While there may have been ample times when you must have come across the word blockchain technology, did you ever wonder what is blockchain technology and what are its utilities?’ Besides being just a buzzword, blockchain technology has become a transformative force not only in the fintech sector but also in multiple other sectors that can benefit from decentralization, transparency, traceability of transactions, etc.
Blockchain technology was the by-product of Bitcoin – the first-ever and largest cryptocurrency in circulation. Or the first time, a pseudonymous personality by the name of Satoshi Nakamoto brought together cryptography, consensus, and decentralization into one technology. For anyone interested in exploring Satoshi’s idea of a blockchain, go and check out the whitepaper published in 2008.
Let’s explore what is blockchain technology and blockchain technology applications for you to have an introductory understanding of the innovative tech.
What Is Blockchain Technology?
Blockchain technology, explained in layman’s terms, is a network of computers that verifies and stores a distributed database of records. Any data or information once recorded on a blockchain cannot be changed, manipulated, or hacked. The participating computers on a blockchain network are called nodes. Each node has a duplicate copy of the entire database of the blockchain transactions, which it uses to verify transactions. The verified transactions are stored as blocks on a blockchain. To define blockchain technology in simple terms, it is a peer-to-peer network made up of nodes that stores transactional records in a distributed digital ledger.
Why is Blockchain Important?
All businesses run on data – be it planning the strategies, organizing personnel, or running processes. How accurate a piece of information depends much on how fast and securely it is received. As the lesser the time, the lesser the risk for tampering. Blockchain is suited ideally for transferring, verifying, and storing that information. It delivers the information immediately in a shared and transparent way.
All this info is stored on an immutable ledger which anyone can access from anywhere in the world or else by permissioned members, in the case of permissioned blockchain. We will discuss that later. For one, let’s discuss the significance of blockchain technology applications in real-world case scenarios. Blockchain technology can be used to keep an eye on orders, accounts, population, supply chain, orders, and much more. Blockchain helps all the members on a DLT network share a single truth as each node shares exactly the same copy. As such, members have greater confidence while bringing in efficiency, security, transparency, and endless opportunities simultaneously.
How Does Blockchain Technology Work?
A blockchain consists of three main elements, namely:
- Immutable records: No network participant can change or tamper with the blockchain records.
- Smart contracts: These are self-executing contracts that get executed automatically once a set of predetermined conditions are met.
- Distributed Ledger Technology (DLT): All the network participants can access the distributed shared ledger – a copy of which is present on all the nodes.
It must have been clear to you by now what is blockchain technology from our prior discussion. Let’s explore now how blockchain works. Blockchain technology, defined in simple terms, can be called a network of computers, each having a duplicate store of information.
- Transactions, both tangible and intangible, when they occur, are first verified via a consensus and then stored on the blockchain as blocks. A blockchain can record various kinds of data, and it depends on the user to which use they are putting the blockchain technology. A blockchain is capable of storing all the how, when, why, and what of a transaction.
- As information gets stored in the blocks, new blocks get added once the previous one is filled. The new blocks get connected to the previous ones. The information contained in the blocks will be recorded in chronological order now as each block is time stamped. Businesses or organizations can have a complete transaction history of a particular asset from the time of its origin to its consumption.
- All these blocks form a chain that contains a set of data that cannot be reversed. This mechanism, in a way, strengthens the verifiability and trustworthiness of a particular transaction. No malicious actor can manipulate a blockchain, and we have a ledger that operates as a trustless network where the participants can deal with each other directly in a transparent fashion.
What Are The Key Components Of Blockchain Technology?
A Distributed Ledger
A distributed ledger is unlike the traditional business records that can be easily manipulated and are controlled by a single authority. Distributed ledger provides complete access to all the information related to transactions and records to the network participants,butinformation once added cannot be eliminated which reduces the risk of manipulation.
Smart contracts are programs that consist of a predefined set of rules, and once all are satisfied, they execute themselves automatically. It speeds up the transactions and is useful for all sorts of trades and agreements, since they don’t require the presence of a third party.
Public Key Cryptography
The blockchain network mechanism generates two types of keys for the purpose of participant access and recognition. Public key cryptography is a security feature on the blockchain that helps in identifying the network participants. The public key and the private key together are associated with a network participant, who needs to authenticate their identity with the use of the keys. Data that is encrypted with the public key can only be decrypted with the paired private key.
What are the Advantages of Blockchain Technology?
Source: EduCBA | Blockchain technology applications help processes take advantage of DLT and other features of blockchain technology
Now that we have learned what is a blockchain technology and how it works, let’s discuss some of its advantages:
Blockchain uses a combination of decentralization, consensus mechanisms, and cryptography to make the network transactions secure. Most of the nodes are required to validate a transaction before it gets added to a block. Once recorded, the data becomes a part of an immutable history that will be used continuously to update the blockchain and add and validate more transactions.
2. Decentralized System
Since each node has a shared copy of the distributed copy of the blockchain database, there is no single point of failure. Also, since transactions happen directly between parties on a blockchain, blockchain also accords disintermediation. The node operators collectively run the blockchain, and there is no central authority involved to dictate terms. As such, a blockchain records transactions in a completely decentralized fashion – accessible to all, owned by onne.
3. Automation Capability
A blockchain network can be programmed and customized to suit different business needs. For instance, Ethereum is a programmable blockchain and is being used to deploy cryptocurrency platforms, Non-fungible tokens, Decentralized Autonomous Organizations (DAOs), and a host of other functionalities. Smart contracts-enabled blockchains such as Shardeum, Ethereum, etc., can be fully programmed to automate processes and produce systematic actions, payments, and events automatically when a set criterion is met.
What are the Types of Blockchains?
1. Private Blockchain Networks
Amongst blockchain technology applications, the use of private blockchains is widespread. These blockchains function as closed networks and are more suited for keeping the functions of private organizations and businesses decentralized, automated, and transparent. For instance, JP Morgan uses its own blockchain to tackle the day-to-day operations and record-keeping of the bank. Other examples include blockchains used by IBM, Hyperledger, Corda, etc.
Private blockchain technology applications also include their customizability in terms the access and authorization, network parameters, and other security options. Though a private blockchain may decentralize the internal operation of an organization, it can be called a pseudo-blockchain as it is controlled by a single authority eventually.
2. Public Blockchain Networks
These are the kind of blockchain technology applications that we generally come across as the infrastructure layer behind Bitcoin, cryptocurrencies, NFTs, dApps, and a host of other applications. We usually define blockchain technology as a public blockchain that uses Distributed Ledger Technology (DLT) to eliminate challenges and invoke blockchain merits. A public blockchain can be called a peer-to-peer network that uses consensus algorithm m for verifying transactions happening on the network. These transactions are then stored as blocks and joined to the main chain, thus forming an immutable store of data. Public blockchains use several consensus mechanisms like Proof-of-Work, Proof-of-Stake, and Proof-of-Authority.
3. Permissioned Blockchain Networks
When a private blockchain allows authorized access to specific individuals, we call it permissioned blockchains. In other words, a hybrid blockchain is how we define blockchain technology of this kind. These kinds of blockchain technology applications allow organizations to have the best of both worlds – on the one hand; they have a better foundational layer on which to base their processes while at the same time restricting access to a few. These organizations assign the right of participation in the network as well as in the kind of transactions by opting for customizations in their hybrid blockchains.
4. Consortium Blockchains
Consortium blockchains are much like permissioned blockchains because they have the components of both public and private blockchains. Consortium blockchains, given their complexity, can be pretty hard to set up. But once these blockchains are up and running, they provide superior security. Consortium blockchains can be used optimally by multiple organizations for collaborations, i.e., multiple organizations can be added to a single blockchain network. This kind of blockchain can be used in multiple blockchain technology applications ranging from simplifying trade processes (e.g., Marco Polo) to handling banking operations (e.g., Bank Chain comprises 37 members and partners under the consortium blockchain).
This was all about what is blockchain technology and an overview of its utilities and kinds. While blockchain technology is still trying to find its footing in real-world processes, it holds power to transform anything that can be decentralized. It is being deployed in retail trade, supply chain, real estate, digital payments, voting, data records, and healthcare, among others. With a plethora of blockchain technology applications actually in operation currently, the time doesn’t seem far, especially with the near advent of the web3, that disruptive tech will become the next revolution, similar ot the internet in the 1990s.
While the above post is just an introductory insight into what is blockchain technology, you can go ahead and explore more such interesting blogs from the Shardeum community.
Frequently Asked Questions (FAQs)
1. What is the Difference Between a Database and a Blockchain?
A blockchain in layman terms is essentially a database, but it has unique, significant features which makes it much more useful. Some of the important features of the blockchain technology are:
- Blockchain technology decentralizes the control over the data in the database with the shared ledger.
- Companies can share the distributed ledger with the participants of its board separately and prepare a public ledger for sharing its statistics with the people. A singular blockchain with smart contracts can maintain both the ledgers.
- Unlike a traditional database, the data in a blockchain cannot be modified once added to the block.
2. How is Blockchain Different from the Cloud?
Cloud services provide you access to their network and services through the internet. They are controlled by a centralized entity. On the other hand, on a blockchain all nodes share access to the distributed database, and therefore blockchains are much more decentralized in comparison to a cloud.
3. What is Blockchain as a Service?
Blockchain as a service is a unique concept where you will be provided with the hardware and network support for participating upon an existing blockchain. With blockchain as a service, you can get on a blockchain and get access to various DApps and digital services, and can even join an ecosystem as a developer.
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