Blockchain technology
Blockchain is a secure database shared across a network of participants, where up-to-date information is
available to all participants at the same time.
What is blockchain?
Blockchain has probably been one of the greatest technological advancements in the last
decade. However, beyond all the hype, it really does seem that few people have any idea just what
Blockchain is, how it works, or what its applications can be. Ironically, at heart, it is actually a
rather simple concept. It does come with very high potential for revolutions in whole industries from
head to toe.
A blockchain, very basically, is a kind of distributed digital ledger conceptualized for
storing digital information. It could be cryptocurrency transactions, NFT ownership records, or DeFi
smart contracts.
While conventional databases have been usually centralized and maintained from a central
point, like an
Excel spreadsheet or a bank database, blockchain operates in a decentralized manner. To the contrary, it
has multiple identical copies of the blockchain, spread across nodes in a computer network, rather than
being maintained by some central administrator.
A blockchain has the following three properties:
-
Cryptographic Security: A blockchain requires two cryptographic keys to
access or add
data: a
public key, akin to the address in a blockchain, and a private key, which is unique and thus
needs
authentication by the network.
-
Digital Log:
Blockchain serves as a digital ledger of transactions and works completely
online.
-
Shared Database: A blockchain is dispersed over a public or a private
network. One of the
most
famous public blockchains is the Bitcoin blockchain, where anybody can create a wallet or
join as a
node. On the other hand, private blockchains are common in banking and fintech, where access
to data and
private keys must be known with certainty among the participants. Furthermore, consortium
and hybrid
blockchains inherit some elements from both public and private models to handle diversified
requirements.
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.
Blockchain is an emerging technology with many advantages in an increasingly digital world:
-
Enhanced Security
-
Transparency and Immutability
-
Decentralization and Trust
-
Cost Efficiency
-
Faster Transactions
-
Data Integrity and Accuracy
-
Increased Accessibility
-
Innovation and Flexibility
-
Auditability and Traceability
How does a blockchain work?
The name blockchain is hardly accidental: The digital ledger is often described as a “chain”
that’s made up of individual “blocks” of data. As fresh data is periodically added to the network, a new
“block” is created and attached to the “chain.” This involves all nodes updating their version of the
blockchain ledger to be identical.
A blockchain consists of programs called scripts that conduct the tasks you usually would in
a database: Entering and accessing information and saving and storing it somewhere. A blockchain is
distributed, which means multiple copies are saved on many machines, and they must all match for it to
be valid.
When new data is added to the network, the majority of nodes must verify and confirm the
legitimacy of the new data based on permissions or economic incentives, also known as consensus
mechanisms. When a consensus is reached, a new block is created and attached to the chain. All nodes are
then updated to reflect the blockchain ledger.
Structure and Design of Blockchain
A blockchain is a distributed, immutable, and decentralized ledger at its core that consists
of a chain of blocks and each block contains a set of data. The blocks are linked together using
cryptographic techniques and form a chronological chain of information. The structure of a blockchain is
designed to ensure the security of data through its consensus mechanism which has a network of nodes
that agree on the validity of transactions before adding them to the blockchain.
Blocks:
A block in a blockchain is a combination of three main components:
-
The header contains metadata such as a timestamp which has a random number used
in the mining process
and the previous block's hash.
-
The data section contains the main and actual information like transactions and
smart contracts which
are stored in the block.
-
Lastly, the hash is a unique cryptographic value that works as a representative
of the entire block
which is used for verification purposes.
Block Time:
Block time refers to the time taken to generate a new block in a blockchain. Different blockchains have
different block times, which can vary from a few seconds to minutes or may be in hours too. Shorter
block times can give faster transaction confirmations but the result has higher chances of conflicts but
the longer block times may increase the timing for transaction confirmations but reduce the chances of
conflicts.
Hard Forks:
A hard fork in a blockchain refers to a permanent divergence in the blockchain's history that results in
two separate chains. It can happen due to a fundamental change in the protocol of a blockchain and all
nodes do not agree on the update. Hard forks can create new cryptocurrencies or the splitting of
existing ones and It requires consensus among the network participants to resolve.
Decentralization:
Decentralization is the key feature of blockchain technology. In a decentralized blockchain, there is no
single central authority that can control the network. In decentralization,the decision-making power is
distributed among a network of nodes that collectively validate and agree on the transactions to be
added to the blockchain. This decentralized nature of blockchain technology helps to promote
transparency, trust, and security. It also reduces the risk to rely on a single point of failure and
minimizes the risks of data manipulation.
Finality:
Finality refers to the irreversible confirmation of transactions in a blockchain. If and when a
transaction is added to a block and the block is confirmed by the network, it becomes immutable and
cannot be reversed. This feature ensures the integrity of the data and prevents double spending,
providing a high level of security and trust in Blockchain Types & Sustainability
Public Blockchain:
It is a kind of blockchain which is open for the public and allows everyone to join the network to
perform transactions and to participate in the consensus process. Public blockchains are transparent,
because all transactions are publicly recorded.
