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Blockchain Explained: What It Is, How It Works and Why We Need It
- Blockchain is a decentralized digital ledger that records data across multiple computers, ensuring transparency and security by making data tamper-resistant.
- It consists of blocks containing verified transactions linked in a chronological chain, with two main types of blockchains: public (open to all) and private (restricted participation).
- Blockchain eliminates the need for intermediaries by enabling secure asset exchange and automating workflows through consensus algorithms and smart contracts.
- Traditional databases rely on centralized control, unlike blockchain, which distributes control across network participants for enhanced security and transparency.
- Key blockchain components include blocks (with verified transactions and cryptographic hashes), nodes, and networks (peer-to-peer structure for data sharing and transaction confirmation).
- Blockchain's core features include decentralization, immutability (data cannot be altered), and transparency (open transaction history for all participants).
- The blockchain process involves transaction initiation, network-wide verification, block creation, chain addition, and ledger update across all network nodes for consistency.
- Blockchain types include public (open to everyone, like Bitcoin) and private (permissioned access, ideal for business solutions), along with consortium and hybrid models for collaboration and flexibility.
- Consensus mechanisms like Proof-of-Work and Proof-of-Stake ensure blockchain security and agreement among nodes, with each mechanism having its benefits and trade-offs.
- Blockchain protocols like Ethereum and Hyperledger Fabric define network operations, supporting diverse applications from cryptocurrencies to enterprise solutions with smart contracts.
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