blockchain technology

A blockchain is a distributed database shared between nodes in a computer network. As a database, a block-chain stores information electronically in digital form. Block chains are best known for their crucial role in cryptocurrency systems like Bitcoin to keep a secure and decentralized record of transactions. The innovation of a block chain is that it guarantees the fidelity and security of a data record and creates trust without the need for a trusted third party.

Definition of Blockchain: Blockchain is a shared, immutable ledger that facilitates the process of recording transactions and tracking assets on a corporate network. An asset can be tangible (house, car, money, land) or intangible (intellectual property, patents, copyrights, trademarks). Almost anything of value can be tracked and traded on a block-chain network, reducing risk and cost for everyone involved.

blockchain technology

What Is Blockchain Technology & How Does It Works

A key difference between a typical database and a blockchain is how the data is structured. A blockchain collects information in groups called blocks, which contain sets of information. Blocks have specific storage capacities and when filled, they are closed and linked to the previously filled block, creating a chain of data known as a blockchain. Any new information following this newly added block is compiled into a newly formed block, which is then also added to the chain once it is filled.

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Why Blockchain Matters: Business runs on information. The faster it is received and the more accurate it is, the better. Block chain is ideal for providing this information because it provides instant, shared, and completely transparent information stored in an immutable ledger that only authorized members of the network can access. A block-chain network can track orders, payments, accounts, production, and more. And because members share a unified view of the truth, you can see every detail of a transaction from start to finish, giving you greater confidence, new efficiencies, and new opportunities.

A database usually structures its data in tables, while a block-chain, as the name suggests, structures its data in chunks (blocks) that are chained together. This data structure inherently creates an irreversible timeline of data when implemented in a decentralized fashion. When a block is completed, it is set in stone and becomes part of this timeline. Each block in the chain receives an accurate timestamp when added to the chain.

Fundamentals Of BlockChain Technology

  • Block chain is a type of shared database that differs from a typical database in the way it stores information;
  • Block-chains store data in blocks, which are then linked together using cryptography.
  • As new data arrives, it is entered into a new block. Once the block is filled with data, it is concatenated with the previous block, concatenating the data in chronological order.
  • Different types of information can be stored on a block-chain, but the most common use to date has been as a ledger for transactions.
  • In the case of Bitcoin, the block-chain is used in a decentralized way, so no one person or group is in control rather, all users collectively retain control.
  • Decentralized block-chains are immutable, which means that the data entered is irreversible. For Bitcoin, this means that transactions are permanently recorded and can be viewed by anyone.

Basic Elements Of A Blockchain

  • Distributed Ledger Technology
    All network participants have access to the distributed ledger and its immutable transaction record. With this shared ledger, transactions are recorded only once, eliminating the duplication of effort typical of traditional business networks.
  • Immutable records
    No participant may alter or tamper with a transaction after it has been recorded in the common ledger. If a transaction record contains an error, a new transaction must be added to undo the error, and both transactions will then be visible.
  • Smart contracts
    To speed up transactions, a set of rules – called a smart contract – is stored on the block-chain and executed automatically. A smart contract can define terms for corporate bond transfers, include terms for payable travel insurance, and more.

How Does a Blockchain Work?

  • The purpose of the block-chain is to record and disseminate digital information, but not to edit it. In this way, a block-chain is the basis of immutable ledgers or transaction records that cannot be modified, erased or destroyed. For this reason, blockchains are also referred to as Distributed Ledger Technology (DLT).
  • The block-chain concept was first proposed as a research project in 1991, before its first widespread application: Bitcoin in 2009. In the years since, the use of block-chains has been non-fungible tokens with the creation of various cryptocurrencies, decentralized finance (DeFi) applications (NFT) and smart contracts.
  • Each transaction is recorded as a “data block”.
    These transactions show the movement of an asset, which can be tangible (a product) or intangible (intellectual). The data block can record the information of your choice: who, what, when, where, how much and even the status – like the temperature of a food shipment.
  • Each block is connected to those before and after
    These blocks form a chain of data when an asset moves from place to place or changes hands. The blocks confirm the exact time and order of transactions, and the blocks are securely linked together to prevent a block from being changed or a block from being inserted between two existing blocks.
  • Transactions are locked together in an irreversible chain: a block chain
    Each additional block strengthens the verification of the previous block and therefore of the entire blockchain. This makes the block-chain tamper-proof and provides the critical strength of immutability. This eliminates the possibility of tampering by a malicious actor – and creates a record of transactions that you and other network members can trust.

Advantages Of Blockchain

What needs to change: Operations often waste effort with duplicate registration and third-party validation. Registration systems may be vulnerable to fraud and cyberattacks. Limited visibility can slow data validation. And with the advent of the IoT, transaction volumes have exploded. All of this is slowing business, eating away at the bottom line – and means we need a better way. Enter the block-chain.
  • Greater confidence
    With block-chain, as a member of a members-only network, you can be assured that you receive accurate and timely data, and that your confidential block chain records are only shared with network members to whom you have specifically granted access.
  • More security
    Consensus on data accuracy is required from all members of the network and all validated transactions are immutable as they are permanently recorded. Nobody, not even a system administrator, can delete a transaction.
  • More efficiency
    With a distributed ledger shared among members of a network, time-consuming record reconciliations are eliminated. And to speed up transactions, a set of rules – called a smart contract – can be stored on the block-chain and executed automatically.

Blockchain Decentralization

Imagine that a company has a server farm with 10,000 computers used to maintain a database of all of their customers’ account information. This company owns a warehouse that contains all these computers under one roof and has full control over each of these computers and all the information they contain. However, this provides a single point of failure. Moreover, What happens if the electricity goes out there? Similarly, What if his Internet connection is lost? What if it burns to the ground? However, What if a bad actor erased everything with a single keystroke? In either case, data will be lost or corrupted.

A blockchain allows the data stored in this database to be distributed to multiple nodes in the network at different locations. This not only creates redundancy, but also preserves the accuracy of the data stored there – if someone tries to modify a record in one instance of the database, the other nodes will not be modified, thus preventing an attacker to do. If a user tampered with Bitcoin’s transaction record, all other nodes would turn around and easily locate the node with the wrong information. This system makes it possible to establish a precise and transparent order of events. In this way, no single node in the network can modify the information it contains.

Therefore, information and history (eg cryptocurrency transactions) are irreversible. Such a record could be a list of transactions (e.g. involving cryptocurrency), but it is also possible for a block chain to contain a variety of other information such as legal contracts, government identification, or product inventory. from a company.

Transparency

Due to the decentralized nature of Bitcoin’s block chain, all transactions can be viewed seamlessly either by having a personal node or by using blockchain explorers that allow anyone to view transactions live. Each node has its own copy of the chain which is updated as new blocks are confirmed and added. This means you can track bitcoin wherever you want.

For example, exchanges have been hacked in the past where those who held bitcoins on the exchange lost everything. Although the hacker may be completely anonymous, the bitcoins they mine are easily traceable. If the bitcoins stolen in some of these hacks were moved or distributed somewhere, it would be known.

Of course, records stored on the Bitcoin block-chain (like most others) are encrypted. This means that only the owner of a record can decrypt it to reveal their identity (using a public-private key pair). This allows block-chain users to remain anonymous while maintaining transparency.

Types of blockchain networks

There are several ways to build a blockchain network. They can be public, private, concessionary or constituted by a consortium.

Public Blockchain Networks

A public block-chain is a block-chain that anyone can join and participate in, such as Bitcoin. Disadvantages can include high computing power required, little or no privacy for transactions, and weak security. These are important considerations for enterprise block chain use cases.

Private Blockchain Networks

A private block chain network, similar to a public block chain network, is a decentralized peer-to-peer network. However, an organization governs the network, controls who is allowed to participate, runs a consensus protocol, and manages the common ledger. Depending on the application, this can significantly build trust between participants. A private block-chain can run behind a corporate firewall and even be hosted locally.

Approved Blockchain Networks

Companies setting up a private block-chain usually set up a permissioned block-chain network. It is important to note that public block-chain networks can also be authorized. This restricts who can participate in the network and in what transactions. Participants must receive an invitation or permission to participate.

consortium blockchains

Multiple organizations can share responsibility for maintaining a block-chain. These preselected organizations determine who can submit transactions or access data. A consortium block-chain is ideal for companies when all participants need approval and shared ownership of the block-chain.

Blockchain Security?

Blockchain technology provides decentralized security and trust in several ways. New blocks are always recorded linearly and chronologically first. In other words, they are always added to the “end” of the block-chain. Once a block is added to the end of the block-chain, it is extremely difficult to go back and change the contents of the block unless a majority of the network agrees to do so. This is because each block contains its own hash, as well as the hash of the block before it, as well as the aforementioned timestamp. Hash codes are created by a mathematical function that converts numerical information into a sequence of numbers and letters. If this information is changed in any way, the hash code will also change.

Suppose a hacker who also runs a node on a block-chain network wants to modify a block chain and steal everyone’s cryptocurrency. If they were to change their own unique copy, it would no longer match everyone’s copy. If everyone cross-referenced their copies with each other, they would see that single copy was getting attention, and that hacker’s chain version would be dismissed as illegitimate.

To be successful with such a hack, the hacker would need to simultaneously control and modify 51% or more of the copies of the blockchain so that their new copy becomes the majority copy and therefore the agreed chain. Such an attack would also require an immense amount of money and resources as they would have to recreate all the blocks as they would now have different timestamps and hash codes.

Due to the size of many cryptocurrency networks and their rapid growth, the cost of such an exploit would likely be prohibitive. This would not only be extremely expensive, but also likely to be unsuccessful. Doing something like this would not go unnoticed as network members would see such drastic changes in the blockchain. Network members would then hard-switch to a new version of the channel that is unaffected. This would cause the attacked version of the token to lose value, ultimately rendering the attack useless because the bad actor controls a worthless asset. The same would happen if the bad actor attacked the new Bitcoin fork. It is constructed in such a way that participating in the network provides a far greater economic incentive than attacking it.

Bitcoin vs. Blockchain

Blockchain technology was first described in 1991 by Stuart Haber and W. Scott Stornetta, two researchers who wanted to implement a system where timestamps on documents could not be tampered with. But it wasn’t until nearly two decades later, with the introduction of Bitcoin in January 2009, that blockchain had its first real-world application.
The Bitcoin protocol is based on a blockchain. In a research paper introducing the digital currency, pseudonymous creator of Bitcoin, Satoshi Nakamoto, called it “a new, fully peer-to-peer electronic payment system with no trusted third parties.”
The key thing to understand here is that bitcoin uses block-chain simply as a way to transparently record a payment ledger, but block-chain can theoretically be used to immutably record any number of data points. As noted above, this could take the form of transactions, votes in an election, product inventories, government identifications, title deeds, etc.
Currently, tens of thousands of projects are trying to implement block chains in various ways to help society beyond just recording transactions – for example, as a way to securely vote in democratic elections. The immutability nature of the block-chain means that fraudulent voting would become much more difficult. For example, a voting system could work by issuing a single cryptocurrency or token to each citizen of a country. Each candidate would then be given a specific wallet address, and voters would send their token or crypto to the address of the candidate they want to vote for. The transparent and traceable nature of block-chain would eliminate both the need for human vote counting and the opportunity for bad actors to tamper with physical ballots.

How Are Blockchains Used?

As we now know, blocks in the Bitcoin blockchain store data about monetary transactions. Today, more than 10,000 other cryptocurrency systems run on block chain. But it turns out that block-chain is actually a reliable way to store data about other types of transactions as well.

Some companies that have already integrated block chain are Walmart, Pfizer, AIG, Siemens, Unilever and many others. For example, IBM developed its Food Trust block-chain to track the path food items take to get to their location.
Why are they doing this? The food industry has experienced countless outbreaks of E. coli, Salmonella and Listeria, as well as hazardous materials accidentally introduced into food. Historically, it has taken weeks to find the source of these outbreaks or the cause of illness through people’s diets. The use of block chain gives brands the ability to trace the journey of a food product from origin, through each stop, to delivery. If food is contaminated, it can be traced back to its origin at each stop. Not only that, but these companies can now see anything they may have come into contact with, which can help identify the problem much earlier and potentially save lives. This is an example of block-chain in action, but there are many other forms of block chain implementation.

Banking and Finance

Perhaps no industry benefits more from integrating blockchain into its business processes than banking. Financial institutions only operate during business hours, usually five days a week. This means that if you try to deposit a check at 6 p.m. on Friday, you’ll probably have to wait until Monday morning for the money to appear in your account. Even if you make your deposit during business hours, transaction verification can still take one to three days due to the sheer volume of transactions banks have to process. Block-chain, on the other hand, never sleeps.

With the integration of block-chain into banks, consumers can have their transactions processed in as little as 10 minutes – essentially the time it takes to add a block to the block-chain, regardless of holidays or time of day. of the day or week. With block-chain, banks also have the ability to exchange funds between institutions faster and more securely. In stock trading, for example, the settlement and clearing process can take up to three days (or more when trading internationally), which means that money and stocks are frozen during this time.

Given the large sums involved, even the few days that money is in transit can entail significant costs and risks for banks.

Currency

The blockchain forms the basis of cryptocurrencies such as Bitcoin. The US dollar is controlled by the Federal Reserve. Under this centralized authority system, a user’s data and currency are technically at the mercy of their bank or government. If a user’s bank is hacked, the customer’s private information is at risk. If the client’s bank fails or the client lives in a country with an unstable government, the value of their currency may be at risk. In 2008, several insolvent banks were rescued – partly with taxpayers’ money. These are the concerns from which Bitcoin was originally designed and developed.

By spreading its operations over a network of computers, the blockchain allows Bitcoin and other cryptocurrencies to operate without the need for a central authority. Not only does this reduce risk, but it also eliminates many processing and transaction fees. It can also offer people in countries with unstable currencies or financial infrastructures a more stable currency with more applications and a wider network of individuals and institutions to do business with, both domestically and internationally. international.

The use of cryptocurrency wallets for savings accounts or as a means of payment is especially prevalent for those without government identification. Some countries may be war-torn or have governments with no real ID infrastructure. Citizens of these countries may not have access to savings or brokerage accounts – and therefore no way to protect their assets.

Healthcare

Healthcare providers can use block chain to securely store their patients’ medical records. When a medical record is created and signed, it can be written to the block-chain, giving patients proof and peace of mind that the record cannot be changed. These personal health records could be encrypted with a private key and stored on the block-chain, making them accessible only to specific individuals, thereby ensuring privacy.

Property Records

If you’ve ever spent time at your local registrar’s office, you know that the property rights registration process is both cumbersome and inefficient. Today, a physical record must be turned over to a government official at the local records office, where it is manually entered into the county’s central database and public index. In the event of a real estate dispute, land claims must be checked against the public index.

This process is not only expensive and time-consuming, but also prone to human error, where any inaccuracies make tracking ownership less effective. Blockchain has the potential to eliminate the need to scan documents and trace physical files to a local record office. When ownership is stored and verified on the block-chain, owners can be confident that their deed is accurately and permanently recorded.

In war-torn countries or territories that have little or no government or financial infrastructure, let alone a registry office, proving ownership of a property can be nearly impossible. If a group of people living in such an area are able to use block chain, transparent and clear ownership schedules could be established.

Smart Contracts

A smart contract is computer code that can be embedded on the blockchain to activate, verify, or negotiate a contractual agreement. Smart contracts operate under a set of terms that users agree to. If these conditions are met, the terms of the agreement will automatically be executed.

For example, suppose a potential tenant wants to rent an apartment through a smart contract. The lessor undertakes to give the tenant the digicode of the apartment as soon as the tenant has paid the deposit. The tenant and landlord would send their respective parts of the agreement to the smart contract, which would automatically exchange the door code for the security deposit on the day the tenancy begins. If the landlord does not provide the door code on the rental date, the smart contract will refund the deposit. This would eliminate the costs and procedures typically associated with engaging a notary public, third party agent or attorneys.

Supply Chains

As in the IBM Food Trust example, suppliers can use blockchain to track the provenance of the materials they purchase. This would allow companies to verify not only the authenticity of their products, but also common labels such as “organic”, “local” and “fair trade”.

As Forbes reported, the food industry is increasingly turning to using block chain to track the path and safety of food as it travels from farm to fork.

Voting

As mentioned above, block chain could be used to enable a modern voting system. Block chain voting has the potential to eliminate voter fraud and increase voter turnout, as tested in the November 2018 midterm elections in West Virginia.
Using the block chain in this way would make rigged voting nearly impossible. The block-chain protocol would also maintain the transparency of the election process, reduce the manpower needed to conduct an election, and provide officials with near-instantaneous results. This would eliminate the need for recounts or any real fear that fraud could threaten the election.

Pros of Blockchains

Chain Precision

Transactions on the blockchain network are approved by a network of thousands of computers. This almost eliminates human involvement in the verification process, resulting in less human error and accurate recording of information. Even if a computer on the network miscalculated, the error would only occur on a single copy of the block chain. For this error to spread to the rest of the block chain, it would have to be made by at least 51% of the computers on the network – an almost impossible possibility for a large and growing network the size of Bitcoin.

Cost Reductions

Typically, consumers pay a bank to verify a transaction, a notary to sign a document, or a minister to solemnize a marriage. Block-chain eliminates the need for third-party verification and associated costs. For example, business owners pay a small fee when accepting credit card payments because banks and payment processors must process these transactions. Bitcoin, on the other hand, has no central authority and has limited transaction fees.

Decentralization

Block chain does not store any of its information in a central location. Instead, the block-chain is copied and distributed over a network of computers. Each time a new block is added to the block chain, each computer on the network updates its block chain to reflect the change. By distributing this information over a network instead of storing it in a central database, the block-chain becomes more difficult to manipulate. If a copy of the blockchain falls into the hands of a hacker, only one copy of the information will be compromised and not the entire network.

Efficient Transactions

Transactions made through a central authority may take up to a few days to process. For example, if you try to deposit a check on Friday night, you might not see money in your account until Monday morning. While financial institutions operate during business hours, typically five days a week, blockchain operates 24 hours a day, seven days a week, 365 days a year. Transactions can be completed in just 10 minutes and are considered secure after just a few hours. This is particularly useful for cross-border transactions, which typically take much longer due to time zone issues and the fact that all parties must confirm payment processing.

Private Transactions

Many block chain networks act as public databases, meaning anyone with an internet connection can view a list of the network’s transaction history. Although users can access transaction details, they cannot access the credentials of users performing those transactions. It is a common misconception that block-chain networks like Bitcoin are anonymous, when in reality they are just confidential.

When a user performs a public transaction, their unique code – called a public key as mentioned earlier – is recorded on the blockchain. This is not your personal information. If a person has made a bitcoin purchase on an exchange that requires identification, that person’s identity is still tied to their blockchain address – but a transaction, even if tied to a person’s name, gives no personal price information.

Secure Transactions

Once a transaction has been recorded, its authenticity must be verified by the block chain network. Thousands of computers on the block-chain rush to confirm that the purchase details are correct. Once a computer validates the transaction, it is added to the block-chain block. Each block in the block chain contains its own unique hash, as well as the unique hash of the block before it. If the information about a block is changed in any way, the hash code for that block changes – but the hash code for the block does not subsequently change. This discrepancy makes it extremely difficult to change information on the block-chain without notice.

Transparency

Most block chains are fully open source software. This means anyone can see their code. This gives auditors the ability to verify cryptocurrencies like bitcoin for security reasons. It also means that there is no real authority over who controls Bitcoin’s code or how it is edited. For this reason, anyone can suggest modifications or upgrades for the system. If a majority of network users agree that the new version of the code with the upgrade is sound and logical, Bitcoin can be upgraded.

Banking the Unbanked

Perhaps the most profound facet of block chain and bitcoin is the ability for anyone, regardless of race, gender, or cultural background, to use it. According to the World Bank, approximately 1.7 billion adults do not have a bank account or a way to store their money or wealth. Almost all of these people live in developing countries where the economy is in its infancy and relies entirely on cash.

These people often earn some money paid in cash. They then have to keep this physical money in hidden places in their homes or other places of residence, making them vulnerable to theft or unnecessary violence. The keys to a bitcoin wallet can be stored on a piece of paper, a cheap cell phone, or even memorized if needed. For most people, these options will probably be easier to hide than a small pile of cash under a mattress.

The blockchains of the future are also looking for solutions that are not just a unit of account for storing wealth, but also store medical records, property rights, and a variety of other legal contracts.

Cons of Blockchains

Technology Cost

Although block chain can save users money on transaction fees, the technology is far from free. For example, the PoW system that uses the Bitcoin network to validate transactions consumes a lot of computing power. In the real world, the power of the millions of computers in the Bitcoin network is roughly equivalent to what Norway and Ukraine consume each year.

Despite the cost of Bitcoin mining, users continue to inflate their utility bills to validate transactions on the block-chain. Indeed, when miners add a block to the Bitcoin block chain, they are rewarded with enough Bitcoin to make their time and energy worth it. However, when it comes to non-cryptocurrency block-chains, miners must be paid or otherwise incentivized to validate transactions.

Some solutions to these problems are beginning to emerge. For example, Bitcoin mining farms have been set up to use solar power, surplus natural gas from fracking sites, or electricity from wind farms.

Speed and Data Inefficiency

Bitcoin is a perfect case study for potential blockchain inefficiencies. Bitcoin’s PoW system takes about 10 minutes to add a new block to the block-chain. At this rate, it is estimated that the block chain network can only handle around seven transactions per second (TPS). Although other cryptocurrencies like Ethereum perform better than Bitcoin, they are still limited by the block chain. For example, the old Visa brand can handle 65,000 GST.

Solutions to this problem have been in development for years. There are currently block chains with over 30,000 TPS.

The other problem is that each block can only contain a certain amount of data. The block size debate has been and remains one of the most pressing issues for block chain scalability in the future.

Illegal Activity

While privacy on the block-chain network protects users from hacks and maintains privacy, it also enables illegal trading and activities on the block-chain network. Perhaps the most cited example of block-chain being used for illegal transactions is Silk Road, a dark web online marketplace for illegal drugs and money laundering that operated from February 2011 to October 2013. date it was shut down by the FBI.

The Dark Web allows users to buy and sell illegal goods without being tracked with the Tor Browser and to make illegal purchases in Bitcoin or other cryptocurrencies. Current US regulations require financial service providers to obtain information about their customers when opening an account, verify the identity of each customer, and confirm that customers are not on any list of known terrorist organizations or presumed 13. This system can be considered both a pro and a con. It gives everyone access to financial accounts, but also allows criminals to make transactions easier. Many have argued that the good use of crypto, such as banking in the unbanked world, outweighs the bad use of cryptocurrency, especially when most illegal activity is still carried out through untraceable cash. .

Although Bitcoin was used for such purposes early on, its transparent nature and maturity as a financial asset has actually caused illicit activity to migrate to other cryptocurrencies such as Monero and Dash.14 Today today, illicit activities represent only a very small fraction of all Bitcoins. operations .

Regulation

Many in the crypto space have expressed concerns about government regulation of cryptocurrencies. As something like Bitcoin becomes increasingly difficult and nearly impossible to exit as its decentralized network grows, governments could theoretically make it illegal to own cryptocurrencies or participate in their networks.

This concern has diminished over time as large companies like PayPal have started to allow the ownership and use of cryptocurrencies on their platform.

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