Earlier, the financial accounts were written and maintained in a book called Ledger. It contains the data in a detailed form, usually the statistics of the transactions across the different users. The same concept is implemented digitally, transparently and more securely, and it is somewhat of a rough idea of blockchain.
What is a Blockchain?
Blockchain is a technique of recording data such that it gets really difficult to mutate, hack or carry out fraud with the system. It is a digital public ledger which is distributed across the nodes of the blockchain. It is a subdivision of DLT (Decentralised Ledger Technology) where transactions are recorded which possess a unique cryptographic signature called hash which can’t be mutated.
The question may arise why do we need it and how is it different from the traditional method of storing data?
How do Blockchains work?
Actually, in a conventional database, the data is stored in a tabular form which can be mutated with malicious intentions, but the way of storing data in a blockchain is quite different. In a blockchain, data is grouped together and stored likewise in a structure called a block and when a block reaches its predetermined storage capacity, it is closed and chained to a block which is previously filled with data. Now the new block starts to store information and the same process goes on. These blocks are chained or linked together and that gives the name of the technology, Blockchain, which simply stands for blocks which are connected or interlinked.
This data or information stored in the block is registered at a particular and unique timestamp and create a timeline of data or simply the activities in the block, which makes it impossible to mutate the information as when a block is filled, it is set stiff as a stone.
Why use Blockchain? – Importance
- Using a conventional database gives you the privilege of recording the data as a snapshot in time. It just records the data which is up to date until that point in time. But in the case of blockchain, it generates a full timeline which stores the history of the data, usually transactions. Blockchain is just a database which contains the history of the data it stores.
- Talking about transactions and conventional banking systems, there exists a central point or central authority which manages all the transactions and money circulated by the bank, which helps the hackers with the information, and where to attack. But in blockchain-enabled systems, attackers can’t spot a central point to attack due to its distributed nature among different nodes.
- With other traditional systems, there is an association which controls it, and when it comes to the financial part, the banks own centralized control rights on the money. This means for a transaction to occur, it doesn’t only need the sender and the receiver, but also it faces the involvement of some third party, which authorizes the transaction and makes it happen. But in the case of blockchain, there is no need for such authorities, it is a decentralized system which essentially is the opposite of a centralised one. In a blockchain-enabled financial system, there is no place for any third party, it just needs the sender who will send the money and a receiver who receives the money. It is for this reason that it is called peer-to-peer technology.
Types of Blockchain
Along with the features of blockchain, there also exist types of blockchain with various characteristics
Public Blockchains
It is the type of blockchain which is open to all. Anyone can join and contribute to it. One of the most regular examples of a public blockchain is Bitcoin. It was made open-source which essentially means to be open to the public. The developers are invited to contribute to public blockchains for diverse and fast growth. This is a commonly used type of blockchain for industry use. It also involves some drawbacks like the need for substantial computing power, negligible privacy and vulnerable security.
Private Blockchains
As the name suggests, the blockchain which works within a specified network or within the control of a single authority is called Private Blockchain. It holds the values set by blockchain by allowing peer-to-peer links and decentralization but it also restricts the ledgers to going public and open-source. This type of blockchain generates more trust with its users and boosts their confidence in the governing enterprise whereas on the other hand it is often said to be against the principles of blockchain due to its private nature and governing authority. Also, the source code of the blockchain is also closed which restricts the users to audit or confirm. It also lacks the taste of anonymity. These are used in places where security remains the top priority, like, supply chain management or internal voting.
Hybrid Blockchain
Sometimes, the use case of an enterprise seems to have the components of both the blockchain mentioned above, i.e. they need some component of the permission-based system and some of the public-based permissionless framework, the ideal type for the use case is Hybrid Blockchain. Here, the database is not made completely public but certain permission is granted to audit and verify, when needed, through smart contracts. This allows the safety of privacy-sensitive data and also allows public interaction. Generally, medical records are stored in Hybrid Blockchains. It too faces the acquisitions of not being completely transparent. Also, the technical growth may also be slow as there are no provisions for users to contribute to the network.
Consortium Blockchain
Also known as the federated blockchain, this is similar to the hybrid blockchain but is maintained by a number of organisations. To be more precise, this is a type of private blockchain with limited access to a particular group. This is believed to be more secure and can be scaled extensively. Also, it is known to be an efficient network when compared to the above-mentioned. This blockchain is relatively less transparent but still vulnerable in case of a member-level leakage. It is used in major enterprises supporting banking, payments and other financial activities.
Use Case of Blockchain
Today, after the revolution in Web3 technology, blockchain has grown to an unimagined extent and hence has enormous use cases. It is mainly used in-
- Cryptocurrency
- NFTs
- Supply Chain
- Healthcare
- Manufacturing
- Banking
- Media and Advertisement
- Personal Identity Security
- IoT(Internet of Things)
- Cross-border payments
- Government and voting
- Gaming
- Property and eCommerce
What are some of the Popular blockchains?
Ethereum
Registering its name as the most famous blockchain today, it seeks its origin from Vitalik Buterin and 4 others in December 2013. The company was started with a vision to end the single-handed dominance of Bitcoin on the market and today it provides an infrastructure for a number of Decentralized Applications. It is the base of many NFT marketplaces as well. It is one of the most used blockchains today.
Avalanche
Claiming the title of the fastest smart-contracts platform in business, the company was founded in May 2018 by Emin Gun Sirer. It provides a framework for the fast development of Decentralized Applications which can scale extensively with lesser requirements of hardware and many other developer friendly features, which make it a famous choice among developers.
Solana
Founded in March 2020 by Anatoly Yakovenko, the company enable support for creating highly scalable and user-friendly decentralised applications. It also claims to be the fastest blockchain with 400 millisecond of block time. Ensuring security and low transaction costs, Salona makes it the favourable books of developers.
FAQs
Are Blockchain and Bitcoin the same?
No, blockchain is a formal well-developed system used for various things whereas, Bitcoin is just an unregulated cryptocurrency. Bitcoin does use blockchain technology to record its transactions in a public ledger.
Who invented Blockchain?
Stuart Haber in 1991 along with W. Scott Stornetta, invented a system which can’t be tampered with. After a few years, Nick Szabo proposed a digital payment system called bit gold(although it was never implemented).
How many blockchains exist?
With the increasing number of live blockchains, the figures have crossed 10,000 active cryptocurrencies based on blockchains. Also, there exist, non-cryptocurrency blockchains which are in the range of 100s.
Do DeFi and blockchain imply the same thing?
No, Blockchain is a framework, a technology which is used in multiple applications and DeFi(Decentralised Finance) is just an application or use case of it.
Is blockchain completely secure from hacks?
Although it offers advanced security from many technologies available there, still it is not completely impenetrable. It has seen multiple attacks in history but it is evolving every day and soon would be so close to a state of unbreakable security.
Article Credit: ARYAN
