In the context of this blog post, now we deal with the topic “Blockchain”. The Blockchain or Distributed Ledger Technology (DLT) called, very simply expressed, is nothing more than a database. In itself, this is not very innovative and not necessarily something new, you might think – but it’s not that simple.
What is a blockchain?
Blockchains are, as the name suggests, a chain of blocks. These blocks build on each other and contain information. The type and nature of the information depends on the respective blockchain. If a blockchain is used on the crypto market, the blocks contain, among other things, information with transaction data. To better understand the process in a blockchain, one can imagine the following scenario:
Why is blockchain relevant for the future?
In addition to the crypto market, the blockchain is also used in healthcare and insurance, marketing, but also in politics and many other areas. Here, the information contained can thus also include, for example, medical records, insurance data, election votes and many more. The core statement here is that the blockchain is particularly suitable for important and, above all, confidential information and can be used to carry out transactions. The reason is primarily due to the so-called “hashing”, which makes the Blockchain so secure. “Hashing” describes a process in which data is translated by algorithms into a fixed form, the hash. The result of hashing precludes the hash from being traced back to its source data, so the data is encrypted for anyone to see.
How does a blockchain work?
The blockchain is a new technology that makes it possible to store, process, share and manage any kind of information in a publicly viewable database. In a continuous list of records (called blocks), these are concatenated by means of cryptography. The beginning of any blockchain is made by the creation block or called the genesis block. All blocks build on each other and complement each other. The hash is determined from the hashes of the previous blocks. If the information in one of the blocks is thus changed, the hash changes automatically and the entire block chain would thus be interrupted. The following blocks would then have to be recalculated. To calculate and generate blocks, a network of active members is first required, who not only process their transactions via the network, but also provide their computing power to operate the electronic database. Various methods can be used to validate and generate new blocks. The most important of these are Proof of Work and Proof of Stake.
In Proof of Work (POW), the process is also called “mining”, where hash algorithms are split and solved. This refers to complicated cryptographic tasks that must be solved. The solution of these tasks is marked by a new block. The solution path in this case is the transaction, which can be carried out without errors. The so-called minors are rewarded for the solution. The disadvantage of this method is that an extremely large amount of computing power is required, which results in enormously high costs.
Unlike POW, the Proof of Stake – method (POS) counts, among other things, the ratio of coins used to the total amount. According to this criterion, the blockchain selects a validator that is allowed to generate a block. This is done more or less like a lottery, but without stakes, because the coins do not leave their wallets in that case. This method requires much less computing power than the proof of work method and requires an active community. In contrast to the POW, the cryptocurrency is created with POS, no longer through complicated computing tasks. This is referred to as staking. In this process, each participating user validates the transaction with his share, which is processed via the blockchain. The reward is paid out for the coins held.
Conclusion: Blockchain will play an important role in many areas in the future. The prerequisite for this is the further development of the technology and the methods as well as the education of potential stakeholders. Progressive implementation in companies and public authorities will only be possible when there is understanding and the topic is within everyone’s grasp. I hope that I have been able to make a small contribution to clarification in this post.