Understand once and for all how blockchain works

Few people know how blockchain works, and there are doubts and questions that need to be answered. To begin with, it emerged in 2008 as the original source code for Bitcoin. Since virtual currencies do not depend on banks to circulate, it was necessary to develop a way to record all transactions securely.

Many believe that it will revolutionize not only the financial sector — which has more experience with the system and already has studies for improvement — but also the areas of health, law, e-commerce, etc. Thanks to the possibility of working in an environment where tampering with any information or process is practically impossible.

Even though it is seen as a path of no return, the use of blockchain still causes strangeness among entrepreneurs and requires some improvements to grow. Many of the difficulties encountered in accepting the new technology are due to the confusion when it comes to understanding how it works and what its advantages are.

After all, what is blockchain?

Before we can clearly define how blockchain works, we must understand what blockchain is. Technically, it can be defined as a computer engineering system initially developed for the bitcoin market, but which is already used by other systems in various areas . As the name suggests, it is made up of a chain of blocks, each of which contains a series of information locked using highly secure cryptography.

Imagine a common database that is modified by just one company. The system is all centralized and everything depends on validation from just one point, such as the gym system, for example.

How does blockchain work?

Blockchain works differently. It is a database in which several companies can write and add information. At the same time, everything needs to be validated by the chain and not by just one point, decentralizing the entire process.

Still confused? Let’s imagine that you want to open a new account at another bank. To do so, you need to bring the documents, receipts and go through the same bureaucracy again. Now imagine if all this information and data were recorded in a common database for everyone.

Any change or creation of a new account would be recorded on all computers in the system and any company would be a witness to the actions taken. Providing greater veracity and reliability for updates, transactions, changes, cancellations, etc. An immutable, impenetrable and unquestionable chain.

What are the advantages of this technology?

Using blockchain brings many advantages, including a complete history of all processes. It’s as if we could access all stages of a house’s construction, from the first drawing to the handover of the keys. And from there, we can know all the extra expenses, what was saved or which brands were used.

Transactions made on blockchain do not require a supervisory authority, the software itself allows for a public and controlled structure. Any user can access the network to make inquiries about a trade or transaction.

If any changes are made after the information is in the blocks, the other systems will automatically reject it. Since the computers are interconnected and talk to each other, every new transaction needs to be approved by the majority. This minimizes errors, lack of information and speeds up the buying and selling processes, for example. Thanks to its engineering, human interaction is practically eliminated.

Why is blockchain secure?

It can be considered one of the safest forms of transactions. The chain is made up of blocks and each of them receives two codes, known as hash. One is responsible for identifying the information that is within that block. The other will recognize and be recognized by all previous blocks.

This way, any attempt to modify any point of a given block will generate a different hash than expected and it will be denied by the nodes — the name given to the complete history of the blockchain, which is generated by the system’s computers.

Anyone can run a full node, and the more PCs connected, the greater the security of the network. This is because the only way to make any type of change is to own more than half of the nodes on the network. Only then will the hacker be able to modify whatever he wants without being noticed.

This tactic is called a “51% attack,” but it is practically impossible to carry out. As we have seen throughout the text, there are several machines connected and generating records. For a malicious person to invade and tamper with whatever they want, they will need to identify most of the systems on the network and take them over.

What are the challenges of this new technology?

One of the challenges is to take this engineering outside the world of bitcoins. There are already some solutions being designed and developed based on blockchain. But to reach new business areas, it is necessary to improve the standardization of use and facilitate access for individuals and companies .

The idea is to use the network to spread information to other banks about a device that has been lost, stolen, hacked or otherwise illegally compromised. Based on the data collected, all banks can be informed if the device has ever had a security problem.

Mindset is also a challenge that must be faced in order to consolidate the network in other businesses. There are still many entrepreneurs who find it safer and easier to maintain a centralized database. It will be necessary to invest in staff training and education to change thinking.

We can see that blockchain is one of the safest ways to make transactions and store information. Especially for companies that have extremely confidential data, but it still needs to prove itself to continue gaining ground for adoption by the general public.

For companies, technology will prevent fraud, reduce the need for a human intermediary to make records, make processes more reliable and optimize storage costs.

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