Updated: Oct 16, 2021
Crafted by Anushka Jain
Table of Contents
This 21st century has been all about technology and its evolution. With the increasing need of technology and modernization in our daily lives, people are open to accepting new technologies. From using a remote for controlling devices to using voice notes for giving commands; modern technology has made space in our day-to-day lives. Technologies like Hashgraph and R3 Corda have gained pace in the past decade and now there’s a new addition to the pack, i.e., Block chain Technology.
What is Block Chain Technology?
Blockchain is a system of recording a processed data, i.e., information in a way that makes it difficult or impossible to hack, change or cheat the system.
It is a revolutionary technology impacting different industries miraculously which was introduced in the markets with it very first modern application which was Bitcoin. Bitcoin is nothing but a form of digital currency (cryptocurrency) which can be used in the place of cash for trading. This underlying technology behind the technology of cryptocurrencies is called Blockchain.
So technically, Blockchain Technology is defined as a decentralized, distributed ledger that records the source of a digital asset/virtual property. Its intrinsic design makes it possible to unable to be modified, which makes it a legitimate disruptor for industries like payments, cyber security and healthcare.
A simple example for understanding Blockchain technology is a Google Doc. When we create a document and share it with a group of people, the document is distributed instead of being copied or transferred. This creates a decentralized distribution chain that gives everyone access to the document at the same time. All the third-party changes and modifications made to the doc are being able to be recorded in real-time, making changes completely transparent. Of course, Blockchain is more complicated than a Google Doc, but the analogy is apt.
Working of Blockchain Technology
The whole point of using a Blockchain is to let people-in particular, people who don’t trust one another-share valuable data in a secure, tamperproof way.
Blockchain consists of three important concepts: blocks, nodes, and miners.
Blocks: A chain consists of multiple blocks and each block has three basic elements: Data, Nonce (a 32-bit whole number which is randomly generated when a block is created) and Hash (256-bit number attached to nonce starting with huge no. of zeroes).
Miners: Miners create new blocks on the chain through a process called mining.
Nodes: It is an electronic device that maintains copies of blockchain and keeps the network functioning.
1. The purchase and sale of Bitcoin is entered and transmitted to a network of powerful computers known as nodes.
2. These networks of thousands of nodes around the world compete to confirm the transaction using computer algorithms. This is known as Bitcoin mining. The miner who first successfully completes a new block is rewarded with Bitcoin for their work. These rewards are paid by network fees (a membership, transaction or charges imposed by Network on Bank as the issuer of credit cards at any time), which are passed on to buyer and seller. The fees can rise or fall depending on the amount of transactions.
3. After the purchase is cryptographically confirmed, the sale is added to a block on the distributed ledger. The majority of network must confirm the sale, in a process called “proof of work”.
4. The block is permanently chained to all previous blocks of Bitcoin transactions, using cryptographic fingerprint called hash, and the sale is complete.
Types of Blockchain Networking
1. Public Blockchain
It is an open source blockchain which is transparent to everyone, meaning that anyone can examine the transaction details. This blockchain is designed to be fully decentralized with declining an individual or entities controlling which transactions are recorded in blockchain or the order in which they are processed. It is extremely hard for authorities to shut this blockchain because of its high censorship resistance since anyone can join this network regardless of location, nationality, etc. Anyone can access this network like users, developers, miners or community members.
2. Private Blockchain
This type of chain is also known as permissioned blockchain which means that participants need consent to join the network. Private Blockchain is more centralized than Public Blockchain. Here, Transactions are private and are only available to the participants who have been permitted to join this network. It is valuable for enterprises that want to collaborate and share data, but don’t want their sensitive data to be visible to other people who are not a part of this ecosystem.
3. Consortium Blockchain
This blockchain is a collaborative model that offers that allows bringing together a group of organizations who work together but also compete against each other; more likely to be “frenemies”. Organizations are able to be more efficient, both individually and collectively, by collaborating on certain aspects of their business. People often get confused between Private and Consortium Blockchains. The main difference between them is that consortium blockchains are governed by a group rather than a single entity. It has all the features of a private blockchain and could be considered as a sub-category of private blockchain. This blockchain could include anyone from central banks to governments, to supply chains.
4. Hybrid Blockchain
This blockchain combines all the privacy benefits of a private blockchain with the security and transparency benefits of public blockchain which provides businesses with significant flexibility to choose what data they want to make public and transparent and what data to they want to keep private.
Pros and Cons of Blockchain
a. Pros of Blockchain
Process Integrity: Users can trust that transactions will execute exactly as per the protocol demands and removes the need for some third party inclusion. Due to the security reasons, this program was made in such a way any block or even a transaction that adds to the chain cannot be edited which results in providing a high range of security.
Traceability: Blockchain technology is designed in such a way that it can easily locate any problem and correct it (if any). It also creates an irreversible audit trail.
Security: Blockchain technology is highly secure because every individual who enters this ecosystem is provided with unique identifier that is linked to its account. This ensures an individual/owner that only he/she has the access the his/her transactions.
Lower Cost Transactions: The elimination of exchanging of assets through third party mediators enables us and blockchain to greatly reduce transaction fees.
Accounting: Blockchain allows us to record transactions that virtually eliminates human error and protects our data from tampering. The data is verified every single time they are passed on from one blockchain node to another.
b. Cons of Blockchain
Energy Consumption: Keeping a real-time ledger is one of the main reasons for blockchain consuming high energy because every time it creates a new node, it communicates with each and every other node at the same time.
Volatility: Certain cryptocurrencies often use decentralized blockchains which are extremely volatile. For e.g., it is not uncommon for Bitcoin prices to fluctuate 20% or more in a single day. The governments, investors, businesses, and other groups of people are trying to decide whether or not they want to adopt them which can cause a lot of volatility.
Uncertain Regularity Reason: Today, modern money has been created and controlled by the central government in each and every part of the world. As a result, it becomes a difficult job for Bitcoin to get accepted by the pre-existing financial institutions.
Transaction Delays: This is one of the biggest drawbacks of blockchain till now. They usually take fairly a longer time (typically few hours) to register transactions. However, there are ways to overcome this problem such as using “off-chain” transactions. Still, in most cases, writing data to a blockchain is not instantaneous.
In simple terms, Blockchain is a specific type of database.
It differs from a typical database in the way it stores information; blockchain stores data in the form of blocks that are chained to each other.
In Bitcoin’s case blockchain is used in decentralized way so that no single person or group has control; rather, all users gain control.
Decentralized blockchains are immutable, which means that the data entered is irreversible. For e.g., in Bitcoin, transactions are permanently recorded and viewable to anyone.
Different types of information can be stored in blockchain but the most common use so far has been as a ledger for transactions.
There are 4 types blockchain networking: Public blockchain, Private blockchain, Consortium blockchain and Hybrid blockchain.
Blockchain’s inherent security measures and public ledger make it a prime technology for almost every sector.
This blog is written by Anushka Jain. She is pursuing BCA and have a strong interest in arts, painting and writing the blogs.