Blockchain is a technique of storing data in such a way that it is difficult or impossible to modify, hack, or cheat this system. A blockchain is a digitalized record of transactions replicated and shared across the blockchain's complete network of computer systems. Each block in the chain contains several transactions, and each time a new transaction takes place on the blockchain, proof of that transaction is added to the record of each participant. Distributed Ledger Technology (DLT) is a decentralized database that is administered by multiple individuals.
Blockchain is a distributed ledger technology in which transactions are recorded using a hash. Hash is an immutable cryptographic signature. This implies that if a single block in the blockchain is changed, it will be instantly clear that the blockchain has been tampered with. Hackers will have to update every block in the chain across every distributed version of the chain if they intend to corrupt a blockchain system.
Cryptocurrencies like Bitcoin and Ethereum are constantly growing as new blocks are added to their blockchain, increasing the ledger's security considerably.
Mark Tencaten of NGS Group mentions that before a transaction can be added to a blockchain, it must go through many important stages. They are cryptographic key authentication, proof of work using authorization, mining, and the more recent usage of proof of stake protocols in blockchain networks.
Authentication
According to Mark Tencaten, the original blockchain was created to function without a central authority (i.e., no bank or regulator can decide who can transact), but the transactions still need to be authenticated. Cryptographic keys are used to authenticate the transactions. It is a string of data (similar to a password) that identifies a participant and grants access to their crypto account or wallet of value on the network. Each member has a public key and a private key that is visible to all the users. Using these keys together generates a secure digital identity that can authenticate users via digital signatures and is used to unlock transactions.
Authorization
After the participants agree on the transaction, Mark Tencaten explains that it should be validated before it can be added to a block in the blockchain. The decision to add a transaction to a chain on a public blockchain is decided by consent. This means that the transaction should be accepted by the majority of nodes (or devices connected to the network). The users who own the machines in the system are rewarded for validating transactions. This procedure is termed "proof of work."
Proof of Work
To attach a block to the chain, Proof of Work requires the users who own the computer devices in the network to solve a challenging mathematical problem. Mining is the process of finding the solution, and 'miners' are usually rewarded for their work in mining cryptocurrency. However, mining is a difficult task. The mathematical question can only be completed through the trial and error method, with a 1 in 5.9 trillion chance of succeeding. It demands a significant amount of computational power, which consumes a significant amount of energy. This means that the benefits of mining usually surpass the cost of the processors and the electricity used to power them because a computer system would take years to solve the mathematical problem.
Miners frequently pool their resources through firms that aggregate a big group of miners to achieve economies of scale. The earnings and rewards offered by the blockchain system are then shared among these miners.
As more computers join the blockchain to solve the mathematical problem, the difficulty becomes more challenging, and the network grows bigger, presumably dispersing the chain further and making it very difficult to destroy or hack. However, now mining power is becoming confined to the control of a few mining pools in practice. These massive corporations have the computing and electrical resources that are required to run and construct a blockchain system based on Proof of Work certification.
To address this problem of high costs, Mark Tencaten planned to expand and relocate the mining center offshore to a tax-free commercial zone, where the price of electricity was significantly lower than in Australia.
Proof of Stake
Later blockchain systems started using "Proof of Stake" validation consensus procedures, in which members should have a stake in the blockchain (usually by owning some cryptocurrency) to be eligible to select, validate, and verify the transactions. Since no mining is required, this saves a significant amount of computational power. Furthermore, blockchain technology has evolved to include "Smart Contracts," which execute transactions automatically when specific criteria are satisfied.
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