Another concept that entered our lives with the revolutionary output of Bitcoin was Blockchain. Blockchain is a very simple concept and is the backbone of today’s crypto money. This technology, which is based on the back of the Bitcoin, is also adopted by the later subcoins. You can find the answer to the question of how does Blockchain works in our article.
What is Bitcoin?
Blockchain is simply a decentralized book of accounting. All transactions are saved in blocks on this notebook. Unlike the book used in the traditional financial system, the record of transactions is not kept by a single person or institution. This notebook is kept and validated simultaneously by all computers connected to the blockchain network. And it’s open to the public. All operations on the network can be viewed by anyone who wants. However, because transactions are made with digital wallet addresses, contact or location information is not included in this book. Thus, the confidentiality of those who make transactions is protected.
Operations on Blockchain are performed by P2P (Peer to Peer) protocol between the parties without the need for a third person or organization. These transactions are not under the central control of a firm or institution. Security is provided by the network via an auto control system. Each transaction is saved to the network with date and wallet information, and all computers on the network verify this process. Any changes are not performed without the approval of the whole network. Therefore, information such as the transfer amount or the recipient’s wallet address cannot be changed or interfered with by the malicious people.
It was originally created in 2008 by a person or group known as Satoshi Nakamoto. In the following year, it was put into operation as a book of accounting for Bitcoin transactions which is a digital currency. Thus, Bitcoin ensured the secure transfer of money transfers without the need for centralized management and supervision. Many projects inspired by Bitcoin began to take its place in the crypto money market quickly.
How does Blockchain work?
When you transfer funds to a wallet address, your transaction is saved to one of the blocks on the network and shared and verified by the whole network. This will ensure that your transaction will be realized. The transaction that is accumulated in the blocks in front of you will be processed after the mining operation. Detailed information about Bitcoin Mining can be found in our guide.
The process of encrypting is solved by using the necessary algorithms by the miners’ systems and sent to the other party. This algorithm is solved in the system and is not shown in a way that miners can observe or intervene. Therefore, the transactions you make over the blockchain are extremely safe. Blockchain allows the transfer to be made 24/7 as long as the network is open. There are no country restrictions as the transactions are carried out entirely through the user’s wallets on the internet.
When there is too much accumulation on the blocks, it can take a long time to process when the transfer traffic in the network increases significantly or when the miners’ block digging activity becomes difficult. Currently, Bitcoin transactions are carried out within 24 hours and the fastest is 1 hour. The main reason for this problem is that each block can record a certain amount of operation and the process in one block cannot be passed before completion. Developers continue to work to solve this problem.
The capacity of each block in the Bitcoin blockchain is 1 MB. Although this field is sufficient in the early stages of Bitcoin, it is very weak in the present day and causes the transfers to progress slowly. As a solution, Bitcoin Cash offers a faster transaction confirmation by increasing this capacity to 8 MB after the performed Hard Fork. Although this claim is valid at the moment, the same problem is inevitable in the future. The main issue that has been discussed today about Blockchain and which cannot be reached yet is this Scaling issue. You can find detailed information about the forklifts.
Blockchain usage areas
The answer is almost anything if we ask what Blockchain technology does. Nowadays, although it is known for its crypto money transfers, Blockchain enables all kinds of information, documents and data to be sent and stored anywhere, away from the third eye, in a safe and cost-effective manner.
From this point of view, the possibilities are endless. The companies have a great potential of blockchain technology in different areas of their own activities, governments tax and land registry registration systems, all kinds of commodity trading, international agreements, import and export, non-profit organizations, and many more.
Another important step in terms of Blockchain technology is the Smart Contracts that we often hear with Ethereum. Thanks to the smart contracts, the parties sign a contract with the digital signature on the blockchain and the transaction takes place when the terms of the contract are followed. If the parties do not comply with this agreement, the interests of the other party shall be protected by the blockchain. You can find detailed information about Ethereum from Ethereum.
For example, a smart contract to be made through a blockchain for a purchased apartment can be transferred to a very short period of time. Transaction security is ensured on both sides as the transaction will be published and verified on the whole network. If one of the parties gives up, the transaction is automatically canceled and the benefit of the buyer is returned by the blockchain. We can use the same example for domestic or international shopping.