Blockchain is a common, unchangeable ledger that simplifies the procedure of keeping transactions and tracking assets in a business network. In other words, blockchains are decentralized structures and systems where every transaction made on the network is recorded. In central systems, all data is collected on a server, while in blockchains, the data is stored on all computers called nodes in the network. There is no hierarchy in the network, so each computer is of equal importance. The data is public and kept on all computers on the network. This allows a blockchain to be both secure and transparent. The article will present straightforward facts on the key points of blockchains.
How Does Blockchain Work?
Blockchains work as a digital ledger, as just mentioned. Blockchains are formed by connecting blocks sequentially. Each new block created contains the encrypted hash code of the previous block, called the hash. In this way, information is stored up to the first block, called the genesis block, in a blockchain.
In Which Fields, Can Blockchain Be Used?
Bitcoin, the first blockchain, enabled decentralized finance through money transfer. People could send money quickly and with a low transaction fee to a buyer anywhere in the world without an intermediary institution. With the Ethereum Blockchain, which emerged after Bitcoin, a completely different internet experience was provided. Smart contracts, like decentralized applications (dApps), entered our lives with this blockchain. With decentralized applications, we can safely use these applications without worrying about the privacy of our data, as in the Web 2.0 experience.
Advantages and Disadvantages of Blockchain
Blockchains have some advantages and disadvantages when considered as a whole.
Advantages of blockchain:
• They are stronger against attacks because of their deployed structure.
• They are decentralized, they do not act according to the decision of a single person or institution, there is a more democratic structure
• Since a piece of information on the blockchain is distributed to all nodes, the information contained here cannot be changed. Therefore, blockchains are transparent and non-manipulated.
• Money transfers and smart contracts can be signed with no third parties or organizations.
Disadvantages of blockchain:
• Although the inability to change data is the advantage of blockchains, sometimes it also causes negative consequences. A hard fork is usually used when a change to the code is required.
• Private key is essential for you to own the cryptocurrencies you own. If you lose your private key, you will lose all your assets in that blockchain.
• In particular, blockchains using the PoW consensus mechanism cause a serious amount of energy consumption. It has extremely negative effects on the environment.
What Is a Smart Contract?
Smart contracts, like traditional contracts, are agreements on an event between at least two parties in every field. What distinguishes smart contracts from traditional contracts is that they are made in a digital environment and stored on blockchains. Smart contracts are decentralized and highly reliable because they are stored on the blockchain. It also eliminates the need for third parties, so they are both faster and less costly. Who Invented Smart Contract Technology?
Nick Szabo first introduced smart contract technology in the early 1990s. In 2015, smart contracts emerged thanks to the Ethereum blockchain.
How Do Smart Contracts Work?
As with everything in the blockchain universe, smart contracts work with computer codes. The working logic of smart contracts can be defined as the realization of its task when a certain condition is met. It works based on the “if-then” principle for smart contracts. When the parties to the contract approve the transactions, they sign the contract cryptographically and this contract is added to the blockchain. Thus, it reaches all computers on the network.
What Is a Node on a Blockchain?
Each computer connected to the blockchain network and used to hold and distribute data on the network is called a node.
What Is a Full Node on Blockchain?
A node that verifies blocks in a blockchain and transmits this information to other blocks is called a full node. It contains the information of all blocks from the beginning of the blockchain in full nodes. This feature enables the decentralization of the blockchain.
What Is a Partial Node on Blockchain?
A partial node is a node where transactions within a certain period are kept.
What is P2P?
As we mentioned earlier in our article, blockchains allow disabling third parties. This is done with the peer-to-peer feature. The common abbreviation for peer-to-peer is P2P. With the peer-to-peer feature, data is only transmitted between two parties. In a central system, data is first transmitted to the main server and then reaches the receiver from that server. In P2P, data reaches the receiver directly from the sender. This is very important for the confidentiality of data. The data is not kept on any server and only the parties own this data content.
What is POW?
Each time a new block is created in a blockchain, these blocks must be added to the network. The computer to be added to the network is selected through the Proof of Work (PoW) consensus mechanism. A very complex mathematical problem needs to be solved here. The computer block that solves this very complex mathematical problem the fastest may add it to the network. The computers that may do this operation are called miners. Miners earn the relevant cryptocurrency as a reward for this transaction. This entire process is called Proof of Work. The high energy consumption of PoW has caused environmental concerns.
What Is the Hash Rate?
Hash rate is a term used in blockchains that uses the PoW consensus mechanism. The processing power of all computers in the related blockchain is expressed in terms of hash rate. It is mathematically represented in hash/second. As the number of people requesting mining on the blockchain increases, so does the processing power, thus the hash rate. The increase in the hash rate both means that mining becomes more difficult and means that the amount of energy spent for mining increases. One of the most important criticisms of PoW is its intense energy consumption. For this reason, environmentalists criticize PoW cryptocurrencies, especially Bitcoin, by looking at the hash rate. Hash rate is also very important for miners. With the hash rate, they calculate the profitability rate of the Money they will get from mining.
What is a Public Key?
A public key is an encrypted code that is clearly visible to other users on a blockchain network. Other users need a public key to send cryptocurrencies to your account. We can say that your username on the blockchain is this public key.
What is Private Key?
Private Key is the key required to receive and use the funds sent via the public key. Private Key is necessary for you to use your assets and send transaction transactions. If you lose your Private Key, you also lose ownership of your assets. The private key is the only factor that shows ownership of a cryptocurrency wallet. If you have lost access to your private key, you will also irreversibly lose access to that wallet.