What is Blockchain Technology: Explained

Over the years, we have heard blockchain technology countless times. But most of the time, their conversation ends on cryptocurrency. However, there are more learnings of Blockchain technology; Knowing such tech fundamentally can help you be future-ready.

In this article, we will simplify the topic to help you understand it better without compromising on the quality of the information.

What is Blockchain Technology & How Does It Work?

Blockchain technology is a technique to store information (data) in a decentralized manner. This information is stored in blocks that are linked together without having any central authority. Information stored on the blockchain is shared and unchangeable, which nearly makes data tampering impossible or difficult in a blockchain network.

In simple terms, think of blockchain as a Google spreadsheet, where data is stored in blocks instead of tables. Anyone who has access to the blockchain can add or view the data; however, they can’t edit them. Once data is saved on this spreadsheet, it is unchangeable.

Key elements of Blockchain –

1. 1. Public Ledger – A Blockchain is a network of blocks linked together, storing information. Every participant of a blockchain network has access to this unchangeable ledger.

1. 1. Decentralized – There is no powerful or less powerful block; All blocks in a blockchain have equal authority. Hence, no central authority governs the chain; All blocks in a chain regulate themselves.

1. 1. Unchangeable – It is practically impossible to change stored information in a blockchain; The only way to change information is to destroy the blockchain.

How Blockchain Works?

There are various methods to store data; For example, on a spreadsheet, data is stored in tables. Likewise, when you write on paper, data is stored on a page. In Blockchain, data is stored in blocks; Every block is made up of three elements –

1. 1. Data

1. 1. Hash

1. 1. The hash of the previous block

Data

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Data is simply a piece of information that is stored in a block. For example, when the transaction happens through blockchain, it can record the sender’s name, receiver’s name, amount and time, etc. Virtually any piece of information can be recorded in a block.

Hash

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Every block has its unique Hash, Which is also referred to as the fingerprint of the block. This hash makes every block unique in a blockchain. Hash looks like a random number, for example, “YGDT37852BSK”

The Hash of the Previous Block

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Every block also has a hash of the previous block; This links blocks to each other and eventually creates a chain of blocks. This is also the reason why blockchain is considered so secure. When you change data in a block, It also changes its hash number and previous hash numbers. Changing data in a block will destroy the entire blockchain. That’s why data tampering is almost impossible in blockchain.

These three elements create a block; Once they are linked to each other in a chain, it can be referred to as a blockchain.

Basics of Blockchain Technology

Here are some basic concepts you will discover while learning about blockchain.

Decentralization

Decentralization is the primary blockchain feature; Blockchain is often promoted as a decentralized system. Decentralized means when power is not centralized in the hands of a single organization or individual. The decision-making power is distributed among networks of nodes. These nodes collectively approve and validate the transaction in a blockchain network.

Blockchain Nodes

A Blockchain node is an electronic device (For example, a computer) that is a stakeholder in a decentralized network. To run a blockchain according to a protocol, these nodes work together to create a governing blockchain infrastructure. Their primary functions are validating a transaction, adding a block, and monitoring live activity to ensure the blockchain’s security.

Cryptography Key

It is one of the important aspects of blockchain; Every blockchain member has two cryptographic keys – Public and Private keys. These keys act as a digital identity reference that provides encryption to the blockchain and also approves and validates transactions on the blockchain.

Mining

In blockchain, mining refers to adding new blocks to a blockchain. To mine a block, you need to solve mathematical puzzles, and it requires heavy computing power to solve those very complicated mathematical problems. People who solve these mathematical problems are called miners.

Once miners solve a problem and add a block to a blockchain, they get rewarded. For example, in 2020, if a miner has mined a bitcoin, they would get 6.25 BTC as a reward.

Read – Learn How to Mine Ethereum in PC

Block Time

Block Time is the time taken to generate a new block in a blockchain. This time varies from a few seconds to minutes to even hours. Different blockchain has different block time; Shorter block time means faster transaction confirmation, but it will increase the chances of a conflict.

Longer block time means increased time required for transaction confirmation but reduces the chances of conflict.

Smart Contracts

In easy language, smart contracts are simple programs on blockchain that run when pre-defined conditions are met. This automates the execution of contracts; For example, a vending machine will give you a soft drink if you press the button and provide a coin of $2. It’s a pre-determined set of rules, where the vending machine has to give you coke if you press the button and provide the value. The action will be automatically executed.

Real-Life Use Case of Blockchain Technology

Money Transfer

Cryptocurrency’s whole idea is based on blockchain; There are countless apps that help you buy and sell cryptocurrency. It is a decentralized currency that can be used for monetary transactions; However, Many people prefer to see it as an investment approach.

Binance – A Crypto Exchange

Binance is a leading crypto exchange platform with over 150 million users worldwide. The platform helps you to buy, sell, hold, and liquidate your cryptocurrencies. Currently, Binance has 400+ cryptocurrencies and 11 fiat currencies.

Smart Contracts

Smart contracts or blockchain-based contracts are like regular contracts. But the key difference is the rules of the contracts are automatically enforced. For example, Mr. A & Mr. B created a smart contract that after raw materials get delivered to Mr. A’s warehouse, Mr. B will receive 85% of the payment.

As this is a smart contract, as raw materials get delivered in the warehouse, the amount will be automatically deducted from Mr. A’s bank account and transferred to Mr. B.

Everything will happen per the contract, increasing trust and transparency and eliminating the middleman.

Google’s Blockchain Node Engine

As we know, Blockchain requires nodes to validate transactions on the network; However, deploying self-managed nodes is costlier. Google’s Node engine helps Web3 developers deploy nodes, smart contracts, and many additional features. Google’s investment in web3 development is a good sign for the future of Blockchain technology.

Blockchain Security

Hacking government databases, identity theft, cyber-attacks, etc, are common nowadays. In 2022, Americans lost $8.8 billion in investment scams and frauds. A simple way to secure this information and avoid potential cyber crimes is to use a decentralized network like Blockchain.

Civic Pass for Blockchain Technology

Civic Pass is a blockchain security-based application; Civic caters to individuals and businesses; For individuals, It allows them to create a Web3 profile that can act as an identity card. For businesses, developers can customize access tokens and ID cards.

Healthcare

Blockchain may tremendously impact the healthcare sector; It can improve access to information and streamline business processes. In addition, It can help store patient health conditions and previous medical records in a safer way; It will help doctors to diagnose better.

Chronicled

Chronicled works for Blockchain implementation in the Healthcare industry; It helps to automate business settlements and product verification.

Non-fungible Tokens (NFTs)

NFTs are digital items like images, videos, music, gifs, art, etc that can be sold using blockchain. Selling NFTs on blockchain gives you full ownership of digital assets. It solves a big problem of internet piracy, where any video or music can be shared and recreated without the owner’s permission.

OpenSea (Largest NFT Marketplace)

OpenSea is one of the largest NFT marketplaces where you can buy and sell your NFTs. There are millions of NFTs on this platform; You can buy NFTs using cryptocurrencies.

Logistics

The logistics industry always have problem with communication and transparency. Data Silos and transparency are the major issues of logistics companies. Many reports suggest that Blockchain can solve this problem by revealing a single source of truth.

DHL Shipments

DHL is one of the largest logistics companies in the world, and it is at the forefront of blockchain technology. It uses blockchain to create a digital ledger of shipments and maintain the integrity of transactions.

Government

According to a New York Times article, Blockchain Technology has many implications in Government workings. With the help of blockchain security, the government can safeguard documents, and blockchain can hold public officials accountable through smart contracts.

Blockchain-based election voting is a concept that requires some research and testing. With blockchain-based voting, citizens can vote through their mobile devices.

Voatz Mobile Voting Platform

Voatz is a mobile voting platform and runs on blockchain; They argue that the future of voting is mobile. People can vote from any device; Their encrypted biometric security system makes it easier for voters to vote without concern about data corruption or hacking. West Virginia was the first state that used Voatz for voting.

Benefits of Blockchain

Apparently, what makes blockchain technology so different from previous technology? Blockchain fixes some of the common problems of previous tech. For example, traditional databases face several challenges while recording transactions, like data leaks, cyber-attacks, etc.

Plus, both parties involved in the transaction don’t need a central authority, as sometimes having a third party complicates a process.

Immutable

Transactions recorded via blockchain can’t be changed; They are immutable. Once the transactions are recorded, they are always stored in a blockchain, which makes data tampering almost impossible. Traditional databases can be easily manipulated; Conversely, it is very difficult to do the same in the blockchain.

Faster Auditing

As blockchain transactions are immutable, they are always recorded in chronological order. That simply means they are always recorded in an audible manner, which makes auditing faster for enterprises.

Trust and Security

Decentralization, immutable, and smart contracts are some of the important features of blockchain that makes blockchain network more secure and trustworthy than any other technology. For enterprises, blockchain provides greater trust and security.

Types of Blockchain

Different blockchains are required per the use case; However, There are four main types of blockchains.

1. 1. Public Blockchain: It is a completely decentralized blockchain; Anyone with a computer and internet can participate in this blockchain. Example – Bitcoin blockchain.

1. 1. Private Blockchain: These are private blockchains; Only selected members can enter this blockchain. For example, any private organization or company’s blockchain.

1. 1. Hybrid Blockchain: It is a mix of a public and private blockchain, where some parts of the blockchain are controlled by authority, and others are available as a public blockchain. For example, the Ripple network works on a hybrid blockchain.

1. 1. Consortium Blockchain: In this type of blockchain, multiple private blockchains come together to ensure smooth workflow between organizations. In Consortium Blockchain, entry, and exit is restricted by the organization manager. So not anyone can join or leave the blockchain. Multichain and Tendermint are examples of Consortium Blockchain.

Advantages and Disadvantages of Blockchain

Like any technology in the world, blockchain has its advantages and disadvantages. Knowing its pros and cons will give you a holistic picture of this technology.

Advantages

Security

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On the blockchain, data is unchangeable; Not even a system administrator can change the data. Once created, data is permanently saved in a blockchain. Plus only blockchain members can view the data. Hence providing a greater level of security.

Decentralized Trust

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As blockchain is member-to-member technology, there is no central authority governing it. You can be assured that your account hasn’t been seen by any third party. Hence, fraud, data leaks, and cyberattacks are less likely. People using blockchain trust it more than other forms of storing data.

Low Operation Cost

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Blockchain is a peer-to-peer transaction system; Hence, there are no banking or payment processing fees, as it doesn’t need third-party approval. International banking is too costly due to the taxes and regulations of countries. However, with blockchain, one can save this cost.

Disadvantages

Scalability

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One major drawback of blockchain is that it can approve fewer transactions per second. When there is a massive amount of transactions, it will cause a delay, which will eventually result in poor scalability.

Not Power Efficient

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Although blockchain reduces the cost of end-users. For developers, It’s a major cost due to its non-power efficient nature because blockchain miners must constantly solve complicated maths problems to get a payout. It won’t be a good solution for small businesses and individuals.

Speed

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Blockchain payment will take longer than traditional payment methods (Cash or Cards). That’s why it won’t be ideal for day-to-day payments. Plus, Some blockchain takes a longer block time to complete a transaction. Which indeed makes blockchain an undesirable option for real-time payments.

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