How Does Blockchain Technology Work?

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What is the Blockchain Technology? It is an innovative technology that empowers people, groups and organizations to make the most of their scarce IT resources. The concept of the Blockchain has been around for quite a while, but until recently most of its applications were relegated to financial markets and banking. But recent times have seen Blockchains becoming popular in the field of software development. This is attributed to the fact that the cost and complexity of maintaining the existing traditional ledgers are rapidly being outsourced by many companies to developers working in the industry.

A Blockchain is an immaculate ledger to make the most of scarce IT resources. A ledger is also known as a distributed and mutable ledger which enables users to record transactions, identify asset ownership, transfer ownership, monitor asset transfers, trace past transactions and ensure accountability, integrity, security, privacy and trust in different forms of online transactions. A normal ledger is maintained to ensure that the sum of all cash flows recorded by every customer in the company is accurate and up-to-date. A Blockchain, on the other hand, maintains an atomic version of the entire ledger which can be obtained through the means of a protocol. This ledger system does not need a centralized administrator like a conventional ledger since it is maintained as a peer to peer application that connects multiple computers together.

A typical Blockchain consists of four basic elements namely, a ledger, network nodes or computers, software developers and users. The ledger is maintained by users who manage and update the contents of the ledger using their computer systems. The software developers create applications that run on the Blockchain’s main server and produce real-time blocks of data, which are then stored by the network nodes.

The blocks in the Blockchain are called transaction scripts. There are generally two kinds of transaction scripts: specific or universal. A specific transaction script contains a defined set of rules specifying which specific transaction has to be made and for how many specific times. Universal transaction scripts however allow for any number of transactions to be made within a single ledger block. In a general way though, each ledger has a fixed number of total transaction times.

Many people who are against the usage of this kind of technology often refer to it as the bitcoin without fees feature. This is actually a feature of the ledger itself though. A ledger cannot function properly without transactions being performed regularly. A normal peer-to-peer transaction would not be possible with the presence of a ledger because there would be no point of making payments unless the parties involved have agreed to do so in advance.

A special feature of the bitcoin network called the Paxos protocol enables nodes in the network to confirm transactions between the ledger users. Transactions are normally confirmed by the network nodes before they are added to the ledger. This ensures that only valid, authorized transactions are included in the ledger. This also prevents fraudulent transactions from taking place. As transactions are usually controlled by the users themselves, the ability of a ledger to prevent double-entry into the system is limited at best.

One disadvantage of using the bitcoin network is the difficulty in designing smart contracts that use proofs of scalability. Although a proof of scalability can be programmed into the transaction itself, it is still difficult to achieve. The reason for this is that all transactions are recorded in the same block, hence there is no guarantee that a new block contains a proof of scalability that is larger than the previous block. A solution to this problem is that the user creates a new block that is longer than the existing one but does not attempt to change the existing block. As the new block is added to the chain, it will eventually attempt to surpass the current longest block in order to outpace the oldest block on the chain.

Blockchain technologies like the bitcoin are still a long way from replacing traditional ledgers such as tabulation and paper checkbooks. The first generation of these systems had problems creating a proof-of-work because of the difficulty in programming a sufficiently complex algorithm. This led to a lot of re-engineering of the existing system to make it more efficient. However, with more improvements expected in coming years, these problems may be overcome. For now, the focus lies more on the ease of execution and the ability to facilitate real-time transaction processing.

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