Before we move into the blockchain system, I hope you already have a basic understanding of what the blockchain system is. In short, Blockchain is the peer-to-peer network, where a bitcoin transaction takes place - that's exactly what blockchain is. It's a technology which revolutionized the Bitcoin system, and it became a platform where people could create as well as buy and sell bitcoins as per their requirement. As it was mentioned earlier, a block basically contains all the transactions that have been verified and validated in that period. Now, once you have completed this block, you begin the process on the next block, and you keep going on and so forth. All these blocks are connected to each other and hence the name, blockchain. The blockchain technology is not something that is restricted only to transaction management or the banking domain as such. Just like how you're storing transaction details, you can use it to store any other kind of information as per your requirement, and this is one of the critical factors which has led to the growth of blockchain technology being used across different domains. I hope you have understood how effective blockchain technology is.
Moving forward, let's talk about the various features of blockchain, and why does it stand out with respect to all the other technologies in the market. If any technology is coming into the picture - the first thing that we are concerned about is security. Blockchain technology uses a sha-256 encryption algorithm. Now, here what happens is - you're using a hash algorithm, and once you have given an input, you generate a hash output. But from the output, you cannot regenerate the input because it's a unidirectional process. So, even if you have the output, you cannot determine what the input is, and this encryption algorithm is so complex that even if you make the slightest change to the input, the output changes entirely. Let's take an example here, let's say I'm going to encrypt “I love blockchain” through the hash algorithm. It's going to give me a corresponding hash value. With this same input (I love blockchain), if I add just an exclamation mark at the end and pass it through the encryption algorithm, then the output that gets generated will be totally different. If I look at both the outputs I would not be able to identify that it's almost the same input, except with an addition of an exclamation mark. This is how the hashing algorithm works.
Then comes the distributed public ledger. Now, as I had mentioned earlier, all the transactions that you would be performing using bitcoins are going to be stored on the blockchain system, so therein you have a ledger. But this ledger is not centralized, this ledger is completely distributed, and anyone who becomes part of this blockchain network can get access to the Bitcoin transaction details as well as the blockchain ledger as a whole. So everyone who becomes a part of it gets their own unique copy of their blockchain ledger. But you don't need to be concerned just because this ledger is available to anyone. The details of the transaction that are present in this ledger are absolutely secure, and they are encrypted as well as they are passed through the hash encryption. Now, one thing you need to notice here is that the user details are not specified as part of this transaction, only the transaction ID is present in the ledger. This, in turn, also provides anonymity to the user. You can never be completely aware who holds how much bitcoins, and this makes the system completely decentralized.
We also talked about the third point wherein the blockchain system rewards the miners for creating the new blocks. Now don't think just because you can create a block, you can get this reward, it's not that simple. There are two parts to this. First, you need to verify all the transactions that are present, and finally, you need to identify a mathematical value. What you need to do is that you need to create a block in a fixed time frame, and the present time frame is ten minutes for creating a block. If you cannot create the block within that timeframe, you cannot get the reward. At the same time, you're competing with all the miners who are present across. So, it basically is a race against time.
The final key point which makes the blockchain feature quite popular is proof of work. This is the mathematical solution which I was talking about earlier - this basically is what a miner needs to compute. Apart from verifying and validating all the transactions that he has, he needs to identify this mathematical solution. One may think that it's just a mathematical solution that can be found out easily on a computer. Let me tell you that it's not that easy. There's always a fixed value that is set for every block that is going to be created. Let's say, you're going to create the next block, which is 500 block as part of the blockchain system. So there's going to be a specific value that you need to identify concerning that particular block. But what you need to do is that you need to guess this numerical value - it's just a hit and run method. Given the present scenario, you need to at least try somewhere between 20 quadrillions to 30 quadrillions values, and that's a huge number. At the same time, you need to remember that it's a race against time, as I already mentioned. So you need to verify all the transactions, you need to compute this mathematical solution, and all this should happen in 10 minutes timeframe. And this is exactly why the way incentives are also given out to the miners - because they do all this work within this fixed time frame. And once you've computed this mathematical solution, you get the reward - because you have put in your resource and time to compute the block to verify all the transactions, and the system is rewarding for all your work. So this proof of work in itself is a very valid signal which a miner sends across to everyone that he/she has validated all the transactions that were given, and created the next block.