A blockchain may be considered as a digital database, since it saves data digitally. Due to the immutability of blockchain data, it has the potential to revolutionize fields such as finance, security, and medicine. These are just few which are noted here.
Overview
To begin with, Let’s define blockchain technology first.
Using decentralization and cryptographic hashing techniques, blockchain technology, also known as distributed ledger technology (DLT), ensures that the transaction history of any digital asset cannot be altered and is completely visible.
But in layman terms, a blockchain is a distributed database or a ledger which is kept in sync over a network of computers. Blockchains are well recognized for their critical function inside cryptocurrency systems like Bitcoins to keep a secure and decentralized record of transactions.
Blockchains eliminate the requirement for a neutral third party to verify data and create trust between the whole network. It also eliminates the risk of potential loss of data and tampering of data.
The data structure of a blockchain is fundamentally different from a conventional database system like SQL and JSON based NOSQL.
Data on a blockchain is organized into blocks, which are collections of records. When a block’s storage capacity is reached, it is sealed and connected to the prior block, creating a chronological chain of data known as the blockchain.
You can imagine a linked list as a blockchain to understand it better, Where each node is connected to next node and contains information of previous and next node.
A blockchain stores its information in interconnected blocks, rather than the rows and columns like traditional database systems. When used in a distributed setting, this data structure creates a data chronology that cannot be undone.
When a new block is added to the chain, a precise timestamp is appended to it. Once a slot is filled up, that moment is permanently recorded here. Blockchain is limited to be used for recording and storing transactions for cryptocurrencies like Bitcoin as of now. However, It can be used in so many places, such as mentioned below.
Potential usage of blockchains
Finance and transaction processing: Blockchain-based transactions could be resolved in seconds, and bank transfer costs drastically reduced or even totally eliminated, since the blockchain is cost-effective.
Supply chain tracking: Blockchain may also help companies rapidly identify areas for improvement in their supply chains, track inventory in real-time and monitor product quality from the factory to the store shelf. It is much more efficient in supply chain business since it is decentralized. Blockchain can provide highly available systems at very low cost.
Blockchain for electronic credentials: Microsoft is exploring the use of blockchain technology to give consumers more control over their digital identities and the information associated with them. So, it can be used for other similar areas which falls under electronic credential management.
Information Distribution systems: Blockchain has the potential to serve as an intermediary for the safekeeping and transfer of business data between sectors. It can reliably provide data and also keep them safe from tampering or loss and corruption.
Protection of intellectual property: Blockchain can be used to construct a distributed ledger, Which can guarantee that artists will always own their work and distribute royalties in an open and timely manner. Similar benefits may accrue to the open-source community if it uses blockchain technology. NFTs are a great example of this type of system.
Healthcare blockchain: Blockchain can revolutionize the healthcare sector. It is being used by healthcare providers to keep track of data received from clinical trials and electronic medical records in many organizations. More such usage can provide stability and security to healthcare sector.
Functioning of a Blockchain
There are three key components to a blockchain:
- blocks
- nodes
- miners
What are Blocks?
Multiple blocks make up every chain, and all have the same three components:
- In the block, data.
- A ’number used just once’, or to be more technical: ’nonce’. In blockchain, a nonce is a random 32-bit whole integer that is used to build a block header hash.
- In blockchain, the 256-bit hash that is integrally tied to the nonce must start with a high number of zeros (i.e., be very tiny).
psst, just so you know this, a nonce is used to produce the cryptographic hash of the first block in a chain. Until the block is mined, the data inside it is signed and inextricably linked to the nonce and hash.
What exactly is a miner?
Mining refers to the method through which new blocks are added to the chain. Mining a block in a blockchain is difficult, since each block has its nonce and hash, moreover, it contains a reference to the hash of the prior block in the chain. (Just like a linked list, which I have mentioned before.)
Miners are specialized software to tackle an extremely difficult mathematical problem to determine a nonce that results in a valid hash. To be very precise, a 256-bit hash must be mined with a 32-bit nonce, with about four billion potential nonce-hash combinations. When this occurs, miners have identified the ‘golden nonce’, and their block is added to the blockchain. When a block is mined successfully, all nodes in the network agree to the new data, and the miner receives payment.
What is decentralization?
Blockchain relies heavily on the idea of decentralization. Nodes in a blockchain network may be any kind of computer or other electronic device that stores a copy of the blockchain and facilitates continued operations of the whole network.
As a result, the chain cannot be controlled by any central computer or authority. Instead, it is a decentralized database accessible from any network node.
Every transaction in a blockchain may be readily verified and observed by anybody. Each node stores its copy of the blockchain, and for the chain to be updated, trusted, and confirmed, the network must algorithmically approve each new block that is mined. Each user is then assigned a unique number that may be used to track their financial dealings inside the system.
The blockchain’s integrity is kept intact and trust is built among its users using the combination of public information and a system of checks and balances. Blockchains may be viewed as the scalability of trust via technology.
Is blockchain safe?
Multiple features of blockchain contribute to the system’s decentralized nature and high level of security and trust. The order in which newly added blocks are kept is always chronological. They are always appended to the ’last’ part of the blockchain. It is exceedingly difficult to change the contents of a block after it has been appended to the end of the blockchain unless there is widespread agreement to do so.
This is because each block stores not only its hash, but also the hash of the prior block and the date that was discussed before. Data is converted into a string of alphanumeric characters using a mathematical formula called a hash function. When the data is altered, the corresponding hash code also shifts.
Let me break it down for you with an example:
A malicious user, who also controls a node on the blockchain network, plans to change the ledger to steal Bitcoins from everyone. Now, If each one of them changed their copy, the results would be inconsistent. All other copies would be compared to this one, and the copy of malicious user would be immediately disregarded as invalid since it would stand out as different. For such a hack to be successful, the attacker would need to take over more than ~60% nodes simultaneously and change the blockchain such that their version becomes the majority copy and the agreed-upon chain.
Some more technical information:
Feel free to skip this part if you are not interested.
Because of the new timestamps and hash codes, all the blocks would need to be redone, which would demand a massive investment of time and money. Considering the massive scale and explosive growth of many cryptocurrency networks, the resources required to accomplish such an attack are likely to be beyond the reach of any human being. The cost involved would be prohibitive, and the results uncertain.
It would be impossible to conceal such a massive change to the blockchain from other network users. Afterwards, the nodes in the network would fork off to a new, unaffected chain version. This would lead to the value of the token being targeted plummeting, rendering the attack useless, since the bad actor would have a worthless asset. The same thing would happen if the malicious actor attacked the fresh Bitcoin split. This fundamental design of blockchain makes contributing to the network more financially beneficial than attempting to disrupt it.
Varieties of blockchain
Private blockchain networks
Private blockchains are only accessible inside a restricted network, making them ideal for use within exclusive companies or groups. These blockchains allow businesses to regulate user access, set network settings, and implement other critical security measures. In a single-administrator blockchain network, just one person is in charge.
Public blockchain networks
Public blockchains, the technological basis for Bitcoin and other cryptocurrencies, have also contributed to the widespread use of distributed ledger technology (DLT). For example, the problems of centralization and security breaches are less of a concern due to openness of blockchain network. Instead of keeping information in one central repository, DLT spreads it out over a network of computers. Proof of stake (PoS) and proof of work (PoW) are two popular consensus algorithms used for authenticating data.
Permissioned blockchain networks
Permissioned blockchain networks, also known as private or hybrid blockchains, only allow access to verified users. This hybrid blockchain setup provides organizations with the best of both worlds of private and public blockchain network by allowing for more precise control over who has access to the network and which transactions they can take part in.
Consortium blockchain networks
Consortium blockchains are mostly like permissioned blockchains, includes the characteristics of public and private features. However, unlike permissioned blockchains, a consortium blockchain will be managed by numerous entities. These blockchains may be more difficult to set up initially, but provide enhanced security once operational. Moreover, consortium blockchains are best for working with several companies. So a collaborative environment such as large enterprise and its divisions can utilize this and have a great control over data with best in class security.
Exchange methods
The confirmation and authorization of transactions is a crucial component of blockchain technology. If two people, each with their own private key, want to conduct a transaction, the first person affixes the details of the transaction to the second person’s public key. All of this data is compiled into one big chunk.
The block has crucial data, including a digital signature, a timestamp, and more. It does not record the names of anyone who participated in the transaction. All the other nodes in the network will receive this block via broadcast, and the transaction is completed after the appropriate user validates it using their private key. The blockchain is not limited to only handling monetary transactions, But it may also record sales of real estate, automobiles, and other assets. These are few uses but not all.
Blockchain, Double edged sword?
Yes, Just like most of the great technologies, Block chain has its own drawbacks as well as great benefits. Despite the complexity, blockchain has limitless use as a decentralized ledger system.
Pros
- Better accuracy since no humans are involved in the verification process.
- Reduces expenses by doing away with independent verification.
- It is more difficult to tamper with anything that is distributed.
- The transactions are safe, confidential and quick.
- Uses open-source software.
- Gives people in nations with undeveloped governments access to financial services while protecting their privacy.
Cons
- Bitcoin mining requires a lot of expensive hardware.
- A very extensive history of illegal usage, particularly on the
dark web. - There is no universally accepted set of regulations, and regulatory differences exist among jurisdictions.
- Data storage capacity constraints. Especially for massive global scale networks.
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