A blockchain is a shared distributed database or ledger between computer network nodes. A blockchain serves as an electronic database for storing data in digital form. The most well-known use of blockchain technology is for preserving a secure and decentralised record of transactions in cryptocurrency systems like Bitcoin. The novelty of a blockchain is that it fosters confidence without the necessity for a reliable third party by ensuring the integrity and security of a record of data.
In a blockchain, data is gathered in groups called blocks that each includes sets of data. Blocks have specific storage capabilities, and when full, they are sealed and connected to the block that came before them to create the data chain known as the blockchain. Every additional piece of information that comes after that newly added block is combined into a brand-new block, which is then added to the chain once it is full.
A blockchain is a particular kind of shared database that varies from other databases in that it saves data in blocks that are subsequently connected via cryptography. Although other kinds of information may be maintained on a blockchain, a transaction ledger has so far been its most popular usage.
Blockchain is employed in the case of Bitcoin in a decentralised manner, meaning that no one person or organisation has control but rather, all users do so collectively. Since decentralised blockchains are immutable, the data placed into them cannot be changed. This implies that transactions made using Bitcoin are publicly visible and permanently recorded.
How a Blockchain Operates:
Blockchain aims to make it possible to share and record digital information without editing it. A blockchain serves as the basis for immutable ledgers, or records of transactions that cannot be changed, removed, or destroyed. Blockchains are sometimes referred to as distributed ledger technologies because of this (DLT).
The blockchain idea was initially put out as a research project in 1991, long before Bitcoin became a widely used application in 2009. Since then, the introduction of several cryptocurrencies, decentralised finance (Defi) apps, non-fungible tokens (NFTs), and smart contracts has led to explosive growth in the usage of blockchains.
Applications and Uses of Blockchain:
- Transparency
- Financial and banking
- Healthcare
- Asset Records
- Intelligent Contracts
- The Supply Chain
- Voting
1. Transparency:
Due to the decentralised structure of the Bitcoin blockchain, all transactions may be openly observed by utilising blockchain explorers, which let anybody examine transactions as they happen in real time, or by owning a personal node. As new blocks are added and validated, each node’s copy of the chain is updated. This implies that you might follow Bitcoin wherever it went if you so desired.
As an example, exchanges have previously been hacked, and everyone who had Bitcoin stored there lost everything. The stolen Bitcoins are identifiable, despite the hacker’s complete anonymity. It would be known if any of the Bitcoins taken in any of these attacks were transferred or used elsewhere.
Naturally, the data kept on the Bitcoin blockchain (as well as the majority of others) is encrypted. This implies that only the record’s owner will be able to decode the file and expose its identity (using a public-private key pair). As a consequence, blockchain users may maintain their anonymity while maintaining transparency.
2. Financial and Banking:
Banking is one sector that could stand to gain the most from incorporating blockchain into its corporate processes. Financial institutions are only open during regular business hours, which are typically five days a week. As a result, if you attempt to deposit a check on Friday at 6 p.m., you probably won’t see the funds in your account until Monday morning. Due to the enormous amount of transactions that banks must settle, even if you do make your deposit within business hours may still take one to three days for the transaction to be verified. Blockchain, however, is always active.
Customers may expect their transactions to be completed by banks using blockchain in as low as 10 minutes—roughly the time it takes to add a block to the blockchain—regardless of weekends or holidays. Banks now can safely and swiftly transfer money across organisations thanks to blockchain technology. For instance, in the stock trading industry, the settlement and clearing procedure may take up to three days (or more, if trading is done worldwide), during which time the money and shares are frozen.
Given the scale of the amounts involved, even a little period during which the money is in transit may be very expensive and risky for institutions.
3. Healthcare:
Healthcare providers may use blockchain to safely preserve the medical records of their patients. The ability to write a medical record onto the blockchain once it has been created and signed assures patients that the record cannot be altered. These sensitive health data might be encrypted and kept on the blockchain with a secret key so that only certain people can access them, maintaining their privacy.
4. Asset Records:
If you’ve ever spent time at your local recorder’s office, you are aware of how time-consuming and ineffective the process of documenting property rights is. A tangible deed must now be handed to a government worker at the county recording office, where it will be manually put into the public index and central database. Claims to the property that is in dispute must be compared to the public index.
In addition to being expensive and time-consuming, this method is also prone to human mistakes, where each error reduces the effectiveness of tracing property ownership. Blockchain might do away with the requirement to scan papers and locate actual files at a nearby recording office. Owners may have confidence that their deed is correct and permanently recorded if property ownership information is kept and verified on the blockchain.
It may be very difficult to establish ownership of a property in war-torn nations or regions with little to no financial or governmental infrastructure. It is especially difficult in places without a Recorder’s Office. A group of locals might build transparent and unambiguous timelines of property ownership if they were able to use blockchain.
5. Intelligent Contracts:
A contract agreement may be facilitated, verified, or negotiated using a smart contract, which is computer code that can be included in the blockchain. Users accept a set of terms under which smart contracts function. The provisions of the Agreement shall automatically be carried out upon the satisfaction of such requirements.
Let’s take the example of a prospective renter who wants to rent an apartment using a smart contract. When the renter pays the security deposit, the landlord agrees to provide the tenant with the apartment’s door code. The smart contract would receive payments from both the renter and the landlord, keep them, and then automatically exchange the door code for the security deposit on the start date of the lease. The smart contract returns the security deposit if the landlord does not provide the door code by the start of the lease. This would do away with the costs and procedures usually related to using a notary, a third-party mediator, or lawyers.
6. The Supply Chain:
Blockchain technology allows suppliers to track the provenance of the products they have bought. This would enable businesses to confirm the legitimacy of both their goods and well-known labels like “Organic,” “Local,” and “Fair Trade.”
According to Forbes, the food sector is using blockchain technology more and more to monitor the whereabouts and safety of food as it travels from the farm to the consumer.
7. Voting:
As was already suggested, a contemporary voting system might be facilitated by blockchain. As shown in the West Virginia midterm elections in November 2018, voting using blockchain technology can end election fraud and increase voter participation.
With the use of blockchain, tampering with votes would be next to impossible. Blockchain technology will also uphold electoral openness while lowering the number of people required to carry out an election and giving authorities access to results almost immediately. As a result, there would be no need for recounts and no legitimate reason to be concerned that election fraud would occur.
Advantages of blockchains
A network of thousands of computers on the blockchain network verifies the accuracy of chain transactions. As a consequence, practically all human participation in the verification process is eliminated, which reduces human error and ensures that the information is recorded accurately. Even if one of the computers in the network were to make a computational error, only one copy of the blockchain would be affected. It would take at least 51% of the network’s computers making that mistake for it to propagate to the rest of the blockchain, which is almost impossible for a network as big and expanding as Bitcoin’s.
Cost Savings:
Consumers often pay a bank to confirm a transaction, a notary to sign a document, or a preacher to officiate a wedding. Third-party verification is no longer required, and with it, its accompanying expenses. For instance, minor fees are charged to company owners who accept credit card payments since banks and payment processors must handle such transactions. Contrarily, Bitcoin lacks a central authority and has a small number of transaction fees.
Decentralization:
Blockchain does not keep any of its information in a central place. Instead, a network of computers copies and disseminates the blockchain. Every computer in the network updates its blockchain whenever a new block is added to the blockchain. Blockchain makes it more difficult for someone to tamper with by dispersing that information over a network as opposed to keeping it in a single central database. If a hacker obtained a copy of the blockchain, just one instance of the data would be at risk rather than the whole network.
Quick Transactions:
The settlement of transactions made via a centralised authority may take many days. For instance, if you try to deposit a check on Friday night, you could not see any money in your account until Monday morning. Blockchain is active around-the-clock, seven days a week, 365 days a year, unlike financial institutions, which only function during regular business hours, often five days a week. In only a few hours, transactions may be finished and deemed safe. Transactions can be finished in as little as ten minutes. Cross-border deals, which often take substantially longer due to time zone concerns and the need that all parties to approve payment processing, may benefit especially from this.
Private Dealings:
Many blockchain networks function as open databases, making the network’s transaction history available to anybody with an Internet connection. Users may see transaction data, but they cannot access information that would identify the users who made the transactions. Although it is a popular misconception, blockchain networks like bitcoin are just secret; they are not anonymous.
A user’s specific code, known as a public key, which was stated before, is logged on the blockchain whenever they conduct a public transaction. Not their private information. A transaction, even when connected to a person’s name, does not divulge any personal information. However, if a person has made a Bitcoin purchase on an exchange that needs verification, then the person’s identity is still linked to their blockchain address.
Dependable Transactions
A transaction’s legitimacy must be confirmed by the blockchain network once it is recorded. On the blockchain, thousands of computers scramble to verify that the transaction’s data are accurate. The transaction is added to the blockchain block after it has been verified by a machine. On the blockchain, each block has both its own distinct hash and the distinct hash of the block that came before it. The hash code of a block changes if the information on that block is altered in any manner, while the hash code of the block immediately after that block does not. It is very difficult to modify information on the blockchain without notice due to this mismatch.
Transparency:
The majority of blockchains use only open-source code. Its code may thus be seen by anybody and everyone. This enables auditors to assess the security of cryptocurrencies like Bitcoin. This also implies that there is no actual control over who edits the code for Bitcoin or how it is controlled. As a result, anybody may recommend making improvements to the system. Bitcoin may be upgraded if the new version of the code with the upgrade is deemed to be sound and beneficial by the majority of network users.
Finance For The Unbanked:
The fact that everyone may utilise blockchain and bitcoin, regardless of racial origin, gender, or cultural background, is perhaps their most significant feature. The World Bank estimates that 1.7 billion individuals do not have bank accounts or any other way to keep their money or assets safe.
Most of these people reside in developing nations, where the economy is still in its infancy and totally reliant on foreign exchange.
These workers often get tangible cash payments in the form of small salaries. They must then conceal this actual currency in their homes or other living spaces, putting them at risk of robbery or needless violence. The password for a bitcoin wallet can be written down, kept on a cheap phone, or even memorised if necessary. These options are probably easier for the majority of people to conceal than a small amount of cash under their mattresses.
Future blockchains are also searching for ways to store medical information, property rights, and some other legal contracts in addition to serving as a unit of account for wealth storage.
Cost:
is not free, even though it can help users save money on transaction costs. For instance, the PoW system used by the bitcoin network to validate transactions uses a tremendous amount of processing power. The yearly power consumption of Norway and Ukraine is comparable to that of the millions of machines on the bitcoin network in the real world.
Users continue to run up their power bills to verify transactions on the blockchain despite the expenses associated with mining bitcoin. This is because miners are compensated with enough bitcoin for their time and effort when they add a block to the bitcoin network. To verify transactions on blockchains that do not employ cryptocurrencies, however, miners will need to be paid or given some other incentive.
These problems are starting to have some solutions emerging. For instance, farms for bitcoin mining have been built using solar energy, extra natural gas from fracking operations, or electricity from wind farms.
Data Inefficiency And Speed:
The potential shortcomings of blockchain may be studied perfectly using the example of Bitcoin. A new block may be added to the network in around 10 minutes using Bitcoin’s PoW method.
The blockchain network can only handle roughly seven transactions per second at that pace, according to estimates (TPS). Even though Ethereum outperforms bitcoin in terms of performance, blockchain still has limitations. For perspective, Visa’s legacy brand can handle 65,000 TPS.
For years, people have been working on solutions to this problem. There are blockchains with more than 30,000 TPS at the moment.
Once rolling out an update that incorporates sharding—a division of the database so that more devices (phones, tablets, and laptops) can run Ethereum—up to 100,000 TPS is anticipated to be possible after Ethereum’s main net and beacon chain join (Sept. 15, 2022). As a result, network membership will rise, traffic will be relieved, and transaction speeds will rise.
The capacity of each block to store data is the other problem. One of the most important concerns regarding the future scalability of blockchains has been and is the block size controversy.
Criminal Activity:
While secrecy on the blockchain network safeguards users’ privacy and prevents attacks, it also enables illicit activities and trade on the network. The Silk Road, an online dark web illegal drug and money laundering bazaar running from February 2011 until October 2013, when it was shut down by the FBI, is perhaps the most often cited example of blockchain being used for criminal activities.
Using the Tor Browser and the dark web, users may acquire illicit things in Bitcoin or other cryptocurrencies and sell them without being seen. Financial service providers are required by current U.S. rules to collect information about their clients when they create an account, validate each client’s identification, and ensure that they do not appear on any lists of known or suspected terrorist groups.
This approach has both benefits and drawbacks. Anyone may access bank accounts, but it also makes it simpler for thieves to conduct transactions. Many have claimed that the positive applications of cryptocurrencies, such as banking the unbanked globe, outweigh the negative uses, particularly as the majority of unlawful conduct is still carried out using untraceable cash.
Even though it was first used for these things, Bitcoin’s openness and development as a financial asset have caused illicit behaviour to move to other cryptocurrencies like Monero and Dash. Only a very tiny percentage of all Bitcoin transactions now are related to illicit behaviour.
Regulation:
Concerns concerning governmental regulation of cryptocurrencies have been raised by many in the crypto community. Governments might conceivably make it unlawful to hold cryptocurrencies or take part in their networks, even though it is growing more and harder to stop something like Bitcoin as its decentralised network expands.
As major corporations like PayPal start to permit the ownership and usage of cryptocurrencies on their network, this worry has diminished over time.
Blockchain’s Benefits And Drawbacks:
Despite its intricacy, blockchain has almost limitless potential as a decentralised method of record-keeping. Blockchain technology may very possibly find uses beyond those mentioned above, ranging from improved user privacy and security to reduced processing costs and fewer mistakes. But there are some drawbacks as well.
Positives: Accuracy was increased by eliminating human verification.
Cost savings via the abolition of third-party verification
Decentralization makes it more difficult to interfere
The transactions are efficient, confidential, and safe.
Open-source technology
gives residents of nations with unstable or weak governments a financial option and a method to safeguard their personal information.
Mining bitcoin involves high technical costs.
low transactional speeds
Use in illegal operations in the past, such as on the dark web
Regulation differs across jurisdictions and is still ambiguous.
storage restrictions for data
What Exactly Is A Blockchain In Plain English?
A blockchain is essentially a decentralised database or ledger. Each node in the network has an identical copy of the complete database, and data is stored in data structures called blocks. Since the majority of the copies of the ledger do not reflect this modification, attempts to modify or remove an entry in one copy of the ledger will be refused, ensuring security.
How Many Different Blockchains Exist?
Every day, the number of active blockchains increases at an exponential rate. By 2022, there will be several hundred more non-cryptocurrency blockchains in addition to the more than 10,000 active cryptocurrencies built on blockchain.
What Sets A Private Blockchain Apart from a Public Blockchain?
A public blockchain, sometimes referred to as an open or permissionless blockchain, allows anybody to join the network and set up a node without restriction. These blockchains need to be safeguarded using encryption and a consensus mechanism like proof of work because of how open they are (PoW).
On the other hand, a private or permissioned blockchain needs each node to be vetted before joining. The layers of security do not need to be as thick since nodes are presumed to be trustworthy.
A blockchain platform Is what:
On top of an already-existing blockchain infrastructure, users and developers can build new applications using a blockchain platform. Ethereum is one instance, which has a built-in cryptocurrency called ether (ETH).
However, the Ethereum blockchain also enables the development of programmable tokens for initial coin offerings (ICOs), smart contracts, and non-fungible tokens (NFTs). All of them are constructed around the Ethereum network’s architecture and are protected by nodes.
Inventor Of Blockchain:
Stuart Haber and W. Scott Stornetta, two mathematicians interested in implementing a system where document timestamps could not be altered, initially proposed the concept of blockchain technology in 1991.
Cypherpunk Nick Szabo advocated utilising a blockchain to protect the bit gold digital payment system in the late 1990s (which was never implemented).
Blockchain is finally establishing itself, in no little part because of bitcoin and cryptocurrencies, with several real-world uses for the technology now being deployed and researched. Blockchain, a phrase on everyone’s lips as an investor in the country, promises to reduce middlemen while increasing accuracy, efficiency, security, and cost-effectiveness in commercial and government activities.
Conclusion:
The issue of whether legacy organisations would adopt blockchain technology is no longer one of if as we prepare to enter the third decade of the technology. NFTs are becoming more and more prevalent today, and assets are being tokenized. Blockchain will experience significant growth over the ensuing decades.
