Since the emergence of digital currencies like bitcoin, the term blockchain technology has become very common. I’m sure you must have heard it before. If so, you might be wondering, What is Blockchain Technology?. After some research, I discovered that it is inappropriate to define blockchain technology without explaining how it works and its relevance to society
If you have little or no idea of what blockchain is, this is the ideal venue for gaining a firm grounding in this topic. After reading this guide, you’ll be fully enlightened about blockchain technology and how it works. Let’s get started.
What is blockchain technology?
Blockchain technology is essentially a digital ledger in which data can be entered, verified, and then processed further by computer nodes on a peer-to-peer network. Whether you want to enter new data, validate existing data, or delete data, each transaction on the peer-to-peer network must be validated by a predefined number of nodes.
The data is saved in blocks; these blocks are then linked to form the Blockchain. To create a new data block, any of the nodes must first create a new block and then insert all of the recent transactions into the block.
However, this new block is appended to the existing Blockchain before being broadcast to the network’s other nodes. Before new transactions can be accepted and added to the Blockchain, other nodes must verify their validity.
Blockchain technology’s beginnings
Back in 2009, a man named Satoshi Nakamoto (a pseudonym for an unknown person) published a research paper describing Bitcoin (BTC). The Blockchain was later renamed as a result of this. Bitcoin is just one of the most important blockchain technologies.
There are numerous other applications for Blockchain. For example, there are distributed network ledgers, machine-to-machine (M2M) transactions, counterfeit product rip-offs, and so on. A method of making payments that are anonymous, Data security and protection from the government, and third-party interference.
Why is blockchain technology valuable
Blockchain technology offers numerous benefits that proffer solutions to many problems in the digital world. Here are some of the most important benefits;
- Highly Secure
- Decentralized System
- Automation Capability
- No third party verification
1. Highly secure
With the help of a digital signature, transactions can be carried out securely without Fraud. This makes it virtually impossible for other users to corrupt or tamper with an individual’s data if they do not have the required digital signature.
2. Decentralized system
Transactions can now be carried out anonymously with the interference of external bodies such as the government and other financial institutions. This development allows for smooth and safer transactions.
3. Automation capability
It is programmable and can automatically generate systematic actions, events, and payments when the trigger criteria are met.
4. No third party verification
For the transaction to be valid, no central body must authenticate it. As a result, any fees charged by these parties for their services are eliminated. It also shortens the time required for each transaction.
Even though humans are not involved in the authentication process, the chances of error are greatly reduced. If one computer makes a mistake, more than half of the devices on the network must also make the same mistake for the error to spread throughout the Blockchain.
How does blockchain technology work?
Blockchain is a chain of blocks that contain specific information in a secure and authentic manner. This database is connected via a network (peer-to-peer). Alternatively, Blockchain is a network of computers linked together rather than a centralized server, implying that the entire network is decentralized.?
Types of blockchains technology
Blockchains are classified into four types:
. Public Blockchains
Public blockchains are open, decentralized networks of computers that anyone who wishes to request or validate a transaction can access (check for accuracy).
Proof-of-work or proof-of-stake consensus mechanisms are used in public blockchains (discussed later). The Bitcoin and Ethereum (ETH) blockchains are two popular examples of public blockchains.
. Private Blockchains
Private blockchains are not open, and access to them is restricted. To be part of it, one must be granted access from the system administrator. They are typically governed by a single entity, implying that they are centralized. Hyperledger, for example, is a private blockchain.
. Hybrid Blockchains or Consortiums
Consortiums are a hybrid of public and private blockchains with centralized and decentralized elements. Energy Web Foundation, Dragonchain, and R3 are a few examples.
A sidechain is a blockchain that works together with the main chain. It enables users to transfer digital assets between blockchains and improves scalability and efficiency. The Liquid Network is an example of a sidechain.
Public blockchain technology vs. private blockchain technology
Joining a public blockchain requires computational resources and a complex consensus algorithm for verifying all blocks. Additionally, the public blockchain needs a lot of computational power to calculate the unique nonce.
Private blockchain as the name implies is only accessible to specific persons. To join the network, you would have to register. All registration processes are overseen by an administrator who acts as an arbitrator.
The private Blockchain is less expensive to maintain and has a simpler consensus algorithm.
A major distinction between these two blockchains is accessibility. Administrators of a private blockchain have the authority to grant and revoke access to a specific node. Miners in the Blockchain are granted executable privileges, they can validate/write a valid block to the Blockchain.
Features of blockchain technology
The existence of a peer-to-peer network implies that all users are equal – no server is superior to its clients, as there is on the Internet. This results in decentralized control over the data contained in the Blockchain as a whole.
Because all nodes are involved in all transactions, there is no single point of control or failure.
Because the data is distributed, hackers cannot access the Blockchain from a single point. Similarly, if any node fails, the entire Blockchain will not be disrupted, and everything will continue as usual.
Also, because all of the blocks are in the public domain, there is complete transparency. As we will see later, this blockchain feature has been applied in many places.
Therefore, let us begin by discussing some of the primary characteristics of Blockchain.
- Increased Capacity
- Better Security
- Faster Settlement
- Decentralized System
1. Increased capacity
This is the first and most critical characteristic of Blockchain. The most remarkable aspect of this Blockchain technology is that it increases the overall network capacity. Also, Because there are many computers working together, the total power is greater than that of a few devices where things are centralized.
2. Better Security
Blockchain technology is more secure because there is no possibility of the system being shut down. Even the highest levels of the financial system can be hacked. However, Bitcoin has never been hacked. This is because The blockchain network is secured by a number of computers referred to as nodes, and these nodes authorize transactions on the network.
One of the primary benefits of Blockchain technology is the ability to create immutable ledgers. Any centralized database is vulnerable to hacking, and they require trust in a third party to keep the database secure. Blockchain, like Bitcoin, keeps its ledgers moving forward indefinitely.
However, to gain control of the Bitcoin market, one must own 51% of the total market. Although we can change ledgers through hard forking, we need a widespread agreement among miners, exchanges, and individual users, as well as node operators. However, there is a good chance that the old ledgers will remain in their original form.
4. Faster settlement
Traditional banking systems can be slow because they require a lot of settlement time, which can take days. This is one of the primary reasons why these financial institutions must upgrade their banking systems. We can solve this problem by using Blockchain, which can settle money transfers at extremely fast speeds. Also, this ultimately saves these institutions a lot of time and money while also providing convenience to the consumer.
5. Decentralized system
Decentralized technology allows you to store your assets in a network that you can access via the Internet. An asset can be anything, such as a contract or a document. This owner has direct control over his account through the use of a key that is linked to his account, giving the owner the ability to transfer his assets to whoever he wants. However, blockchain technology has proven to be a highly effective tool for decentralizing the Internet. It does have the ability to bring about massive changes in industries.
Essentially, there are numerous methods for minting a problem of manipulation that Blockchain can solve. If you go to the west and ask them if they trust technology, the answer is YES, specifically Google, Facebook, and their banks, but this is not the case in the rest of the world, who do not trust these organizations as much.
What are the impacts of blockchain technology?
Blockchain technology has had a significant impact on society, including the following:
- Bitcoin, the primary application of Blockchain and the reason the technology was created in the first place, has aided many people through financial services such as digital wallets. It has made microloans and micropayments available to people in less-than-ideal economic circumstances, bringing new life into the global economy.
- The next major impact is on the concept of TRUST, particularly in international transactions. Previously, lawyers were hired to bridge the trust gap between two parties, but this took additional time and money. However, the introduction of cryptocurrency has fundamentally altered the trust equation. Many organizations are located in areas where resources are limited, and corruption is uncontrolled. In such cases, Blockchain offers a major advantage to the affected individuals and organizations by allowing them to avoid the traps of untrustworthy third-party intermediaries.
- The Internet of Things (IoT) has unleashed a slew of smart machines that transfer data over the Internet without the need for human intervention. Similarly, technology is used in public services such as garbage collection, transportation, and traffic management. So, in the world of IoT, you can create Smart Contracts and assign smart objects to perform the listed tasks without calling for human intervention.
- Blockchain technology can be used to create a decentralized peer-to-peer network for businesses or apps such as Airbnb and Uber. Also, it enables people to pay for things like tolls, parking, and so on.
- Blockchain technology can be used to create a secure platform for storing sensitive patient data in the healthcare industry. With the technology, healthcare organizations can create a centralized database and share information with only those who are appropriately authorized.
Blockchain technology’s impact on industries
Despite the fact that Blockchain was created to launch the cryptocurrency Bitcoin, it has found acceptance in all major industries such as entertainment, sports, retail, finance, logistics, healthcare, and so on.
Here are some examples of use cases that have the potential to transform many industries:
- In the supply chain, Blockchain can be used to verify the authenticity of products being delivered.
- Smart contracts can be used to complete transactions without the use of a middleman.
- Blockchain technology can be used for crowdfunding, allowing donors to easily track whether their contributions were put to good use.
- One of the most serious shortcomings of current online systems is the inability to secure personal identities. Also, Blockchain can be used to distribute this data in a secure manner with no central point of hacking.
- People can store records pertaining to their academic and professional achievements on Blockchain and share them with others, such as prospective employers or loan managers. Because it is on the Blockchain, the other party can easily verify the information’s authenticity.
- Also, data that should be in the public domain, such as land title deeds and stock market value, can be securely stored on the Blockchain and accessed and viewed by anyone.
Blockchain is a chain of blocks that contain specific information in a secure and authentic manner. This database is connected via a network (peer-to-peer). Alternatively, Blockchain is a network of computers linked together rather than a centralized server, implying that the entire network is decentralized.