What is Blockchain Technology?
A sophisticated database system called blockchain technology enables transparent information sharing inside a company network. Data is kept in blocks that are connected together in a chain and stored in a blockchain database.
Due to the inability to delete or amend the chain without network consensus, the data remains chronologically consistent. In order to manage orders, payments, accounts, and other transactions, you can utilise blockchain technology to establish an unchangeable or immutable ledger.
A common picture of these transactions is made consistent by the system’s built-in features, which also stop illegitimate transaction submissions.
What makes blockchain so crucial?
For storing financial transactions, traditional database methods provide a number of difficulties. Take the sale of a property, for instance. The property belongs to the buyer once the money has been exchanged.
Both the buyer and the seller can independently keep track of the financial transactions, but neither source can be relied upon. Both the buyer and the seller can claim that they have paid the money even when they haven’t, and both parties can readily deny doing so.
Transactions must be monitored and verified by a dependable third party to prevent potential legal problems. The existence of this centralised authority not only makes the transaction more difficult, but it also establishes a weak spot. Both parties may be harmed if the main database is compromised.
Blockchain eliminates these problems by developing a decentralised, unchangeable mechanism for transaction recording. Blockchain generates separate ledgers for both the buyer and the seller in the case of a real estate transaction.
All transactions are subject to both parties’ approval and are automatically updated in real time in both of their ledgers. Any tampering with earlier transactions will taint the entire ledger.
These characteristics of blockchain technology have made it useful across a range of industries, including the development of virtual currencies like Bitcoin.
How does blockchain work in various industries?
Blockchain is a new technology that is being creatively embraced by many sectors. In the subsections below, we discuss a few use examples in various industries:
1. Energy
Blockchain technology is used by energy companies to build peer-to-peer energy trading systems and simplify access to renewable energy. Take these applications, for instance:
A trading platform has been developed by energy corporations using blockchain technology for the sale of electricity between private parties. Using this platform, homeowners with solar panels can sell their extra solar energy to nearby neighbours. As transactions are created by smart metres and recorded on blockchain, the process is largely automated.
Users can sponsor and own solar panels in communities without access to electricity through blockchain-based crowd fundraising schemes. Once the solar panels are built, sponsors might also get rent for these neighbourhoods.
2. Finance
Blockchain services are used by conventional financial institutions, like as banks and stock exchanges, to control online payments, accounts, and market trading. For instance, Singapore Exchange Limited employs blockchain technology to create a more effective interbank payment account. Singapore Exchange Limited is an investment holding firm that offers financial trading services throughout Asia. They overcame a number of difficulties by implementing blockchain, including batch processing and manually reconciling thousands of financial transactions.
3. Entertainment and the media
Blockchain-based technologies are used by media and entertainment businesses to manage copyright information. For artists to receive just recompense, copyright verification is essential. The sale or transfer of copyrighted content requires several transactions to be recorded. Blockchain technology is used by Sony Music Entertainment Japan to improve the effectiveness of digital rights management. To increase productivity and save costs associated with handling copyright, they have effectively applied blockchain technology.
4. Retail
Blockchain is used by retail businesses to monitor the flow of goods between suppliers and customers. For instance, Amazon Retail has applied for a patent for a distributed ledger system that will employ blockchain technology to confirm the legitimacy of every product sold on the platform. By enabling parties like manufacturers, couriers, distributors, end users, and secondary users to contribute events to the ledger after enrolling with a certificate authority, Amazon merchants may trace their global supply chains.
What characteristics does blockchain technology have?
The key characteristics of blockchain technology are as follows:
Decentralization
In the context of blockchain, decentralisation refers to the transfer of power and responsibility from a centralised entity (an individual, an organisation, or a group) to a dispersed network. Transparency in decentralised blockchain networks helps players build less trust in one another. These networks also prevent users from interfering with one another in ways that would impair the network’s performance.
Immutability
Something can never be altered or changed if it is immutable. Once someone has added a transaction to the shared ledger, it cannot be changed by another participant. To correct an error in a transaction record, you must add a new transaction, and both transactions are accessible to the network.
Consensus
Rules regarding participant consent for recording transactions are established by a blockchain system. Only until the majority of network users have approved, can new transactions be recorded.
What fundamental elements make up blockchain technology?
The following are the key elements of blockchain architecture:
An electronic ledger
A distributed ledger, which can be compared to a team’s shared file that everyone can update, is the shared database in the blockchain network that maintains the transactions.
Anyone with editing privileges can remove the entire file in the majority of shared text editors. However, there are stringent limitations on who can edit and how to modify with distributed ledger technology. Once an entry has been made, it cannot be deleted.
Sensible contracts
Smart contracts enable businesses to self-manage contractual obligations without the use of a middleman. They are applications that are saved on the blockchain system and are launched automatically when certain criteria are satisfied.
In order to confidently finish transactions, they perform if-then checks. A smart contract, for instance, may be set up by a logistics business to automatically pay suppliers once the goods arrive at the port.
Public key encryption
The blockchain network uses public key cryptography as a security measure to enable participants to be identified exclusively. Two sets of keys are generated for network users by this approach.
Everybody in the network uses the same public key, which is known as one key. The other is a personal key that each member has. Together, the private and public keys can unlock the ledger’s data.
John and Jill are two examples of the network’s members. Using his private key, John records a transaction that is encrypted. It can be decrypted by Jill using her public key. Jill is certain John completed the purchase because of this. If John’s private key had been altered, Jill’s public key would not have functioned.
How does the blockchain function?
We provide a quick introduction of the underlying blockchain mechanisms in the steps that follow, notwithstanding their complexity. Most of these steps can be automated using blockchain software:
Step 1: Record the transaction
A blockchain transaction documents how assets are transferred between parties in the network, whether they are tangible or digital. It is stored as a data block and may contain information like this:
- Who participated in the deal?
- What transpired during the deal?
- When did the deal actually happen?
- Where did the deal happen?
- What led to the transaction?
- What portion of the asset was traded?
- How many prerequisites were satisfied throughout the transaction?
Step 2: Reach an agreement
A majority of users on the distributed blockchain network must concur that the transaction was recorded as legitimate. Rules of agreement can differ depending on the type of network, but they are usually defined at the beginning of the network.
Step 3: Connect the blocks.
Transactions on the blockchain are recorded into blocks that are like to the pages of a ledger book once the participants have come to an agreement. A cryptographic hash is applied to the new block along with the transactions. The blocks are connected by a chain created by the hash. The hash value changes whenever the block’s contents are altered, whether on purpose or accidentally, making it possible to spot data manipulation.
As a result, the blocks and chains connect solidly and cannot be changed. The verification of the preceding block and, by extension, the blockchain as a whole, is strengthened with each new block. This is similar to building a tower out of wooden blocks. Blocks can only be stacked on top of one another; removing a block from the centre of a tower causes the tower to collapse.
Step 4: Share the ledger
The system provides each participant with a copy of the most recent central ledger.
How many different blockchain networks are there?
In the blockchain, there are four primary categories of decentralised or distributed networks:
Public network blockchains
Public blockchains are open to all users and have no access restrictions. The rights to access, update, and validate the blockchain are shared by all participants. Public blockchains are mostly used by people to trade and mine cryptocurrencies like Bitcoin, Ethereum, and Litecoin.
Private network blockchains
Managed blockchains, also known as private blockchains, are under the authority of a single entity. Who is eligible to join the network and what privileges they have are decided by the authorities. Due to access limitations, private blockchains are only partially decentralised. A private blockchain is exemplified by the digital currency exchange network for businesses known as Ripple.
Hybrid network blockchains
Blockchains that are hybrids combine components from both public and private networks. Along with a public system, businesses can set up private, permission-based systems. They maintain public access to the remaining data while controlling access to some data that is kept on the blockchain in this way. To enable public users to verify whether private transactions have been performed, they deploy smart contracts. For instance, hybrid blockchains can allow for public access to digital currency while maintaining the confidentiality of currency held by banks.
Consortium network blockchain
Blockchain consortium networks are governed by a collection of institutions. The blockchain is jointly maintained by preselected organisations, which also decide on data access privileges. Industry sectors that benefit from shared responsibility and have several entities with similar goals sometimes favour consortium blockchain networks. For instance, the Global Shipping Business Network Consortium is a non-profit blockchain consortium with the goal of digitising the shipping sector and fostering more operator cooperation in the maritime sector.
Blockchain protocols: what are they?
The phrase “blockchain protocol” refers to several blockchain platforms that can be used to create applications. Every blockchain protocol modifies the fundamental blockchain concepts to fit particular markets or applications. The following subsections provide some instances of blockchain protocols:
Fabric for Hyperledger
A collection of tools and libraries make up the open-source project known as Hyperledger Fabric. It enables businesses to quickly and efficiently create private blockchain applications. It’s a general-purpose, modular framework with special identity management and access control features. Due to these characteristics, it can be used for a variety of purposes, including trade finance, loyalty and rewards programmes, supply chain tracking, and clearing and settlement of financial assets.
Ethereum
People can create open-source, decentralised public blockchain applications using the Ethereum platform. Ethereum Enterprise is made for usage in commercial scenarios.
Corda
A blockchain project called Corda is open-source and intended for commercial use. Building interoperable blockchain networks with stringent privacy is possible with Corda. Businesses can deal directly and with value using Corda’s smart contract technology. Financial institutions make up the bulk of its users.
Quorum
An Ethereum-based open-source blockchain protocol called Quorum was created. It is specifically made for use in networks like private blockchains, where a single member controls every node, or consortium blockchain networks, where different members control different portions of the network.
How has blockchain technology changed over time?
Hash trees, also known as Merkle trees, were created by computer scientist Ralph Merkle in the late 1970s, which is when blockchain technology first emerged. These trees are a type of computer science structure used to store data by cryptographically connecting blocks.
Stuart Haber and W. Scott Stornetta used Merkle trees to build a system that prevented tampering with document timestamps in the late 1990s. This was the first occurrence in blockchain history.
Over these three generations, technology has kept improving:
Bitcoin and other first-generation virtual currencies
In 2008, a person or group of people who wish to remain unidentified and go by the name Satoshi Nakamoto described the present iteration of blockchain technology. In Satoshi’s original design for the Bitcoin blockchain, transactions were recorded in 1 MB blocks of data.
Even today, a lot of the characteristics of Bitcoin blockchain systems continue to be fundamental to blockchain technology.
Smart contracts of the second generation
A few years after the launch of first-generation currencies, developers started thinking about blockchain uses outside of cryptocurrencies. As an illustration, the Ethereum creators choose to use blockchain technology to asset transfer operations. Their major contribution was the inclusion of smart contracts.
Future belongs to the third generation.
Blockchain technology is still developing and expanding as businesses find and use new applications. Businesses are overcoming scalability and computational constraints, and the current blockchain revolution offers countless opportunities.
What advantages does blockchain technology offer?
The administration of asset transactions benefits greatly from the use of blockchain technology. In the subsections that follow, we list some of them:
Advanced protection
Modern digital transactions require a high level of security and trust, which blockchain platforms offer. A constant worry is that someone may alter the underlying programme to create fictitious funds for himself. Contrarily, blockchain leverages the three principles of decentralisation, consensus, and cryptography to build a very secure underpinning software system that is virtually impossible to alter. No single point of failure exists, and only one user is unable to alter the transaction records.
Increased effectiveness
Business-to-business transactions can be time-consuming and lead to operational bottlenecks, particularly when third-party regulatory agencies and compliance are involved. Such commercial transactions are quicker and more efficient thanks to blockchain’s transparency and smart contracts.
Speedier auditing
Enterprises need to be able to produce, share, archive, and reconstruct electronic transactions in a safe and auditable way. Because blockchain records are chronologically unchangeable, they are always in chronological sequence. This data transparency speeds up the auditing process.
What distinguishes blockchain technology from bitcoin?
Although they are sometimes used synonymously, bitcoin and blockchain are two distinct concepts. People accidentally started using Bitcoin to signify blockchain because it was an early use of blockchain technology, leading to the creation of this misunderstanding. However, blockchain technology is not just used for Bitcoin.
Bitcoin is a decentralised digital money that runs entirely on user discretion. Although they were initially developed for online financial transactions, bitcoins are today regarded as digital assets that may be exchanged for any other worldwide currency, such as the US dollar or the euro. The central ledger is created and maintained by a public Bitcoin blockchain network.
Network of bitcoin
All Bitcoin transactions are tracked in a public ledger that is stored on servers all over the world. Servers resemble banks. Bitcoin servers are aware of every single Bitcoin transaction that has ever taken place in the globe, but each bank just knows about the money that its customers exchange.
One of these servers, referred as as a node, can be installed by anyone with an extra computer. In place of a bank account, this is comparable to starting your own Bitcoin bank.
Mining bitcoin
Members of the open Bitcoin network mine for bitcoin by constructing new blocks by solving cryptographic equations. Each new transaction is shared between nodes and broadcast publicly to the network by the system. These transactions are gathered by miners into a new block and permanently added to the blockchain, which serves as the authoritative account book for Bitcoin, around every 10 minutes.
The complexity of the software process makes mining time-consuming and computationally intensive. Miners receive a little reward in cryptocurrency in return. The miners take on the role of contemporary clerks, recording transactions and taking transaction fees.
Using blockchain cryptography, all network participants agree on who is in possession of whose currency.
What distinguishes a blockchain from a database?
A unique kind of database management system called blockchain has more functionality than a typical database. The following list highlights some key distinctions between a standard database and a blockchain:
Blockchains decentralise power without undermining confidence in the data already in existence. Other database systems cannot accomplish this.
A transaction’s participants are not permitted to reveal their whole database.
On the other hand, in blockchain networks, each business has a duplicate of the ledger, and the technology automatically ensures consistency between the two ledgers.
While conventional database systems allow for data editing and deletion, blockchain only allows for data insertion.
What distinguishes blockchain from the cloud?
Online computing services are referred to as being in the cloud. The cloud provides access to infrastructure as a service (IaaS), software as a service (SaaS), and product as a service (PaaS).
The hardware and infrastructure are managed by cloud providers, who allow you online access to these computing resources. Beyond merely database management, they offer a vast array of resources.
You must offer your own resources to store your ledger copy if you want to join a public blockchain network. For this, you may also use a cloud-based server. Additionally, some cloud service providers deliver full Blockchain as a Service (BaaS) from the cloud.
Blockchain as a Service: What is it?
A third party offers Blockchain as a Service (BaaS), a managed blockchain service, in the cloud. While the cloud provider provides the infrastructure and blockchain building tools, you can create digital services and blockchain apps. All that is required to speed the acceptance of blockchain technology is to adapt the current version.
