Blockchain is an unregulated network of peers whose primary function is to store transactional data securely while performing untrustworthy financial transactions. Yet one question still looms large for any organization looking into adopting Blockchain: do all companies adapting Blockchain have similar needs?
Answer: No! Blockchain technology is utilized by various businesses for various uses.
What Is Blockchain?
A blockchain is a digital ledger or distributed database shared among computer nodes that records transactions securely, such as for cryptocurrency systems. Although their primary application may lie with cryptocurrency systems such as maintaining decentralized records of transaction records securely without central authority intervention or modification by third-parties such as third-party entities storing accounts with cryptocurrency exchanges or digital wallets storing transactions securely among them all, their use extends far beyond simply cryptocurrency systems as it makes data immutable - in other words it cannot change.
As blocks cannot be changed, trust only needs to be established when data enters them by programs or users - eliminating third-party trusted parties which add costs and can make mistakes.Blockchain applications have seen exponential growth since Bitcoin first made an appearance back in 2009. They include decentralized financial (DeFi), non-fungible token (NFT), and smart contract applications.
How Does Blockchain Function?
Spreadsheets and databases may be familiar. Blockchain works similarly, where data can be entered and stored for later retrieval and entry; its primary difference being how information is organized and accessed.
Blockchains are composed of scripts - programs which perform similar duties to databases - that act like databases in terms of entering, retrieving and saving information while saving it for storage purposes. A blockchain's distributed nature means multiple copies must exist on different machines so as to remain valid and remain part of its totality. Blockchain collects transaction-related data and stores it in blocks for storage. Once collected, this information is run through an algorithm which creates its hash value - typically an 8 hexadecimal character string value.This hash will then be entered in the header for the following block and all information within it encrypted for extra protection before chaining is implemented.
Transaction Process
Each blockchain offers different procedures and processes when initiating transactions; on Bitcoin for instance, initiating one from your cryptocurrency wallet - an application used to connect directly to blockchains - triggers a series of events which eventually complete themselves.
Your Bitcoin transaction is queued until it's picked up by either a validator or miner and added to a block with other transactions; once this block has been filled out with transactions it is sealed using cryptographic algorithms before mining commences.Each member of the network works simultaneously to "solve" hashes; only certain numbers, known as nonces, may be repeated multiple times in this attempt.
Each miner starts by starting out with a zero nonce, which they add to a random hash generated randomly. If this result doesn't meet or beat their hash target number, their nonce will increase by one. This process continues until one miner produces an valid block hash; they win and collect their reward!"Proof of Work", as you're likely aware, refers to "generating random hashes until a particular value is identified and used by miners for verification purposes - something Bitcoin requires an enormous amount of energy and computational power for.Transactions become complete once a block has been closed; it won't be considered confirmed until at least five blocks have validated it - typically an hour depending on its average 10 minute confirmation times (ie the first block with your transaction multiplied with 10 equals 60 minutes).
Not all blockchains adhere to this process, though. Ethereum for instance randomly chooses from among users who have staked ether to verify blocks before the network confirms them - providing faster confirmation times with reduced energy use than Bitcoin.
Blockchain Decentralization
Data can be distributed amongst multiple nodes running the blockchain at different locations to both ensure data fidelity and create redundant information; should anyone attempt to change any records within one database instance, other nodes in the network could prevent this change and ensure information does not change due to individual node involvement in changing records in one location alone. This way information cannot be altered solely through one node within its network.Due to this distributed proof-of-work and encryption method, information and its history it contains are permanent records - be they cryptocurrency transactions or even state IDs and company inventories.
Blockchain Transparency
Due to Bitcoin's decentralized nature, anyone with internet access can view all transactions using either a blockchain explorer or node. Each node keeps its own version of the blockchain updated when new blocks are added and confirmed; making it easy and transparent for anyone interested to keep track of where Bitcoins go.
Hackers have infiltrated exchanges before, leading to massive crypto thefts and leading to anonymous wallet addresses being misused as takers; yet their crypto assets gains were easy enough to track via permissioned blockchain records containing wallet addresses belonging to those hackers.Bitcoin Blockchain records (and those found on other blockchains) are encrypted so only its owner is able to reveal who owns an address; other blockchain users remain anonymous while remaining transparent.
Does Blockchain Security Exist?
Blockchain technology offers decentralized trust and security through multiple methods. At first, new blocks were stored chronologically along a linear timeline at the "end" of a chain; once added there they cannot be modified.
Any change to data will alter its hash value from previous blocks and impact subsequent ones; each block keeps track of what blocks came before its own hash, so alteration in one will directly impact others and any altered block would likely be rejected by the network as its hashes would no longer match up with those in previous ones.Some blockchains may not be 100% secure. Distributed ledgers utilize code to achieve high security levels; exploitable vulnerabilities could exist within its code that could allow an attack.
Imagine, for instance, that an individual running a node within a network of blockchains wants to steal digital currency or alter the chain - in which case, they would need to convince other nodes of their validity if they intended on changing it themselves.
What Are Blockchains' Purposes?
A blockchain's primary function in Bitcoin transactions is storing transaction records; over 23,000 cryptocurrency systems use its blockchain today! But blockchain can also store other types of transaction-related information; its widespread implementation provides plenty of possibilities.
Blockchain allows companies to track a product from its source through all stops it has made and on to delivery, offering businesses insight into any other products it may have come in contact with as it travels along its route, potentially saving lives much earlier and quicker than if using traditional tracking methods alone. Just one application among many available through permissioned blockchain.
Banks and Finance
Financial services may benefit the most from blockchain integration. Most financial institutions only open during their normal business hours (typically five days a week); so, depositing your check at 6 pm on Friday could take until Monday morning for your cash to show in your account.Due to their immense volume, banks may take three days or longer for deposits to be verified; while blockchain works around-the-clock.
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Currency
Bitcoin and other cryptocurrencies are built upon blockchain. The Federal Reserve regulates the U.S. Dollar. Under such a central authority system, one's funds and data could fall at the mercy of either their government or bank if their private information becomes compromised by another bank they use.Value can fluctuate if a bank fails or its customer lives in an unstable nation; as was witnessed during 2008 when taxpayers helped bailout several insolvent banks with funds provided from tax returns; due to these concerns Bitcoin came to fruition as a solution.
Blockchain can give countries with unstable economies and financial infrastructures access to a stable currency with larger networks and applications that enable both domestic and international trade.Blockchain allows Bitcoin and other cryptocurrencies to operate without needing an official central authority, which significantly lowers not only risks but transaction processing fees as well.
Blockchain wallets as savings accounts or payment methods have immense importance for those without official identification in countries that have suffered war, lack a comprehensive identification infrastructure and have no brokerage or savings accounts with which they can store their wealth safely.
Healthcare: Utilizing Blockchain
Healthcare providers can use blockchain to securely store patient medical records. Patients have peace of mind knowing their records cannot be altered as the blockchain provides evidence against this. In addition, personal health records stored using secret keys in blockchain ensure privacy by only being accessible by certain individuals at once - guaranteeing security against disruption to privacy.
Smart Contracts
Smart contracts are computer codes incorporated into Blockchain technology that serve to form contracts automatically upon fulfilling certain conditions that were agreed to during contract formation. Once these conditions have been fulfilled, any agreement reached automatically comes to fruition and all terms agreed to within are carried out accordingly.
Imagine this: An interested tenant wishes to rent an apartment via smart contract, paying both security deposit and rent at once. After which, their landlord gives them their apartment code; otherwise the smart contract automatically emails it as well - with changes made if either rent payment fails, or other conditions arise that change it further.
Supply Chains
Supply chain suppliers can use blockchain to track materials' origins using IBM Food Trust case study as evidence of authenticity not just of their own products but also those labeled with organic, local or Fair Trade labels.Forbes reported that blockchain is being adopted increasingly within the food industry to trace food's journey from farm to table and ensure safe consumption by end consumers.
Voting
Blockchain may provide an easier, more modern form of voting as stated earlier. Evidenced during November's midterm election in West Virginia, voting with blockchain can reduce fraud while increasing voter turnout and participation rates.
This would render vote manipulation almost impossible while simultaneously improving transparency, decreasing personnel requirements for an election and providing officials with instantaneous results. Blockchain could also ensure transparency during electoral processes by decreasing personnel requirements to conduct them while offering almost instant results to officials.
Blockchain offers many advantages for business.
Accuracy of Chain
Blockchain networks are verified and accepted by thousands of computers and devices, eliminating human intervention as they verify transactions between nodes in real-time, producing more accurate recordings as well as reduced errors; any mistaken computation would only impact one copy of blockchain; other copies wouldn't accept its presence and accept errors without prejudice.
Reduced Costs
Consumers typically incur costs related to bank or notary verification when conducting transactions or signing documents, however with cryptocurrency wallet there is no third-party validation costs involved and transaction fees are limited due to Bitcoin having no central authority and being decentralized compared with what traditional payment processing systems require for processing payments by credit cards or payment processors.
Decentralization
Blockchain does not store its information centrally; rather, the information is replicated across computers in its network and distributed. Each time a block is added to it will update each computer in turn's blockchain accordingly.
Blockchain offers greater protection, as its information is dispersed across a network rather than being stored centrally.
Efficient Transactions
Efficiency In transactions through central authorities can take several days for settlement to occur; you might not see your funds that were deposited on Friday night appear until Monday, as most financial institutions operate with normal business hours five days per week; with blockchain however available 24/7 seven days per week and all year around.
Some blockchains enable transactions to take just minutes to complete and are considered secure shortly afterwards, making them especially helpful in cross-border payments which often take much longer due to time zone differences and because all parties involved must confirm payment before being completed.
Private Transactions
Blockchain networks operate like public databases. Anyone with internet access can view past transactions that took place over time on these blockchain networks; users can see transaction details but no personally identifying data of users; this often gives rise to misconceptions that Bitcoin and blockchain networks are completely anonymous when in actuality there exists an address that links back to one specific person on them.
Blockchain Disadvantages
Blockchain Technology Cost
Blockchain can be an incredible way to save virtual money, but it doesn't come for free. Bitcoin uses a proof-of work system which consumes computing power in order to verify transactions - the amount used by all these Bitcoin devices could even equal Pakistan's annual energy use!Solutions have already begun emerging: Bitcoin mining farms have been created using solar energy, natural gas surplus from fracking or wind farm power for bitcoin mining operations.
The Inefficiency of Data Speed
Bitcoin serves as an example of blockchain's potential data speed inefficiencies. Bitcoin's Proof-of-Work algorithm takes around 10 minutes to generate one block on its blockchain; at that rate, three transactions per second can be processed while Visa legacy brand can handle up to 65,000.At present, there are blockchains with transaction processing rates of more than 30,000 TPS; moreover, those offering 30 TPS or greater may also exist.11 Ethereum's proposed merger between its main network and beacon chain on September 15, 2022 is predicted to offer 100 TPS, increasing participation, decreasing congestion, and providing faster transaction speeds overall.
One issue related to scaling blockchains has always been and remains today - that each block only contains limited amounts of information. Block size remains one of the primary concerns when scaling these decentralized ledgers.
Illegal Activity
Its Blockchain networks protect their users against hacking and maintain privacy; yet their design allows for illegal trades as well. Silk Road was perhaps the best-known example of how blockchain was utilized to facilitate illicit trades - it operated from February 2011 until it was closed by the FBI in October 2013.
Tor Browser gives users access to illegal goods on the dark web without being tracked, using Bitcoins and other crypto currencies as payments. U.S. financial services providers must collect client information when opening accounts in order to confirm identity and ensure customer names do not appear on lists associated with terrorist groups and terrorist incidents.
Cryptocurrencies offer both advantages and drawbacks to society; anyone can access financial accounts easily but they also make criminal activity simpler. Some analysts argue that cryptocurrency's positive applications, like providing banking to unbanked people, outweigh its negatives when considering that most illegal activity still involves untraceable funds.
Regulation in the United States
Many in the crypto community have raised their concern over government regulations of cryptocurrency. While it can be nearly impossible to stop decentralized networks like Bitcoin from expanding further, governments could theoretically ban ownership or participation of cryptocurrencies under these circumstances.
As large companies such as PayPal offer customers access to cryptocurrency purchase platforms online, such as theirs, this concern has diminished considerably.
Blockchain Types
Blockchains can be broken into four distinct groups.
1. Public Blockchain
This type of blockchain was the initial version, giving rise to cryptocurrency like Bitcoin as it popularized Distributed Ledger Technology (DLT). By dispensing with centralization's shortcomings such as less security and greater transparency, public blockchain offers many advantages for all types of organizations and individuals alike. DLT does not store information in one central place; rather it disperses across an interlinked network of peers.
Decentralization necessitates some method to verify data's authenticity - the consensus algorithm allows participants of a blockchain network to reach an agreement about its state.Public blockchains are decentralized networks accessible to anyone with internet access and permission-less. Users have access to current and historical records as well as mining operations - complicated computations used to verify transactions added to a ledger - for mining operations to verify, add or update transactions in an open ledger system. Any user can check any record, transaction or data within this network to validate it as valid; with their source code often open-sourced providing them the means for finding any errors, proposing improvements or verifying transactions on it
Advantages: Public blockchains offer many advantages for organizations; even if the original company that created them no longer exists, its blockchain may continue to function if computers remain connected to it. Another key advantage is transparency - provided users adhere to stringent security protocols and methods when operating such blockchains.
Disadvantages: A blockchain public network could be slow and open access, meaning hackers with 51% computing power could unilaterally change it without warning or restriction. According to research, hackers who control 51% could "overthrow it as they see fit".
Public blockchains are also not scalable - when more nodes join, performance decreases significantly.
Read More: What is Blockchain Technology and its Benefits in 2023?
Examples of Use Cases
Mining and trading cryptocurrency like Bitcoin is one popular use for public blockchains, however they also can create permanent records with auditable trails of custody - for instance electronic notarization of affidavits or public records regarding property ownership.
Blockchain networks of this nature are best suited to organizations or groups who prioritize transparency and trust, such as non-government agencies or social support organizations. Private businesses may wish to avoid them due to its public nature.
2. Private Blockchain
It Works. Private blockchains are blockchain networks operating within specific, limited environments such as an organization's closed or controlled network, but operating similarly to public ones in terms of peer-to-peer connectivity and decentralization - yet are much smaller in scale compared to their public counterparts. Usually managed within businesses or organizations as internal networks; anyone with computing power is welcome to join; sometimes also known as permissioned or enterprise chains.
Advantages: Controlling organization determines permissions, security authorizations and accessibility. An organization which sets up a blockchain private network, for example, may decide which nodes may view, modify or add data - this prevents third-parties from accessing specific pieces of information. Private blockchains tend to be much faster due to their reduced size.
Disadvantages: Private blockchains present some notable disadvantages. Chief among them is their purported non-decentralization philosophy which forms the core of blockchains; since central nodes decide what information is valid it becomes more difficult to build trust in data; smaller nodes could result in reduced security measures and/or the consensus method could even become compromised if some nodes become malicious actors.
Private Blockchains often contain proprietary or closed source code which does not permit independent audit or verification by their users, potentially decreasing security while offering no anonymity for transactions taking place on these blockchains.
Case Studies: Private blockchains can provide security while remaining unavailable to everyone else. Companies may use blockchains to their competitive advantage without jeopardizing those of third parties, according to research, who suggested private blockchains be utilized as trade secret management and auditing solutions.
Private blockchains can also be utilized for asset ownership, supply chain management and internal voting processes.
3. Hybrid Blockchain
This works. Hybrid blockchain combines the benefits of both public and private blockchains into one solution for organizations to make better use of both systems; specifically it allows organizations to set up both permission-based private systems as well as permissionless public ones - giving them control over who has access to specific data on the Blockchain as well as what data becomes publicly accessible.
Hybrid Blockchains provide non-public records and transactions which can still be verified using smart contracts when necessary, keeping confidential information safe while remaining verifiable - meaning private entities own the hybrid Blockchain without being able to alter transactions within it.
An individual joining the hybrid blockchain network gains full access. However, their identities will remain concealed from one another unless they conduct transactions that expose their identities to each other - only then will both parties know who each party is.
Advantages: Since hybrid blockchain operates within its own ecosystem, hackers cannot launch an attack to take control of it from outsiders. Privacy can still be maintained while still communicating with others - it's cheap, fast and offers increased scalability compared to a public network!
Disadvantages: Information may be hidden by this form of blockchain technology, making upgrades difficult, and encouraging users to participate actively or contribute in its operation less than desirable.
Case Studies: Real estate is one of the many uses for hybrid blockchain, as its use provides companies with a way to run systems privately while still making certain data public (like listing). Hybrid blockchain also streamlines processes for retailers while highly regulated industries, like finance can benefit greatly.
Users could still gain access to their records via smart contracts; however, third parties would only see certain parts. Government could then utilize smart contracts securely sharing information between different institutions while safely storing citizen information.
4. Consortium Blockchain
Consortium blockchains work effectively. Similar in that both private and public features exist on them, yet different in that multiple organizations work collaboratively on it; additionally it limits access for one group at once which reduces risks posed by having one entity control it all.
Consensus procedures in blockchain consortium are managed by nodes which have been pre-selected as validator nodes; validator nodes initiate, receive and validate transactions whereas any member node may initiate or receive transactions as they see fit.
Advantages: Consensus blockchains offer several distinct advantages over public networks in terms of efficiency, security and scalability; furthermore they feature the same access control options available with private blockchains or hybrid solutions.
Disadvantages: A consortium blockchain is not as transparent as public blockchains; thus its network may become vulnerable in case a member breaches any regulations on it, thus hindering functionality of this type of cryptocurrency.
Case Studies: A particular type of blockchain used for banking and payments. Banks can form a consortium to determine which nodes validate transactions; while researchers and organizations interested in tracking food can also utilize similar models, making this ideal for food tracking applications as well as supply chains.
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Bottom Point
Blockchain has quickly made an impression thanks to Bitcoin and cryptocurrency investments, becoming a household word among investors and promising to enhance business and government processes by making them more efficient, safe, cost effective, accurate and transparent.
Legacy companies will eventually adopt blockchain technology; the only question is when. We have seen an upsurge in non-fungible tokens (NFTs), tokenization efforts and more over the last several years; therefore the next 10 years will mark significant strides forward for blockchain growth.
