What Is Blockchain Technology & How Does It Work? Everything You Need To Know
The creation of bitcoin brought attention to the power of blockchain technology in the world. Originally, creating a digital currency was a huge bottleneck. Many had tried before and failed. But the biggest issue with digital currencies in the past was trust. What if the creator created a digital currency, defined its exact value, sold a quantity of it to the world at that controlled value, and then maliciously proceeded to issue a fixed amount of it to themselves with no evidence of such happening, and even worse, go on to steal other people’s money for themselves?
That is where blockchain came into play and solved the trillion-dollar question.
Blockchain technology is a technology built immensely on transparency, with public ledgers to verify transactions in a way they can no longer be altered, edited, or deleted. It was a game-changer that wasn’t just going to transform the financial world, but also every part of the world economy that wanted to build and launch platforms that were based on 100% transparency.
Blockchain technology laid the foundation for cryptocurrencies to thrive. It has created a backbone for decentralised finance to build upon. And as such, this sophisticated technology is making its way through the global community as the future standard on which most new technology applications would be built.
What is Blockchain Technology?
Blockchain technology is a technology that provides a method of storing information in such a way that it is almost impossible to manipulate, modify, hack or tamper with the data. It provides a decentralised database that is a type of Distributed Ledger Technology (DLT) where transactions are stored with a cryptographic signature that is called a hash.
This means that blockchain is a publicly open and unbiased digital ledger that contains transactions that are vastly distributed across all the computers that are a part of the blockchain network. Because of its decentralised distribution, anytime there’s a new transaction on the blockchain, the record of that transaction is stored on every computer on the ledger that is spread across the world in a decentralised way.
Difference Between Blockchain & Centralised Databases
Blockchain is created and designed to work in a decentralised manner where the information stored on the ledgers are recorded on multiple computers across a network with no update or delete features possible because of how independently widespread the computers are. But in a centralised database like MySQL, the data is modifiable because it is controlled by the entity that created the software application and the database is only stored on a computer they can control.
In essence, if you’re building a digital platform that is going to be based on 100% transparency because the data would be publicly viewable and unmodifiable, then you should use a blockchain network. If you instead want to have complete control over the data, then a centralised database is what you should use.
Types of Blockchains
1). Public Blockchain Network:
A public blockchain is a blockchain network that everyone can access, such as Bitcoin. The disadvantage is that immense computing power would be required to run this blockchain network and there’d be little to no privacy for the transactions on it.
2). Private Blockchain Network:
A private blockchain network is similar to a public blockchain network but has one entity administering the network and being able to determine who can view it and who cannot. This blockchain network can be used in enterprise solutions, hosted onsite, and can be behind a firewall..
3). Permissioned Blockchain Network:
A permission blockchain network is like a private or public blockchain network, with the difference that all participants would need to have an invitation or permission to join the network and what part of the network they can individually have access to. This type of blockchain is usually built and maintained by a business.
4). Consortium Blockchain Network:
In a consortium blockchain network, various organizations share the task of maintaining the blockchain in the form of a consortium and they determine who has permissions to submit transactions or view the data.
Benefits of Blockchain Technology
Some benefits of blockchain technology are:
With blockchain being decentralised and also a member computer-only network, you can be certain that the data you’re getting from the network is not just accurate and non-manipulative, but also on-time.
The data can also only be shared to members of the network, but the mere fact that it cannot be modified or deleted and can be recalled for later use gives a large level of trust.
Every computer on the blockchain network verifies the data accuracy entering the network and validates the transactions as unchangeable since they will be permanently recorded on the network. After this is done, the mere fact that absolutely no one, not even the administrators of the network, can delete the transactions makes it secure.
A shared distribution ledger by the members of the blockchain network eliminates time that can be lost to a reconciliation of records. and even more impressive, transactions are sped up with smart contracts on the blockchain network which are automatically executed without the need for intermediaries.
Some other benefits of blockchain technology are:
- Greater accuracy by eliminating human errors
- Cost reductions by removing human or third-party approvals
- Decentralization makes it harder to tamper with
- Banking the unbanked
Use Cases Of Blockchain Technology
Some use cases of blockchain technology are:
Blockchain technology was used as the foundation for the creation of bitcoin and eventually other cryptocurrencies. Also today, Central Banks around the world have started to create their own digital currencies that are available on the blockchain network
2). Banking & Finance:
Unlike traditional banks, the blockchain network never has a closing hour, and as such, never sleeps. Banks could benefit greatly from the blockchain network by creating smart contracts that are executed on the fly by the client on a very secure network, thereby reducing the amount of human interference in the network that could delay the completion time of transactions, which instead of running into days, could be finished in as little as 5 minutes.
Voting applications that are built on the blockchain network are secure because there’s immense confidence that the records cannot be changed, and as such, falsification of election results would be greatly reduced.
4). Smart Contracts:
A smart contract is a computer program that is built to execute contract agreements. They are created and run on the blockchain network and have a set of predetermined conditions that if met, automatically fulfills the terms of the contract without any human interference.
Examples are loan disbursements, supplies in exchange for payment once evidence of supply has been uploaded, and much more.
5). Supply Chain:
Blockchain can be used to record the origins of goods upon purchase with a mapping system so that clients can always know where the goods truly came from.
6). Real Estate Property Records:
Property ownership can be recorded and also easily verifiable via the blockchain network without the need to involve third parties that could take weeks or months to simply prepare paper work or verify ownership. With NFTs, the title of properties could easily be transferrable and since everything runs on the blockchain network, every transaction is verifiable from its origin till its present point.
Healthcare records can be stored on the blockchain network from every stage that is recorded. For instance, the initial consultation comments can be stored, test results, further comments, drugs administered, and much more data over the client’s lifetime. This way, the patients can know that their results cannot be altered after they have been inserted.
8). Academic Reports:
Academic reports from the quizzes to the tests, assignments, examinations, and much more can all be stored on the blockchain network with smart contracts automatically assigning grades and qualifications. This way, no academic fraud can be done after the data has been inserted and the records can remain permanent for later reference.
Challenges of Blockchain Technology
Some challenges of blockchain technology are:
- High technology costs as a result of mining
- A low number of transactions per second
- Questionable uses of blockchain in criminal and illicit activities
- Uncertainty in regulation
- Limitations in data storage
To Sum It Up
Blockchain technology provides a lot of opportunity to the future of the global economy. Its decentralization, transparency, security, efficiency and scalability makes it a game-changer in the technology scene, and when used to its true potential, can be a powerful technology that will change the world as it is already doing.