Blockchain is a technology that works like a ledger, which records every information transaction, in order to make an operation completely reliable and immutable.
It is the backbone of cryptocurrencies, most popularly Bitcoin, and today it already finds application in different sectors of the market, such as smart contracts.
To simplify, we can relate the blockchain to a normal database, but its records are linked by all servers and computers in the participating network.
Blockchain, therefore, allows digital information to be distributed across multiple nodes in this network.
Furthermore, this information, once submitted to the blockchain, is guarded by cryptography — a way to encrypt the information, make it unique and, of course, protect it.
How about a quick practical example?
Every transaction carried out on the blockchain produces a series of encrypted codes that are registered in one of its blocks.
This record is unique and contains information such as who sent and who received it (in the case of Bitcoin, it is a code that identifies the wallets and not an accurate description of those involved), the time the transaction was made, and where it is registered on the blockchain.
Every 10 minutes a new block of transactions is formed, and it connects to the previous block.
The blockchain network is made up of “miners”, who verify and record transactions on the block.
This logic is determined by the blockchain protocol, which ensures that the processes behind the system work in the best possible way, guaranteeing information security.
The Origin of the Blockchain
The official origin of blockchain dates back to 2008, from the academic article “Bitcoin: a peer-to-peer electronic financial system”. It is authored by Satoshi Nakamoto, although, as far as we know, that person does not exist.
More likely, it’s a pseudonym for someone or a group of people.
In Nakamoto’s paper, the blockchain is described as a network that records the time of each transaction, placing it in a continuous chain in the hash (a type of cryptography).
Thus, there is no way to change an existing record without first changing the entire network. Therefore, each record (transaction) is unique — and therefore immutable.
How does the blockchain system work?
The main purpose of the blockchain is to enable digital information to be distributed and recorded, but not altered or edited. In this way, it functions similarly to a ledger.
However, consider that, as a ledger, the blockchain is both digital and distributed (transaction records are stored across an entire network of computers) and also immutable (a recorded transaction cannot be changed).
Every transaction performed on the blockchain is recorded in the system, in something called a “block”. This block supports X amount of records.
The recorded information is mutually dependent (remember the continuous chain concept?) and linked to the previous block.
In general, a block supports just over 500 Bitcoin transactions, for example.
Each time a block is completed, another one is created, carrying with it information from the previous block.
As the number of blocks grows, we have a “chain of blocks” — that is, a blockchain!
How does the blockchain wallet work?
A blockchain wallet is basically a digital wallet, which serves to keep cryptocurrencies (such as Bitcoin, and Ethereum, among others), as well as use them for transactions.
In general, the blockchain wallet also allows a person to store other digital assets that are on the blockchain, such as NFTs, documents, etc.
This portfolio is created using the platforms themselves for this purpose.
To access it, the steps are practically the same as those anyone takes to access their digital account on Internet Banking, using login and password (and other conference steps, such as 2-step authentication or facial recognition).
Some people, concerned about the security of their digital assets, also use what is known as a “cold wallet”.
This practice refers to storing the keys used to encrypt your digital assets on external hardware, such as a pen drive, for example (but not limited to that).
What is the importance of blockchain?
The great importance of blockchain lies in the fact that it is a decentralized way of keeping secure and immutable records. In other words, we are talking about a solution that enhances user privacy and the security behind transactions.
Today, we are used to using a decentralized platform to share information, the internet itself.
However, when it comes to the transfer of values, assets, and private information, it is usually necessary to go back to the old solutions, such as banks and government agencies.
Even innovative digital payment solutions, such as PayPal itself, for example, require integration with your bank account or your credit card.
In this way, the blockchain for business makes it possible to eliminate the intermediary (as in the case of value transfer, the bank), fulfilling three essential functions:
Recording transactions, establishing identity, and establishing contracts — the latter commonly done by banks.
What are the types of blockchain networks?
Currently, there are different types of blockchain networks being used and explored in the market. More commonly, there are two different types: public and private networks.
In the case of public blockchain networks, anyone can participate. This is the case of blockchains behind cryptocurrencies like Bitcoin or ethereal.
In this type, anyone can observe where the transactions were made — which reduces its adherence to corporate uses, for example.
Private blockchain networks are the opposite: controlled by a company or group of users, who determine who can and cannot participate, whether there is a need for a consensus protocol and whether the ledger will be shared.
Another less common type is the consortium blockchain, where the private model remains, but the network as a whole is supported by a group of companies.