain 4.0 technology is the latest version of Blockchain today. This version will apply all the applications from sessions 1 to 3 to the actual production business process. I will talk in more detail about the applications of Blockchain 4.0 technology in life below.
What is Blockchain Wallet?
Blockchain Wallet is an online wallet for storing cryptocurrencies (crypto) developed by software development company based in Luxembourg. You can register and use the wallet at: www.blockchain.com/wallet
- Simple interface and colors, easy to see, easy to use.
- High security when allowing users to hold their own Private Key (private key).
- High reputation.
- The page load time when used on the web is quite long, it takes about 2-3 seconds to fully display after logging in.
- Support not many coins.
Investment opportunity with Blockchain
2021 is the explosion of a lot of blockchains. If from 2020 and earlier, users only heard about Ethereum mainly, in 2021 there are many potential names such as Solana, Terra, Near, Binance Smart Chain, etc.
The characteristics of these blockchains mainly focus on 3 parts: transaction fees, transaction speed, and security.
Since these blockchains were born after Ethereum, the limitations of Ethereum such as high transaction fees, poor scalability are all solved.
Therefore, investing in the current blockchain is quite prominent with investing in the coin of the blockchain itself, then DeFi.
For those of you who are not clear about what DeFi is, DeFi stands for Decentralized Finance or decentralized finance, this is considered an open financial platform in which institutions, markets or financial instruments The main system is managed decentralized and not through any 3rd party intermediaries.
DeFi in this article can be understood as an ecosystem of blockchain. If that ecosystem goes up, then like the saying “the water is on the boat”, almost all dApps and Protocols on it will develop. So the investment can be based on which blockchain trends are and will develop.
For example, Polygon in January-February had a huge growth, along with AMM QuickSwap that has a QUICK token growth of up to ~x1,000 times, if calculated from the bottom.
So you can understand what Blockchain is and all the most necessary knowledge and potential of blockchain technology, now you can confidently learn more information related to crypto assets. that you have, are and are about to invest.