What Is Blockchain Technology?
A blockchain is a distributed database or ledger that is shared among computer network nodes. A blockchain, like a database, saves information electronically in a digital format. Blockchains are well known for their critical function in cryptocurrency systems like Bitcoin. They keep a secure and good record of payments. The blockchain’s innovation is that it ensures the result and security of a data record and produces trust without the requirement for a trusted third party.
The way data is made differs seriously between a traditional database and a blockchain. A blockchain accumulates information in groups known as blocks, which hold sets of data. When a block’s storage size is reached, it is closed and linked to the previously filled block. It produces a data chain known as the blockchain. All new information that follows that newly added block is made up into a newly formed block, which is then added to the chain once it is complete.
A database usually structures its data into tables, whereas a blockchain, as its name implies, structures its data into chunks (blocks) that are strung together. This data structure inherently makes an irreversible timeline of data when implemented in a spreading nature. When a block is filled, it is set in stone and becomes a part of this timeline. Each block in the chain is given an exact timestamp when it is added to the chain.
- Blockchain is a type of shared database that differs from traditional databases in the way data is stored. Blockchains store data in blocks that are then connected together using encryption.
- As new data arrives, it is added to a new block. Once the block has been filled with data, it is chained onto the previous block. It puts the data in chronological sequence.
- A blockchain can hold several types of data, but its most popular application to date has been as a transaction ledger.
- In the case of Bitcoin, blockchain is employed decentralized, such that no single person or organization has control—rather, all users keep power collectively.
- Because decentralized blockchains are unchangeable, the data entered is unable to be reversed. This means that Bitcoin deals are forever recorded and viewed by anybody.
How Does a Blockchain Work?
Blockchain’s purpose is to enable digital information to be recorded and distributed, but not altered. A blockchain, in this sense, serves as the foundation for immutable ledgers, or records of deals that cannot be changed, erased, or destroyed. As a result, blockchains are also known to give out ledger technologies (DLT).
The blockchain concept was first suggested as a research project in 1991, and it predated its first widespread use in use: Bitcoin, in 2009. Since then, the use of blockchains has grown exponentially. Thanks to the development of multiple cryptocurrencies, decentralized finance (DeFi) applications, non-fungible tokens (NFTs), and smart contracts.
As a result, information and history (such as cryptocurrency transactions) are irreversible. Such a record could be a list of deals (as with cryptocurrencies), but a blockchain could also include a range of other information such as legal contracts, state identifications, or a company’s product inventory.
Important: To approve new entries or records to a block, most of the processing power in the decentralized network must agree. Blockchains are secured by a consensus mechanism such as proof of work (PoW). Or proof of stake to prevent bad actors from accepting bogus deals or duplicate spending (PoS). These procedures allow for consensus even when there is no single node in command.
Because of the decentralized structure of Bitcoin’s blockchain, all transactions may be transparently watched by owning a personal node or using blockchain explorers, which allow anybody to see transactions taking place in real time. Every node maintains its own copy of the chain, which is updated as new blocks are confirmed and added. This means that you could follow Bitcoin wherever it goes if you wanted to.
Exchanges, for example, have been hacked in the past, and customers who stored Bitcoin on the exchange lost everything. While the hacker is completely anonymous, the Bitcoins they stole are easily traceable. It would be known if the Bitcoins stolen in some of these attacks were relocated or spent somewhere.
The records recorded on the Bitcoin blockchain (as well as the majority of others) are, of course, encrypted. This means that only the record’s owner may decrypt it and reveal their identity (using a public-private key pair). As a result, blockchain users can stay anonymous while maintaining transparency.
Is Blockchain Secure?
In numerous ways, blockchain technology delivers decentralized security and trust. To begin, new blocks are always kept in a linear and chronological order. That is, they are always added to the blockchain’s “end.” It is exceedingly difficult to go back and change the contents of a block once it has been added to the end of the blockchain unless a majority of the network has reached a consensus to do so. This is due to the fact that each block contains its own hash, as well as the hash of the block preceding it and the previously mentioned date. A mathematical function converts digital information into a string of numbers and letters to generate hash codes. If that information is changed in any manner, the hash code will change as well.
Assume a hacker, who also operates a node on a blockchain network, wishes to change a blockchain and steal cryptocurrency from everyone else. If they changed their single copy, it would no longer be in sync with everyone else’s copy. When everyone else compares their copies to each other, this one copy will stand out, and the hacker’s version of the chain will be dismissed as invalid.
To be successful, the hacker must simultaneously control and alter 51% or more of the copies of the blockchain, so that their new copy becomes the majority copy. Therefore, the agreed-upon chain. Such an assault would also necessitate an enormous amount of money and resources. They would have to rewrite all of the blocks due to the varied timestamps and hash codes.
Because of the magnitude and speed with which many cryptocurrency networks are developing, the expense of accomplishing such a feat would very certainly be insurmountable. This would be not only exceedingly costly but also likely futile. Such an action would not go unnoticed by network participants, who would detect such substantial changes to the blockchain.
Members of the network would then hard fork off to a new version of the chain that was not affected. This would lead the value of the attacked version of the token to collapse, rendering the attack ultimately futile because the bad actor now controls a worthless asset. The same thing would happen if a bad actor attacked the new Bitcoin fork.
Bitcoin vs. Blockchain
Stuart Haber and W. Scott Stornetta, were two researchers who aimed to develop a system where document timestamps could not be manipulated with. He proposed blockchain technology in 1991. But it wasn’t until over two decades later, with the January 2009 introduction of Bitcoin, that blockchain saw its first real-world implementation.
A blockchain is the foundation of the Bitcoin protocol. Bitcoin’s pseudonymous developer, Satoshi Nakamoto, described the digital currency in a research paper as “a new electronic cash system that’s totally peer-to-peer, with no trusted third party.”
The crucial point to remember here is that Bitcoin uses blockchain to transparently record a ledger of payments. Blockchain may theoretically be used to immutably store any amount of data points. As previously said, this could take the shape of transactions, election votes, goods inventories, state identifications, deeds to residences, and much more.
Currently, tens of thousands of initiatives are attempting to use blockchains in ways other than transaction recording to benefit society. For example, as a safe means of voting in democratic elections. Because of the immutability of blockchain, fraudulent voting would become much more difficult. A voting system, for example, may be designed so that each citizen of a country receives a single coin or token. Each candidate would then be assigned a unique wallet address. Then voters would transmit their token or cryptocurrency to the address of their choice.
Because blockchain is transparent and traceable. It eliminates the necessity for human vote counting as well as the ability of unscrupulous actors to interfere with physical votes.
How Are Blockchains Used?
Blocks on Bitcoin’s blockchain, as we now know, store data about monetary transactions. There are currently over 10,000 additional cryptocurrency systems running on blockchain. However, it has been shown that blockchain is also a reliable method of recording data about other types of transactions.
Walmart, Pfizer, AIG, Siemens, Unilever, and a slew of other corporations have already used blockchain. For example, IBM has developed the Food Trust blockchain to track the path that food goods follow to reach their destinations.
Why are you doing this? There have been numerous outbreaks of E. coli, salmonella, and listeria in the food sector. As well as hazardous compounds being mistakenly put into foods. It used to take weeks to figure out where these outbreaks were coming from or what was causing individuals to get sick. Using blockchain, marketers can follow a food product’s journey from its origin to each stop along the way. Then finally to its delivery. If a food is proven to be tainted, it can be tracked back through each stop to its source.
Blockchain In Simple Terms
A blockchain is simply a shared database or ledger. Data is stored in data structures called blocks, and each network node has an exact clone of the complete database. Because if someone tries to amend or delete an entry in one copy of the ledger, the majority will not reflect this modification and will reject it, security is assured.
How Many Blockchains Exist?
The number of active blockchains is increasing at an alarming rate. There are about 10,000 active cryptocurrencies based on blockchain as of 2022, with several hundred more non-cryptocurrency blockchains.
What’s the Difference Between a Private Blockchain and a Public Blockchain?
A public blockchain, also known as an open or permissionless blockchain, is one in which anybody can freely join the network and set up a node. Because of their open nature, these blockchains require cryptography and a consensus technique like as proof of work (PoW).
In contrast, a private or permissioned blockchain requires each node to be vetted before joining. Because nodes are trusted, the levels of security do not need to be as strong.
What Exactly Is a Blockchain Platform?
However, the Ethereum blockchain enables the development of smart contracts, programmable tokens used in initial coin offerings (ICOs), and non-fungible tokens (NFTs). These are all built around the Ethereum technology and safeguarded by Ethereum network nodes.
The Bottom Line
With many practical uses for the technology currently in place and being researched, blockchain is finally creating a name for itself, thanks in large part to bitcoin and cryptocurrencies. As a buzzword on the lips of every investor in the country, blockchain has the potential to make corporate and government operations more precise, efficient, secure, and cost-effective by eliminating middlemen.
As we enter the third decade of blockchain, the question is no longer whether older organisations will embrace the technology, but when. Today, we see the growth of NFTs and asset tokenisation. Blockchain will experience significant expansion in the coming decades.