Blockchain technology
Blockchain technology can potentially change how our online world works dramatically. Though it’s most popularly known as the foundation of cryptocurrency, blockchain technology can be used in far more ways than this. This guide will explain blockchain technology, how it works, and it’s potential to transform several industries.
What is blockchain technology?
A blockchain is a decentralized, public digital ledger designed to store data. The only way to record a new block of data on the chain is with proof of work from powerful, dedicated machines called miners. Today, the bitcoin blockchain carries nearly 200GB of data and needs 600 megawatts of power (like Moldova) for miners who verify transactions on its network. However, this use of computing power and electricity may soon change if sharding, an alternative method where blocks are distributed in chains based on common data themes or parts of the whole, succeeds. Then all anyone would need is just one computer, some internet connection, and time to create a shard – and then contribute it to whichever miner network they prefer.
Why Blockchain is important:
Blockchain, in essence, is the underlying infrastructure that enables digital currencies to work. In addition to being the backbone of cryptocurrency, Blockchain could have vast applications for various industries. These include healthcare, advertising, logistics, and even voter voting systems! The best part is that this ledger-based transaction software is foolproof and immutable; once you put something into the Blockchain, it cannot be tampered with or changed.
How does Blockchain work?
A blockchain is a decentralized, digitized, public ledger of all cryptocurrency transactions. In this system, each node (a computer connected to the network) gets a copy of the transaction data and updates it when necessary. The consensus method ensures that these updates are cryptographically secure and agree on the exact ordering of transactions. No central bank or government controls these blocks; they are managed by a peer-to-peer network collectively adhering to certain protocols.
The nodes also cooperate to have an up-to-date ledger for every transaction.
Key elements of a blockchain
- Distributed ledger technology
- Immutable records
- Smart contracts
1) Distributed ledger technology
Distributed ledger technology (DLT) is a new approach to storing and accessing data. It can be considered an electronic version of a general ledger, updated in real-time, that everyone on the network has access to and can view.
2) Immutable records
While blockchain technologies have been around for some time, they’ve recently garnered a lot of attention as the backbone of Bitcoin. However, there are many more applications for this distributed ledger system that companies and organizations can use to protect their data and create tamper-proof records. As a result, blockchain technology is poised to transform the way that transactions occur within these industries, revolutionizing supply chains and how we track the movement of goods.
3) Smart contracts
Smart contracts are pieces of code that get uploaded to the Blockchain. Essentially, they’re if this instruction, such as If Jane likes Jack’s post on social media, she should send him her contact details. They could even be thought of as the precursors to artificial intelligence.
Benefits of Blockchain
Blockchain is a decentralized digital ledger system that records transactions’ details across many computers. A common misconception about Blockchain is that it’s merely a data structure; it is the data structure and all of the software needed to maintain, replicate, encrypt, decentralize, connect, validate transactions and make them virtually tamper-proof. In short, Blockchain is more than just a hype word or buzzword. These are various benefits:
1) Greater trust
With Blockchain, nobody can mess with your data or sell it to a third party without your explicit permission. When you access the Blockchain, nobody else will have the same information. Therefore, nobody will be able to alter your copy of that file without you knowing about it. Blockchain is inherently trustless.
2) Greater security
One main feature that makes blockchains so disruptive is how they store data. In this process, information is distributed across multiple servers rather than storing all the data on one centralized server. Each server stores only a small portion of the overall data. This redundancy prevents any single point of failure.
Finally, the information stored on a blockchain is protected by cryptography, which makes it virtually impossible to hack into or modify without having special keys.
3) More efficiencies
It is estimated that with the introduction of Blockchain, international payments could save as much as $27 billion per year. Blockchain also introduces a new way to trace and track goods through the supply chain. With Blockchain, an individual can verify whether their new purchase is genuine or not; in addition, the item’s manufacturer would be able to see where it was made and when without needing the product’s serial number. Imagine what a transparent product journey would do for businesses today.
Types of blockchain networks
These are the following types of blockchain networks:
1) Public blockchain networks
Public blockchain networks, like Bitcoin, Ethereum, and Litecoin, use a shared digital ledger called a blockchain. Each block contains a set of transactions – but it’s also the order in which those transactions are processed that matters. Transactions are grouped into blocks to solve two major challenges: preventing people from spending the same coins twice (double-spending) and reconciling everyone’s transaction records when they want to spend their coins again (preventing long-term disagreement over who owns what). In addition, some reward system creates blocks. The blocks are also broadcast to all the nodes in the network. So, they’re aware of new blocks and can take appropriate action.
2) Private blockchain networks
Blockchains are, by nature, open public networks that anyone can join and participate in the consensus process. In contrast, private blockchain networks can be moderated to give only the appropriate participants access to view sensitive data. Private blockchains have a closed network architecture with pre-approved members. To become a member of this type of blockchain network, you will need an invitation from someone who is already participating in the network or has gained membership through some other means. Such as getting invited by an employer to participate in an industrial consortium agreement that stipulates your participation in a private blockchain. In addition, private networks operate on a need-to-know basis, so only authorized parties can access the sensitive data transacted on that network.
3) Permissioned blockchain networks
A permissioned blockchain network is typically set up as a private network between organizations looking to form a consortium or partnership. In this type of blockchain network, any participating member must first be approved by other members and meet certain requirements. Once added to the Blockchain, they have the same rights and privileges as other members. However, one downside to this type of setting is that it limits the size of your Blockchain.
4) Consortium blockchains
A consortium blockchain is also a blockchain developed by private or public institutions. In the case of a public institution, the data can be controlled and viewed by anyone. However, in the case of a private institution, only those who are given permission can access the data. Blockchain consortiums are emerging in healthcare, energy management, and finance. A new area for collaboration is supply chain management, where participants from different enterprises need to share knowledge about suppliers without compromising confidentiality.
