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What is Blockchain Technology and How Does It Work?

Table of Contents

What Is Blockchain Technology?

Why is Blockchain Popular?

How Does Blockchain Technology Work?

Types of Blockchain

The Process of Transaction

Over the past few years, you have consistently heard the term ‘blockchain technology,’ probably regarding cryptocurrencies, like Bitcoin. In fact, you may be asking yourself, “what is blockchain technology?” It seems like blockchain is a platitude but in a hypothetical sense, as there is no real meaning that the layman can understand easily. It is imperative to answer “what is blockchain technology, “including the technology that is used, how it works, and how it’s becoming vital in the digital world.As blockchain continues to grow and become more user-friendly, the onus is on you to learn this evolving technology to prepare for the future. If you are new to blockchain, then this is the right platform to gain solid foundational knowledge. In this article, you learn how to answer the question, “what is blockchain technology?” You’ll also learn how blockchain works, why it’s important, and how you can use this field to advance your career.

What Is Blockchain Technology?

Blockchain technology is a structure that stores transactional records, also known as the block, of the public in several databases, known as the “chain,” in a network connected through peer-to-peer nodes. Typically, this storage is referred to as a ‘digital ledger.’

Every transaction in this ledger is authorized by the digital signature of the owner, which authenticates the transaction and safeguards it from tampering. Hence, the information the digital ledger contains is highly secure.

In simpler words, the digital ledger is like a Google spreadsheet shared among numerous computers in a network, in which, the transactional records are stored based on actual purchases. The fascinating angle is that anybody can see the data, but they can’t corrupt it.

Why is Blockchain Popular?

Suppose you are transferring money to your family or friends from your bank account. You would log in to online banking and transfer the amount to the other person using their account number. When the transaction is done, your bank updates the transaction records. It seems simple enough, right? There is a potential issue which most of us neglect.

These types of transactions can be tampered with very quickly. People who are familiar with this truth are often wary of using these types of transactions, hence the evolution of third-party payment applications in recent years. But this vulnerability is essentially why Blockchain technology was created.

Technologically, Blockchain is a digital ledger that is gaining a lot of attention and traction recently. But why has it become so popular? Well, let’s dig into it to fathom the whole concept.

Record keeping of data and transactions are a crucial part of the business. Often, this information is handled in house or passed through a third party like brokers, bankers, or lawyers increasing time, cost, or both on the business. Fortunately, Blockchain avoids this long process and facilitates the faster movement of the transaction, thereby saving both time and money.

Most people assume Blockchain and Bitcoin can be used interchangeably, but in reality, that’s not the case. Blockchain is the technology capable of supporting various applications related to multiple industries like finance, supply chain, manufacturing, etc., but Bitcoin is a currency that relies on Blockchain technology to be secure.

Blockchain is an emerging technology with many advantages in an increasingly digital world:

Highly Secure It uses a digital signature feature to conduct fraud-free transactions making it impossible to corrupt or change the data of an individual by the other users without a specific digital signature.
Decentralized System Conventionally, you need the approval of regulatory authorities like a government or bank for transactions; however, with Blockchain, transactions are done with the mutual consensus of users resulting in smoother, safer, and faster transactions.
Automation Capability It is programmable and can generate systematic actions, events, and payments automatically when the criteria of the trigger are met.

How Does Blockchain Technology Work?

In recent years, you may have noticed many businesses around the world integrating Blockchain technology. But how exactly does Blockchain technology work? Is this a significant change or a simple addition? The advancements of Blockchain are still young and have the potential to be revolutionary in the future; so, let’s begin demystifying this technology.

Blockchain is a combination of three leading technologies:

Cryptographic keys
A peer-to-peer network containing a shared ledger
A means of computing, to store the transactions and records of the network

Cryptography keys consist of two keys – Private key and Public key. These keys help in performing successful transactions between two parties. Each individual has these two keys, which they use to produce a secure digital identity reference. This secured identity is the most important aspect of Blockchain technology. In the world of cryptocurrency, this identity is referred to as ‘digital signature’ and is used for authorizing and controlling transactions.

The digital signature is merged with the peer-to-peer network; a large number of individuals who act as authorities use the digital signature in order to reach a consensus on transactions, among other issues. When they authorize a deal, it is certified by a mathematical verification, which results in a successful secured transaction between the two network-connected parties. So to sum it up, Blockchain users employ cryptography keys to perform different types of digital interactions over the peer-to-peer network.

Types of Blockchain

There are four different types of blockchains. They are as follows:

Private Blockchain Networks

Private blockchains operate on closed networks, and tend to work well for private businesses and organizations. Companies can use private blockchains to customize their accessibility and authorization preferences, parameters to the network, and other important security options. Only one authority manages a private blockchain network.

Public Blockchain Networks

Bitcoin and other cryptocurrencies originated from public blockchains, which also played a role in popularizing distributed ledger technology (DLT). Public blockchains also help to eliminate certain challenges and issues, such as security flaws and centralization. With DLT, data is distributed across a peer-to-peer network, rather than being stored in a single location. A consensus algorithm is used for verifying information authenticity; proof of stake (PoS) and proof of work (PoW) are two frequently used consensus methods.

Permissioned Blockchain Networks

Also sometimes known as hybrid blockchains, permissioned blockchain networks are private blockchains that allow special access for authorized individuals. Organizations typically set up these types of blockchains to get the best of both worlds, and it enables better structure when assigning who can participate in the network and in what transactions.

Consortium Blockchains

Similar to permissioned blockchains, consortium blockchains have both public and private components, except multiple organizations will manage a single consortium blockchain network. Although these types of blockchains can initially be more complex to set up, once they are running, they can offer better security. Additionally, consortium blockchains are optimal for collaboration with multiple organizations.

The Process of Transaction

One of Blockchain technology’s cardinal features is the way it confirms and authorizes transactions. For example, if two individuals wish to perform a transaction with a private and public key, respectively, the first person party would attach the transaction information to the public key of the second party. This total information is gathered together into a block.

The block contains a digital signature, a timestamp, and other important, relevant information. It should be noted that the block doesn’t include the identities of the individuals involved in the transaction. This block is then transmitted across all of the network’s nodes, and when the right individual uses his private key and matches it with the block, the transaction gets completed successfully.

In addition to conducting financial transactions, the Blockchain can also hold transactional details of properties, vehicles, etc.

Here’s a use case that illustrates how Blockchain works:

Hash Encryptions blockchain technology uses hashing and encryption to secure the data, relying mainly on the SHA256 algorithm to secure the information. The address of the sender (public key), the receiver’s address, the transaction, and his/her private key details are transmitted via the SHA256 algorithm. The encrypted information, called hash encryption, is transmitted across the world and added to the blockchain after verification. The SHA256 algorithm makes it almost impossible to hack the hash encryption, which in turn simplifies the sender and receiver’s authentication.
Proof of Work In a Blockchain, each block consists of 4 main headers.
- Previous Hash: This hash address locates the previous block.
- Transaction Details: Details of all the transactions that need to occur.
- Nonce: An arbitrary number given in cryptography to differentiate the block’s hash address.
- Hash Address of the Block: All of the above (i.e., preceding hash, transaction details, and nonce) are transmitted through a hashing algorithm. This gives an output containing a 256-bit, 64 character length value, which is called the unique ‘hash address.’ Consequently, it is referred to as the hash of the block.
- Numerous people around the world try to figure out the right hash value to meet a pre-determined condition using computational algorithms. The transaction completes when the predetermined condition is met. To put it more plainly, Blockchain miners attempt to solve a mathematical puzzle, which is referred to as a proof of work problem. Whoever solves it first gets a reward.

Mining In Blockchain technology, the process of adding transactional details to the present digital/public ledger is called ‘mining.’ Though the term is associated with Bitcoin, it is used to refer to other Blockchain technologies as well. Mining involves generating the hash of a block transaction, which is tough to forge, thereby ensuring the safety of the entire Blockchain without needing a central system.

History of Blockchain

Satoshi Nakamoto, whose real identity still remains unknown to date, first introduced the concept of blockchains in 2008. The design continued to improve and evolve, with Nakamoto using a Hashcash-like method. It eventually became a primary component of bitcoin, a popular form of cryptocurrency, where it serves as a public ledger for all network transactions. Bitcoin blockchain file sizes, which contained all transactions and records on the network, continued to grow substantially. By August 2014, it had reached 20 gigabytes, and eventually exceeded 200 gigabytes by early 2020.

Advantages and Disadvantages of Blockchain

Like all forms of technology, blockchain has several advantages and disadvantages to consider.

Advantages

One major advantage of blockchains is the level of security it can provide, and this also means that blockchains can protect and secure sensitive data from online transactions. For anyone looking for speedy and convenient transactions, blockchain technology offers this as well. In fact, it only takes a few minutes, whereas other transaction methods can take several days to complete. There is also no third-party interference from financial institutions or government organizations, which many users look at as an advantage.

Disadvantages

Blockchain and cryptography involves the use of public and private keys, and reportedly, there have been problems with private keys. If a user loses their private key, they face numerous challenges, making this one disadvantage of blockchains. Another disadvantage is the scalability restrictions, as the number of transactions per node is limited. Because of this, it can take several hours to finish multiple transactions and other tasks. It can also be difficult to change or add information after it is recorded, which is another significant disadvantage of blockchain.

How Is Blockchain Used?

Blockchains store information on monetary transactions using cryptocurrencies, but they also store other types of information, such as product tracking and other data. For example, food products can be tracked from the moment they are shipped out, all throughout their journey, and up until final delivery. This information can be helpful because if there is a contamination outbreak, the source of the outbreak can be easily traced. This is just one of the many ways that blockchains can store important data for organizations.

How to Invest in Blockchain Technology

Blockchain technology and stocks can be a lucrative investment, and there are several ways to take the next step toward making your first blockchain investment purchase. Bitcoin is typically the first thing that comes to mind when it comes to investing in blockchain technology, and it shouldn’t be overlooked. Aside from Bitcoin, there is also the option of investing in cryptocurrency penny stocks, such as Altcoin and Litecoin. There are also certain apps and services that are in the pre-development phase and that are using blockchain technology to raise funding. As an investor, you can buy coins, with the expectation that prices will go up if the service or app becomes popular. Another way to invest in blockchain technology is to invest in startups built on blockchain technology. Finally, there is always the option to invest in pure blockchain technology.

What Are the Implications of Blockchain Technology?

Blockchain technology has made a great impact on society, including:

Bitcoin, Blockchain’s prime application and the whole reason the technology was developed in the first place, has helped many people through financial services such as digital wallets. It has provided microloans and allowed micropayments to people in less than ideal economic circumstances, thereby introducing new life in the world economy.
The next major impact is in the concept of TRUST, especially within the sphere of international transactions. Previously, lawyers were hired to bridge the trust gap between two different parties, but it consumed extra time and money. But the introduction of Cryptocurrency has radically changed the trust equation. Many organizations are located in areas where resources are scarce, and corruption is widespread. In such cases, Blockchain renders a significant advantage to these affected people and organizations, allowing them to escape the tricks of unreliable third-party intermediaries.
The new reality of the Internet of Things (IoT) is already teeming with smart devices that — turn on your washing machines; drive your cars; navigate your ships; organize trash pick-up; manage traffic safety in your community — you name it! This is where blockchain comes in. In all of these cases (and more), leveraging blockchain technology by creating Smart Contracts will enable any organization to ‒ both — improve operations and keep more accurate records.
Blockchain technology enables a decentralized peer-to-peer network for organizations or apps like Airbnb and Uber. It allows people to pay for things like toll fees, parking, etc.
Blockchain technology can be used as a secure platform for the healthcare industry for the purposes of storing sensitive patient data. Health-related organizations can create a centralized database with the technology and share the information with only the appropriately authorized people.
In the private consumer world, blockchain technology can be employed by two parties who wish to conduct a private transaction. However, these kinds of transactions have details that need to be hammered out before both parties can proceed:

What are the terms and conditions (T&C) of the exchange?
Are all the terms clear?
When does the exchange start?
When will it finish?
When is it unfair to halt the exchange?

Since blockchain technology employs a shared ledger, distributed ledger on a decentralized network, all parties involved can quickly find answers to these questions by researching “blocks” in the “chain.” Transactions on a blockchain platform can be tracked from departure to the destination by all of the transactions on the chain.

Conclusion

Although we just skimmed the industry-wide potential of blockchain applications in this article, the career potential in this field is growing exponentially. Getting ahead of the game is always a good strategy for any professional. At Simplilearn, our latest and most up-to-date course on this emerging field is the Professional Blockchain Certificate Program in Blockchain. In partnership with the world-renowned university, IIT Kanpur, this program will help you get on track.

In this blockchain program, you will learn how to master blockchain concepts, techniques, and tools like Truffle, Hyperledger, and Ethereum to build blockchain applications and networks.

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Do you know what is Tor Browser and Onion Websites?

What is the dark web? How to use Tor to access the dark web? Worried about your privacy online?

Here’s how to access the dark web using Tor and protect yourself from prying eyes. What is the dark web How to use Tor to access the dark web

The dark web is infamous as a dangerous place, where drugs are bought and hitmen hired, but it can be a safe way to browse the internet if your privacy is serious concern. And thanks to the Tor Browser, it’s easy to do.

Indeed, Facebook, The New York Times and now even the CIA have sites on the dark web, hosting “onion” versions of their pages that can be accessed via the Tor browser. The spy agency is hoping to securely and anonymously collect tips, though its entire website, including job listings, are available on the onion service.

Tor refers to “the onion router”, which is a network that bounces your traffic through random nodes, wrapping it in encryption each time, making it difficult to track; it’s managed and accessed via the Tor browser. That may seem an extreme way to browse the web, but such protections are increasingly worth considering, says Sarah Jamie Lewis, executive director of the Open Privacy Research Society. “Web browsing is hostile to privacy and security,” she says. “It has one of the worst security risk profiles – [such as] ‘allow arbitrary third parties to run code on my computer’ – coupled with protocols that were never designed to protect metadata. Tor Browser is the least-worst option for protecting your privacy in a web browsing context, in its highest security mode.”

What is the dark web?

When people go on about the so-called dark web, they’re usually talking about onion sites, which aren’t searchable via Google or accessible via standard browsers. On the regular web, domains such as www.wired.co.uk are translated into their actual IP addresses via the domain name system (DNS).

That central control allows for censorship, as by interrupting that lookup a site can effectively be banned from the web — this is why Turkish protesters were spraypainting IP addresses on walls in 2014, to tell others how to access Google directly without going via a DNS server.

“The whole point of onion addresses – ‘the dark web’, ‘the silk road’ — is that they throw all this stuff away, and with it they dispose of the opportunities for censorship,” says Alec Muffett, a security engineer who’s on the board at the Open Rights Group and has built onion sites for Facebook and The New York Times. “The Tor network is another network which sits on top of the TCP/IP internet, stitching the participating computers together into a wholly new network ‘space’, not IPv4, not IPv6, but ‘Onion Space’.”

If you use the Tor browser to access a standard website, it offers protection and anonymity to users — they pop into the Tor cloud, that “onion space”, and pop back out virtually elsewhere, with their identity and location obscured. But using onion sites via Tor adds to the protection. “If the site invests in setting up a ‘native’ Tor onion-address for their website, then people who use the Tor browser to access that address never step outside the protection of the Tor cloud,” Muffett says.

“This is like the same promise as end-to-end-encrypted messaging, but for web browsing and other forms of communication, but unlike WhatsApp or Signal where it’s definitely your best friend or lover at the other end of the connection, instead it’s your [maybe] favourite website… one that perhaps your peers and/or the Government does not want you to be accessing.”

And that’s why organisations such as the CIA, the New York Times and Facebook have onion versions. “Onion sites are considered to be about anonymity, but really they offer two more features: enforced discretion (your employer or ISP cannot see what you are browsing, not even what site, and you have to be using Tor in the first place to get there) and trust,” Muffett explains. “If you access ‘facebookcorewwwi.onion’ you are definitely connected to Facebook, because of the nature of Onion addressing — no DNS or Certificate Authority censorship mechanisms are applicable.”

Google doesn’t index these sites, but other search engines do, including DuckDuckGo, and there are lists — including one run by Muffett — so you can find what you’re looking for.

What is Tor?

When you use the Tor network, your traffic is layered in encryption and routed via a random relay, where it’s wrapped in another layer of encryption. That’s done three times across a decentralised network of nodes called a circuit — the nodes are run by privacy-focused volunteers; thanks, you lovely people — making it difficult to track you or for sites to see where you’re actually located.

Alongside bouncing encrypted traffic through random nodes, the Tor browser deletes your browsing history and cleans up cookies after each session. But it has other clever tricks to push back against trackers. If someone visits two different sites that use the same tracking system, they’d normally be followed across both. The Tor browser spots such surveillance and opens each via a different circuit making the connections look like two different people, so the websites can’t link the activity or identity if they login on one of the sites.

How to download and use Tor

It’s almost embarrassingly easy thanks to the Tor Browser. Based on Mozilla’s Firefox, this browser hides all that pinging about in the background. “It’s a web browser. Use it like one. It’s that simple,” says Muffett. That’s the desktop edition, but there’s a version for Android and an unsupported onion browsing app for iOS.

While some can simply install and use the Tor browser like any other, there are a few complications for those in countries where Tor is blocked, on corporate or university networks where it’s banned, or where more security is needed. When you start a session, you’ll be shown an option to Connect or Configure. The latter choice is for when access to the Tor network is blocked, and you’ll be shown a variety of circumvention techniques. Those include traffic obfuscation tools called pluggable transports, which make it look like Tor traffic is random or going to major websites such as Amazon, rather than connecting to the onion network. If you’re having trouble connecting to the Tor network, try one of these.

There are different levels of security in the browser that are worth considering. To review security settings, click on the onion logo in the top left and select “Security Settings”, which will bring up a slider offering a choice of the default of standard, or safer and safest. In “safer” mode, JavaScript is disabled on HTTP sites, some fonts are disabled, and all audio and video won’t run automatically, you’ll have to click to play. Slide up to the “safest” level, and as well as those settings, JavaScript is disabled on all sites.

Once you’ve downloaded and installed the Tor browser, you can browse just as you would your usual browser, but Muffett offers a caveat to avoid unencrypted sites — those with only “http” in the URL rather than “HTTPS”. He notes: “This is because plain old HTTP traffic can be tampered with.” Handily, the Tor Browser comes with the HTTPS Everywhere add-on installed by default, which forces a site to serve the secure version if one is available.

How to access the dark web using Tor

Using the Tor browser is simple, but knowing when to fire it up is more complicated. You could do all your browsing with Tor, though it’s slower than a standard browser, something the Tor Project is working hard at to improve, says Stephanie Whited, communications director for the Tor Project. Another challenge is CAPTCHAs; because Tor behaves differently than other browsers, it’s more likely to trigger the bot-hunting system, so be prepared to face more of them than usual.

Whited’s rule of thumb is to use the Tor Browser instead of Private Browsing Mode or Incognito Mode. “Contrary to what most people think, these modes do not actually protect your privacy,” she says. “They do not curtail the collection of your online activity by your ISP, advertisers, and trackers. They don’t prevent someone monitoring your network from seeing what websites you’re visiting. Tor Browser does.”

With any security and privacy issue, it’s about your threat model, which is simply what attacks or invasions you’re actually worried about. “When you want to visit a site and for nobody in-between you and the site to know that you are visiting it,” says Muffett, about when to use the Tor Browser. “Sure, most people think ‘porn’ when someone says that, but it also applies to getting some privacy when you want not to be immediately traceable: sexual health, birth control questions, foreign news, personal identity questions.”

But there’s more to Tor than being nearly anonymous online. “The big win of Tor for me is access — with a sprinkling of anonymity, to be sure — but that I can be stuck behind some hotel firewall, in some airport or restaurant lounge, or in a sketchy cafe is a sketchy country,” Muffett says. “And if I use Tor then I have a good degree of certainty that at least the local weirdos are not looking over my digital shoulder at what I am browsing — and that when I kill my browser (unless I’ve bookmarked something, or saved a file) then all the data is properly cleaned-up and wiped.”

VPNs are often recommended as protection in such cases, but Whited disagrees. “VPNs can be a security bottleneck,” she says. “All of your traffic goes through it, and you have to trust them as if they are your new ISP. Because the backbone of our software is a decentralised network, you don’t have to trust us to browse the internet privately.”

Tor isn’t perfect

There’s no such thing as perfectly private or secure on the internet. It’s still possible to track someone’s traffic pinging through the Tor nodes, though it is difficult.

And, of course, people, websites and third-party trackers will know who you are if you choose to identify yourself online. “People can accidentally give that away just by posting their real name, email address, or other identifying details, in a blog comment,” notes Muffett. If you do log into a site or otherwise identify yourself, the Tor Browser has techniques to limit the spread of who knows. One is “new identity”; select this in the main menu and all open tabs and windows will shut down, clearing cookies, history and Tor circuits. That means that if you’ve logged into a site or otherwise identified yourself, you can avoid that site from following you elsewhere. Another similar tool is the “new Tor circuit” option, which resets the circuit so you look like a new connection, making you harder to track.

There are other ways for spies, hackers or other adversaries to target Tor. Lewis points to the “first contact problem”, when an attacker spots when someone moves from non-private tools to private ones, noting it’s been used to identify whistleblowers. “There are a myriad of other attacks ranging from academic to within the realm of possibility for nation states or large conglomerates, but it is worth remembering that these are attacks which reduce the privacy back down to regular web browsing, and many have to be explicitly (and somewhat expensively) targeted — the more people who use these tools, the greater the cost of surveillance.”

In short, even with Tor, there’s no perfect anonymity online, but there are efforts to claw back our power online, says Lewis. “Understand that the web as we know it today is privacy-hostile and that nothing is foolproof, do research, support organisations and projects — like Tor Project, i2p, and Open Privacy — that are building and maintaining tools that make enforcing your consent easier.”