Answering Basic Questions About Blockchain Technology

Whether or not you invest in cryptocurrency, the use of blockchain technology is on the rise. Although it is best known for its uses with cryptocurrency, it can also have many other applications across different industries.

So, if you are ready to learn more about blockchain and its place in our society, keep reading as we answer basic questions about blockchain technology.

FAQs About Blockchain Technology

1. What is Blockchain Technology?

Blockchain technology is a method of processing requests in a database, where all requests are verified before being added to a distributed ledger. This ledger, which records all transactions, is immutable (meaning it cannot be modified) and is secured using cryptography.

This makes blockchain technology more secure than most forms of data processing available. Although blockchain technology can be decentralized, and these are the setups it is most famous for, central authorities can also build blockchains of their own and make centralized decisions for their platforms.

2. What Are Blocks in Blockchain Technology?

Transactions performed in blockchain technology are grouped. These groups are called blocks. Once data has entered a block on a blockchain, it can no longer be modified.

Block sizes are set by the blockchain. Some blockchains, like Bitcoin, have larger blocks, while other blockchains have smaller ones.

3. How Can You Identify a Blockchain Block?

Although block size does vary, how blockchain blocks are set up is the same for each and every blockchain.

Each block has a hash value from the previous block, ensuring it is added to the blockchain in order. It also has transaction data, a random value called a nonce (used to generate its hash), and its own hash value.

This unique hash value is then used to create the next block. This is where the term blockchain comes from.

4. What is Cryptography?

Cryptography, in general terms, is the practice of obscuring data in transit so it cannot be intercepted by parties who are not privy to the information.

In more technical terms, cryptography is used in blockchain to protect the user’s identity and transaction information. It is performed using a pair of asymmetric keys, one public and one private. The public key can be shared, while the private key needs to be kept private.

Blockchain typically uses the SHA-256 hash algorithm which is known to be one of the safest types of cryptography to date, though it is possible for blockchains to develop their own hash algorithms.

5. Are There Different Types of Blockchains?

Yes, there are three main types of blockchain, Public, Private, and Consortium.

A public blockchain is what we have been describing so far; it is a decentralized distributed ledger that records transactions that can be seen and used by everyone on the internet. Bitcoin and Ethereum are both public ledger blockchains.

Private blockchain, as we briefly mentioned earlier, is a blockchain that is developed by an organization for use by an organization. Blockstack is a private blockchain.

Consortium blockchain is a mix of the two. The consortium has a public ledger that is available to anyone who uses the blockchain; however, the nodes that process requests are delegated by a controlling entity. Ripple is one of many consortium blockchains available.

6. What is a Genesis Block?

A Genesis Block is the first block issued in a blockchain and the only block that doesn’t reference the previous block’s hash.

7. What is a dApp?

A dApp is a decentralized application that is deployed on a blockchain. These applications usually perform a specific task for users, and they function using the existing blockchain technology. dApps often function with the help of smart contracts, which deploy automatically on the blockchain technology.

8. What Are the Benefits of Blockchain Technology?

Blockchain is extremely useful for many companies around the globe. Its main benefits include trusted data coordination, resistance to cyberattacks, immutability, and its ability to tokenize different assets.

9. What is DeFI?

DeFi stands for decentralized finance, and it refers to a certain sector of blockchain technology that is associated with financial transactions. DeFi uses blockchains, dApps, and Smart Contracts to provide a variety of financial services to users. Some financial services offered include loans, investing opportunities, and acting as an automated market maker for an exchange.

10. What is Block Time?

Block Time is the amount of time it takes to add a new block to the blockchain. The time varies based on block size, number of transactions, and processing speed. For example, Bitcoin famously takes around 10 minutes to add a new block to the blockchain. On the other hand, Ethereum takes only 14 seconds.

11. What is a Blockchain Wallet?

A blockchain wallet pair of keys is used to access what you own on the blockchain. The wallet address is the public key that others can use to send you cryptocurrency. In order to spend the money stored in a blockchain wallet, you must use your private key. Remember, never share your private key, this is just for you.

There are numerous different blockchain wallet options, so ensure you do your research to find the one that works the best for you. We strongly recommend investing in a cold wallet.

12. What is a Consensus Mechanism?

As mentioned above, a public blockchain relies on several decentralized nodes in order to function. But for a block to be made, at least 51% of these nodes must agree on the information being added to the blockchain. The method used by the nodes to agree is called a consensus mechanism.

The most common consensus mechanisms are proof of work, which relies on nodes that can prove they have done the work, and proof of stake, in which the nodes are chosen based on the stake they have in the system. Other types of consensus mechanisms include proof of authority, which is used in consortium blockchains, and proof of capacity.

We hope that this article has expanded your blockchain knowledge. To learn more about how blockchain is being implemented in various industries, check out our article about AI in blockchain technology.