- The components of blockchain
- How blockchain technology works
- Security guarantees
- Blockchain for everyone: how cryptocurrencies work
- What about Russia?
Blockchain is an innovative technology that is used by cryptocurrencies such as Bitcoin. It is based on the principle of decentralization and ensures transparent and reliable transactions. To understand how blockchain works, it is necessary to understand its main components.
The components of blockchain
The main blockchain components are blocks, hash functions and chains of blocks.
A block is a data set that contains information about transactions and a unique cryptographic hash of the previous block.
A hash function processes a data set and converts it into a unique fixed-length output. If even a single character of the record is amended, its hash will also change, allowing any data changes to be detected.
A chain of blocks is a sequence of blocks linked to each other. Each block contains a reference to the previous block, which ensures data integrity. If changes are made to any element of the chain, all subsequent elements will also change, as the hash of the previous block is invalidated and should be replaced by a new hash.
How blockchain technology works
The process of adding new blocks and confirming transactions on the blockchain begins with generating a new block. When a user submits a transaction, it is added to the memory pool — a pool of unconfirmed transactions. This process, along with the confirmation of transactions on the blockchain, is called mining.
Mining refers to solving a complex mathematical problem using the processing power of computers. When a miner finds a solution, a new block is generated and added to the chain. The miner receives a reward for this work in crypto. To solve the problem, miners can use specialized computers or powerful computing power.
However, in order to add a new block to the chain, the miner must confirm its legitimacy in a validation process, which includes verifying that all transactions in the block are correct and confirming the hash of the previous block. If all verifications are successful, the new block is added to the chain and becomes part of the blockchain, and all network participants receive an updated version of the blockchain.
Security guarantees
Having analyzed how blockchain works we have also demonstrated that one of blockchain’s key features is its security. Since each block is linked to the previous block, changing the information in one record will require changing all subsequent blocks. Moreover, the hash protects the data from changes, making it impossible to tamper with the entire system. This ensures reliable and secure data storage.
All transactions on the blockchain are open for inspection, and it is impossible to delete or modify past transactions without changing the entire blockchain. This makes blockchain perfect for working with financial transactions, contracts, and other types of information that require high reliability and security.
Blockchain for everyone: how cryptocurrencies work
A conversation about blockchain would not be complete without discussing cryptocurrencies — after all, they exist thanks to blockchain. In fact, crypto is a record in the blocks that appears in the process of mining. Virtual money is information about the reward that a miner receives for spending their resources.
Now we understand how the blockchain of Bitcoin and other currencies works. Each transaction is a record of one person transferring their assets to another. It is amazing that the value of crypto is based on the demand for it. The more users a blockchain has, the higher the value of the cryptocurrency.
Some cryptocurrencies exist only within their own blockchain, and some have transcended those limitations. For example, the answer to the question “What is the blockchain of USDT?” is very simple. It is a second-level token that does not belong to any blockchain, operating on the blockchains of other cryptocurrencies.
What about Russia
In Russia, the blockchain technology got a boost due to sanctions. Blockchain has been used in Russia since 2016, and these have been mostly private developments. However, they are becoming more and more important. For example, Web3 Tech launched two major projects in 2023:
- A platform for cross-border payments in crypto, digital financial assets, and fiat money;
- “Confident” — a functional blockchain platform for building government and corporate information systems in a distributed and trusted environment.
There has been talk of launching Russia’s first cryptocurrency for a long time. The website of the Central Bank of Russia features a detailed description of Russia’s virtual money and the concept of its implementation.
This description makes it clear which blockchain is the basis for the digital ruble. Since it will be issued by the Central Bank of Russia, the blockchain network also belongs to this organization. However, the digital ruble is by no means a cryptocurrency. Crypto is characterized by a decentralized nature, while a national currency is issued by the state.
Conclusion
Having examined the principles of blockchain operation, we see that it is an innovative technology that allows information to be recorded and stored in a secure and transparent manner. The basic components of blockchain — blocks, hash functions and a chain of blocks — ensure the safety and security of this technology.
The process of adding new blocks and validating transactions on the blockchain requires miners to participate and conduct verifications. Thanks to these features, blockchain has become the basis for crypto and has found many applications.
