We’ve all heard about blockchain like we’ve all heard about the NFL odds; something that seems simple but is very difficult to be an expert in. However, what more do we know about it?
Come with us as we take a deeper look into blockchain and look at things such as the authentication process and many more.
What is Blockchain?
Before we take a deeper look into a blockchain, we need to first understand what blockchain is. Blockchain is a system used to record transactions within cryptocurrency.
A block within the blockchain keeps a record of recently approved transactions adding a block to the blockchain. The system is recorded and maintained across several computers. All of this is linked to a peer-to-peer network.
It’s important to note that you cannot change, hack or cheat the blockchain system. Blockchain technology will duplicate and distribute the information within the network.
Blockchain: How Transactions Get Approved
It’s important to note that there are three types of blockchain: public blockchain, private or permission blockchain, and consortium or federated blockchain. Today, we’ll look at how transactions get approved through a public blockchain.
Multiple stages happen before a transaction is approved and can land on the blockchain. The transaction needs to be authenticated and then later authorized. Below we look at the different stages a transaction goes through before becoming a block in the blockchain.
The first stage of a transaction getting added to a blockchain is requesting and authenticating. Immediately after this, a block within the blockchain will be created and sent to every node within the network.
A node is a participant within the network. The node will then validate the transaction and receive a cryptocurrency reward for their work. This is referred to as proof-of-work.
From there, the block will be added to an already existing blockchain. An update will be made across the network about the new blockchain being added. Then, the transaction is approved.
Blockchain authentication protects the passwords and data that make up the user’s identity. Blockchain authentication is meant to keep the user and all of his/her information safe.
It’s important to remember that each user will have a private and public key. The user only knows the private key, while everyone can see the public key. Both keys are used to create a digital identity.
This digital identity is used to authenticate the user through what can be called a digital signature. This digital signature can be used to unlock the transaction that they want to happen.
A transaction still needs to be authorized the same way that transactions need to be authorized by a bank. Thankfully, within a blockchain, authorization happens once the transaction has been approved within the network. It needs to be authorized by the network to become a part of the blockchain.
When looking at a public blockchain, the transaction can only be added to the chain through a consensus. This means that most of the nodes involved in the transaction must agree that the transaction is valid. Nodes are compensated for their work of approving transactions through a process called proof-of-work.
What is Proof-Of-Work?
Proof-of-work refers to virtual miners who approve transactions using computers and a set of mathematical skills. The virtual miners are meant to solve certain mathematical problems to add transactions to the ledger.
Simply placed virtual miners work the same way someone at the bank would; however, their role is more complex and focuses more on solving mathematical problems.
It’s important to note that a trial and error method can only solve the mathematical problems in question. Mining also requires a lot of computer power, meaning that it consumes a lot of power.
There is more to cryptocurrency and blockchain than what meets the eye. One is meant to do a lot of research and ensure they understand what they are getting themselves into before venturing into cryptocurrency.