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Blockchain Technology - An Overview

Blockchain Technology - An Overview


What is a Blockchain?

Blockchain is a distributed database shared amongst nodes in a computer network. Digital data is stored on a blockchain as a database. A cryptocurrency system, like Bitcoin, relies heavily on blockchains to keep track of transactions in a secure, decentralized manner. Blockchain technology provides fidelity and security for a record of data while generating trust without the need for an intermediary. A blockchain system makes it very difficult to hack or cheat the system by simultaneously distributing identical copies of a database throughout the entire network.

 

What is the Difference Between Blockchain and Bitcoin?

Many people confuse the two terms. Are you aware of the difference?

Blockchain technology underpins Bitcoin, but Bitcoin is not the only distributed ledger system based on blockchain. There are several other cryptocurrencies with blockchain and distributed ledger technologies.

It is essential to understand that Bitcoin is only using the blockchain to transparently record a ledger of transactions. However, blockchains can record any number of data points in an immutable manner. It could be a transaction, a vote, a deed to a house, and many more. Tens of thousands of projects are using blockchain technology in various ways that benefit society beyond simply recording transactions.

 

How Does Blockchain Work?

With blockchain technology, digital information can be recorded and distributed but can not be edited. The blockchain thus serves as a foundation for immutable ledgers or records of transactions that cannot be altered, deleted, or destroyed. For this reason, blockchains can also be referred to as distributed ledger technology (DLT).

Taking Bitcoin as an example, here is how blockchain works:

1. Purchases and sales of Bitcoin are entered onto a computer network, referred to as a node.

2. Computer algorithms verify the transaction through this network of thousands of nodes worldwide. Bitcoin mining entails this process. A miner who is the first to complete a new block gets rewarded with Bitcoins. This reward comprises a combination of newly minted Bitcoins and network fees, which can vary depending on the number of transactions.

3. The transaction is added to the distributed ledger after being cryptographically confirmed. After that, the majority of the network must confirm the sale.

4.  A cryptographic fingerprint referred to as a hash enables the block to be permanently linked to all previous blocks of Bitcoin transactions, and the sale is completed.

 

Is Blockchain Secure?

Blockchain technology provides decentralized security and trust in a variety of ways. New blocks are always added to the blockchain, which will include their hash, the hash of the previous blocks, and the time stamp. A hash code is a string of numbers and letters generated by a mathematical function. The change of the content of a block will also change the hash code. Therefore, unless a majority of the network agrees, it is tough to alter the content of a block.

Suppose a hacker, who runs a node on a blockchain network, wishes to alter a blockchain and steal cryptocurrency. If everyone in the network cross-references their copies against each other, the hacker’s copy will stand out and be disregarded. That is to say, if someone modifies a single copy, all other copies would no longer align with that particular copy.

A successful hack would require the hacker to simultaneously control and alter 51% or more of the blockchain copies. Their newly modified copy would become the majority copy and, therefore, the agreed-upon chain. Besides requiring enormous resources and money, such an attack would also require redoing all the blocks with different time stamps and hash codes. The sheer size of many cryptocurrency networks and how rapidly they are expanding make it very hard to accomplish such a feat.

 

How Can Blockchain Technology Be Used?

Not only do over 10,000 other cryptocurrency systems utilize blockchain technology, but also many other types of transactions rely on blockchain to store data.

✅ Cryptocurrencies

A blockchain records transactions, such as the purchase or exchange of cryptocurrencies. You can find most of today’s blockchain technology in cryptocurrencies like Bitcoin and Ethereum.

✅ Banking and Finance

Blockchain can process transactions in fiat currency, such as dollars and euros. As the transactions can be verified quicker and processed outside of regular business hours, it may be a better channel than sending money through a bank or other financial institution.

✅ Asset Transfers

Blockchain can also process the ownership of real-life assets, such as deeds to real estate and vehicles. To complete a transaction, the two parties can use the blockchain to verify that one party owns the property and the other one has the purchase funds. They can then record the transaction on the blockchain.

This process could transfer the property deed without submitting any document to update the Land Registry’s records, and it would instantly get updated in the blockchain.

✅ Healthcare

Healthcare companies can store patients’ records securely on the blockchain. These records may be encrypted and stored on a blockchain with a private key to protect their privacy. Upon generating and signing a medical form, it can be written into the blockchain, ensuring that no one can alter the record.

✅ Voting

Experts are researching how to use blockchain to prevent voter fraud. Blockchain voting would theoretically allow people to submit votes that cannot be tampered with and eliminate the necessity to manually collect and verify paper ballots.

✅ Supply Chain Monitoring

Massive amounts of information are involved in supply chains, mainly because goods are transported from and to any part of the world. With traditional data storage methods, it can be challenging to identify the source of any problem caused, like which vendor provided the poor-quality products. However, storing the information on the blockchain would be easy to track the supply chain.

 

Advantages of Blockchain Technology

✅ Higher Accuracy of Transactions

On the blockchain network, thousands of computers approve transactions. The process is virtually human-free, resulting in less human error and a more accurate record of information. Therefore, if one node has a mistake in the database, the others will be able to identify the error.

✅ Cost Reductions

Consumers pay a bank or a notary for their services. Also, whenever a business accepts payments by credit card, it must pay a small fee to its bank or the payment processing company. In contrast, Blockchain technology eliminates the need for third-party verification and the associated costs.

✅ Extra Security

It is difficult for someone to commit fraud using a decentralized network, such as a blockchain. Those who want to cheat would need to hack every node and alter every ledger to enter forgeries. Many cryptocurrency blockchain systems use the proof-of-stake or proof-of-work transaction verification method to make it difficult to commit fraud.

✅ More Efficient Transfers

The 24/7 availability of blockchain technology facilitates more efficient financial and asset transfers. It is unnecessary to wait for days to confirm everything manually by banks or government agencies.

 

Disadvantages of Blockchain Technology

✅ Limit on Transactions per second

Since blockchain relies on a much more extensive network to approve transactions, it is limited to how quickly it can operate. Bitcoin can process 4.6 transactions per second compared to 1,700 transactions per second with Visa.

Increased transaction volume can also impact network performance. Scalability will be difficult until this is resolved.

✅ High Energy Costs

The nodes that verify transactions rather than a single database or spreadsheet consume a significant amount of electricity. In addition to increasing the cost of blockchain-based transactions, this also poses an enormous carbon burden on the environment.

Due to these concerns, some industry leaders are moving away from certain blockchain technologies, such as Bitcoin — Elon Musk has recently announced that Tesla would no longer accept Bitcoin because of its environmental impact.

✅ Illegal Activities

The decentralization of blockchain technology makes it more attractive to criminals due to its privacy and confidentiality. Unlike a bank transaction tied to a person, it is impossible to trace a blockchain transaction.

 

Conclusion:

Blockchain is becoming a buzzword on the tongues of every investor as it stands to make government and business operations more efficient, secure, and cost-effective without an intermediary.

With blockchain entering its third decade, the question is no longer whether legacy companies will adopt it but when. We are currently witnessing an increase in NFTs and the tokenization of assets. Blockchain technology will continue to proliferate in the decades to come.

 

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