What is blockchain?

Blockchain is a type of distributed ledger technology (DLT) that allows information in the history of a digital asset to be kept immutable and transparent. This is achieved through decentralization and the use of cryptography for hashing.

Blockchain works in a similar way to working with documents in Google Docs. You create a document and share it with other users, giving them access to the original document. Users with access to the document can monitor edits and additions made to it in real time. The difference with blockchain is that the original content and data within it cannot be changed once they are written, significantly increasing security.

Of course, blockchain is a more complex technology than Google Docs, but there are definitely fundamental similarities.

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Features of blockchain

• Blockchain, from the English word "blockchain," originally refers to a chain of blocks. It is a digital ledger or database containing encrypted blocks of digital asset data, which are stored and linked together to form a chronological record.
• Digital assets are not copied or transferred; access to them is transferred to other users.
• Digital assets are decentralized, allowing information to be added online, providing access to many users simultaneously.
• Blockchain ledgers are transparent—any changes made are documented, and information about the changes is available to other users.

Why is blockchain important?

Blockchain is a promising technology that can reduce security risks and help eliminate fraud by ensuring transparency and user access to information.

The first application of blockchain technology was the Bitcoin system, which appeared in October 2008. Today, blockchain technology provides transparency in supply chains ranging from food products to the protection of medical data or innovative games.

How does blockchain work?

A blockchain is a digital database made up of encrypted, interconnected blocks that are created and secured using complex mathematical problems.

The three important components of a blockchain are a block, a node, and a miner.

What is a block?

Any chain is formed from several interconnected blocks. A block contains three main elements:

• Data contained in the block.
• A nonce is a "number used only once." It's a unique number in the blockchain—a 32-bit integer randomly generated when a block is formed. After this, the block header hash is generated.
• A hash in a blockchain is a 256-bit number permanently attached to a unique number.

When the first block in the chain is formed, a unique number creates a cryptographic hash. The information contained in the block is tied to the unique number and the hash, and they can change as the information in the block changes.

Who is a miner in blockchain?

Miners constantly create new blocks in the chain. This process is called mining. Each block in blockchain technology receives a nonce and a unique hash, and also contains a reference to the hash of the previous block in the chain. This makes block mining a complex process, especially in large, complex chains.

Miners use specialized software to solve complex mathematical problems related to finding a nonce for a block that will be accepted by the hash. Given that the nonce consists of only 32 bits and the hash is 256, there are approximately four billion different combinations of the nonce and the hash that must be processed until the desired nonce is found. If this happens, the miner is considered to have found the "golden nonce," and their block is added to the chain.

Any change made to any block at the beginning of the chain requires re-mining not only the modified block but also all subsequent blocks. This greatly complicates manipulation of blockchain technology. The constant search for unique golden numbers requires a significant amount of time and computing power.

If a block is considered mined, the changes are accepted by all nodes in the network, and the miner receives a financial reward. The primary purpose of blockchain technology is to enable security-conscious individuals to exchange valuable data protected from any unauthorized access.

What is decentralization?

The most important component of blockchain technology is decentralization. No single computer or company can own the entire network. There is a distributed ledger, which is connected to a specific chain via a node. A node in the blockchain can be any electronic device that stores copies of the chain and ensures its operation.

Each node contains its own copy of the blockchain, and the network must validate each newly mined block using a specific algorithm to ensure the entire chain is updated, verified, and authenticated. Given the blockchain's second characteristic—transparency—every transaction in the ledger is easily visible and verifiable. Each user is assigned a unique alphanumeric identification number, allowing them to track their transactions.

Application of blockchain technology

Blockchain is used for more than just financial transactions. Thanks to its transparent and secure operating principles, the technology is universally applicable to virtually any industry:

• cryptocurrency;
• cybersecurity;
• accounting;
• document flow;
• supply chain;
• energy;
• education;
• healthcare.

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