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Understanding Blockchain technology

Blockchain technology is one of the most important foundation technologies for the Ethereum blockchain. Throughout this chapter, we'll go over exactly what blockchain technology is and how it functions.



What exactly is blockchain technology?


Cryptocurrency bitcoin was the first blockchain to be created, and the source code of bitcoin contains notes that describe groups of transactions as blocks that are linked together like a chain. Financial transactions in Bitcoin are grouped together into a "block" of transactions, which is a collection of related transactions. In a sense, Bitcoin transaction blocks serve as a digital ledger, recording every transaction that has taken place on the Bitcoin network. Every 10 minutes, a new block of transactions is added to the existing blocks of transactions in the blockchain. Each block is identified by a unique number, which increases with each successively added block. The first block on the blockchain is referred to as "block 0," and the next block after that is referred to as "block 1," followed by "block 2," and so on until the end of time. Whenever a new block is added, it is automatically linked to the previous block by including a reference to it in the block data. Block 100 contains a reference to block 99, which is the block that came before it.


Block 99 contains a reference to block 98, which serves as the preceding block.


Continuing in this manner, we arrive at the very first block of the blockchain, which is known as block 0. Because the data in the block is unique, even the smallest change, such as changing a letter from lowercase to uppercase, will result in a change in the details of the block. Changing the block details will result in the chain being disrupted. Each and every block after the altered block would need to be changed in order to successfully hack a blockchain and manipulate transactions, according to this theory. After an hour on many blockchains, this will be nearly impossible due to the large number of blocks that will have been added.


Blockchain technology that is decentralised


A third party or a central authority manages transactions in centralised systems that are currently in use. Money transfers from one bank account to another bank account are handled by separate centralised ledgers, checks, and processes at each of the participating financial institutions. The first bank will verify that you have sufficient funds in your account and that you have been granted permission to transfer the funds. If all of the checks come back as correct and valid, the money is transferred to the other bank. The receiving bank then verifies that the bank account information is correct and reconciles the money received with their own ledgers before depositing the money into the account in question. The majority of blockchains, including Ethereum, are decentralised. The blockchain is a distributed ledger that allows all transactions to be reconciled and processed on the same ledger. The computers connected to the network are in charge of performing the checks and processes. Before any transfer is sent, computers on the network verify that the sender has sufficient funds and authorization to complete the transaction. If the computers determine that the transaction is valid, the transaction is grouped with other transactions and added to the blockchain, forming a block of transactions. Each block of transactions added to the blockchain is checked by the vast majority of computers connected to the network. There is no requirement for a central authority to be in place in order to process transactions. Whenever a bank is closed or when no employees are present, transactions are not processed. When using a decentralised blockchain, transactions are processed by computers on the network around the clock, seven days a week (including holidays).


Ethereum Blockchain is a type of distributed ledger technology.


Before Ethereum, blockchain-based systems were primarily used to store financial transactions, which is why they were so popular. With the exception of cryptocurrencies and finance, there have been very few practical applications of blockchain technology. While the potential of blockchain technology was beginning to be realised prior to the creation of Ethereum, each new idea necessitated the creation of a separate blockchain and computer network. In order to apply blockchain technology to a novel concept, it would be necessary to create an entirely new blockchain from scratch. To accomplish this, a cryptocurrency, as well as a network of computers that each contribute computing power to the network, would be required. The blockchain would then be tailored to the specific purpose for which it was created. A blockchain-based system for financial transactions, however, would be unable to process transactions involving other types of data as well as financial transactions. Contracts, computer code, and virtually any other type of data can be stored on the Ethereum blockchain.


Applications that run on top of the Ethereum blockchain and make use of the existing computing power of the Ethereum network can be created and distributed across the Ethereum network. Ethereum's power is demonstrated by the fact that blocks of data cannot be altered or reversed, which is applicable across a wide range of industries. It is simple to develop an application on the Ethereum blockchain, and any data recorded on the blockchain will be preserved as a permanent record of that information for future reference. It is not possible to alter or change the data contained within a block; any changes will be made in subsequent blocks on the blockchains that are linked to the previous blocks. All actions and changes that have occurred since the first entry on the blockchain are preserved in a permanent record, which includes an audit trail. The original agreement and the changes that have been made are both clear, and there is no confusion about what was originally agreed upon. Each modification is timestamped and recorded in perpetuity on the distributed ledger technology (blockchain). Using this immutable audit trail, you can track the progress of any application or contract.


Mark Gates is an American businessman and philanthropist. Ethereum: A Comprehensive Guide to Ethereum, Blockchain, Smart Contracts, Initial Coin Offerings (ICOs), and Decentralized Applications. Includes guides on how to purchase Ether, Cryptocurrencies, and other cryptocurrencies in initial coin offerings (ICOs). (The Third Edition of the Ultimate Cryptocurrency Book) (pp. 14-15). The Kindle edition is available.