Over the past few years, you have consistently heard the term ‘blockchain technology,’ probably regarding cryptocurrencies, like Bitcoin. In fact, you may be asking yourself, “what is blockchain technology?” In this article, I will explain what exactly blockchain is about. Let's begin :)
What is The Blockchain?
Imagine a world where you can send money directly to someone without a bank in seconds instead of days, and you don’t pay excessive bank fees. This is made possible with blockchain technology.
Blockchain is a decentralized list of records consisting of individual blocks linked together. It can be seen as a technology that keeps track of all digital data or assets exchanged in the network and this record is called a “ledger”. Each data exchanged is the “Transaction” and every verified transaction gets added as a Block in the ledger. Let's see this as a massive database of everyone sending and receiving money (crypto) and other digital assets (NFTs and smart contracts).
Advantages of blockchain technology
Enhanced Security
Blockchain technology utilizes advanced security compared to other platforms or record-keeping systems. Any transactions that are ever recorded need to be agreed upon according to the consensus method. Also, each transaction is encrypted and has a proper link to the old transaction using a hashing method. Blockchain uses a digital signature feature to conduct fraud-free transactions making it impossible to corrupt or change the data of an individual by the other users without a specific digital signature. This is to say that in the blockchain data is written once and cannot be reverted by any means. Combining public information with a system of checks and balances helps the blockchain maintain its integrity and creates trust among users.
Decentralized System
Decentralization means there’s no central point of control. In a centralized system, you need the approval of regulatory authorities like a government or bank for transactions; however, with Blockchain, transactions are done with the mutual consensus of users resulting in smoother, safer, and faster transactions.
Reliability
Blockchain has an advantage over centralized systems because the architectural structure ensures a high level of reliability. If a technical failure occurs at one node, the data is still available across all other instances. In contrast, server problems in centralized architectures usually cause limited availability, depending on the degree of redundancy.
Open
All the transactions are visible to all the nodes.
Types of blockchain networks
There are several ways to build a blockchain network. They can be public, private, Permissioned, or built by a consortium.
Public blockchain networks
A public blockchain is one that anyone can join and participate in, such as Bitcoin. Disadvantages might include substantial computational power required, little or no privacy for transactions, and weak security. These are important considerations for enterprise use cases of blockchain. A good example is bitcoin.
Private blockchain networks
A private blockchain network, similar to a public blockchain network, is a decentralized peer-to-peer network. However, one organization governs the network, controlling who is allowed to participate, executing a consensus protocol, and maintaining the shared ledger. Depending on the use case, this can significantly boost trust and confidence between participants. A private blockchain can be run behind a corporate firewall and even be hosted on-premises. A good example is Ripple.
Permissioned blockchain networks
A permissioned blockchain is a distributed ledger that is not publicly accessible. It can only be accessed by users with permissions. The users can only perform specific actions granted to them by the ledger administrators and are required to identify themselves through certificates or other digital means. It is important to note that public blockchain networks can also be permissioned. A good example is Hyperledger
Consortium Blockchains
Similar to permissioned blockchains, consortium blockchains have both public and private components, except multiple organizations will manage a single consortium blockchain network. Although these types of blockchains can initially be more complex to set up, once they are running, they can offer better security. Additionally, consortium blockchains are optimal for collaboration with multiple organizations. Some examples include Hyperledger, Corda, Ripple, Multichain, Ethermint, Tendermint, Quorum.
Blockchain platforms
- Ethereum
- Bitcoin
- Tezos
- Polkadot
- Solana
- Cosmos
- Ripple
- Quorum
- IBM Blockchain
- EOS
- OpenChain
- Stellar
- Hyperledger
In Conclusion,
From all we've read so far, we now know that blockchain is just a database that stores encrypted blocks of data and then chains them together to form a chronological single-source-of-truth for the data where digital assets are distributed instead of copied or transferred, creating an immutable record of an asset. The asset is decentralized, allowing full real-time access and transparency to the public. In the blockchain, there is no need for an external or internal authority because every user relies on the technology itself, following predefined rules to meet consensus and ensure the integrity and authenticity of the data.