Distributed ledgers are the basis for Blockchains Technology. They have been in use for enterprise data management for years. Recently, they have gained in popularity due to cryptocurrency. The content of the blocks, and actions taken by the participants can all be controlled depending on the configuration. The Blockchain is designed for specific purposes, giving the user multiple levels of access or tasks.
What is Blockchain?
A blockchain is a distributed ledger that's shared between the nodes of a computer network. They are not only used in cryptocurrency, but they also play an important role when it comes to maintaining a secure and decentralized record of all transactions. The blockchain can render any data unchangeable.
The block itself cannot be altered, and trust only becomes necessary when the program or end-user enters data. It is no longer necessary to rely on trusted third parties, since they can be auditors or other humans who are expensive and make mistakes.
Blockchain technology has grown rapidly since Bitcoin's introduction in 2009. Decentralized financial terms, non-fungible tokens (NFT), and smart contracts are among the most popular blockchain applications.
How Blockchain Works?
You are probably familiar with spreadsheets and databases. Data is entered and stored in the Blockchain, just like a database. A Blockchain differs from a traditional database, spreadsheet or old-fashioned databases in the way data is stored and accessed.
The Blockchain is composed of scripts which are computer programs that do the same things as databases. The scripts store and retrieve data, while also saving it. Blockchains are distributed. The Blockchain is distributed. For it to be valid, they must match. Blockchain stores information in sheets of data, or blocks. After the information is collected, it's run through a hashing algorithm to create a value in hexadecimal.
The information in each block will be encrypted using this hash. After that, the blocks are chained.
Transaction Process
Transactions follow different processes depending on the Blockchain that you use. For example, on the Bitcoin Blockchain, initiating the transaction through your cryptocurrency wallet, an application which provides an interface with the Blockchain, starts a sequence of events.
Bitcoin transactions are queued up and held until they're picked up by a validator. The block that contains the block with all other transactions is closed, and then encrypted by an algorithm. The mining process begins after that. Every member of the network works at once to "solve" each hash. Only the "nonce", which is the number, can be repeated.
The hash is generated at random by each miner, and a nonce of zero is added. If the generated number is lower or equal to the target hash, the nonce will be increased. This process is repeated until one miner has produced a valid hash. The winner receives the prize.
Once a block is closed, a transaction has completed. A block is not confirmed until five blocks have been validated. It takes the network about one hour to validate a block, because it averages just under 10 minutes. The first block that contains your transaction, multiplied with ten other blocks is equal to 60 minutes.
This process is not followed by all blockchains. Ethereum, as an example, selects randomly from all of its users that have staked one person to be a validator. After that, the network confirms each block. The network is quicker and consumes less energy.
Blockchain Decentralization
Data from a single database can be spread across multiple nodes at various locations (computers or devices running Blockchain software). This not only creates redundant data but ensures the integrity of your data. The other nodes would prevent, say, someone from changing a record within one database. No node can change any data.
This distributed proof of work (and the encryption it uses) makes the data and history that is represented irreversible. The record could be an archive for cryptocurrency transactions. It could include data such as contracts or state IDs.
Transparency of Blockchain
Anyone can see all Bitcoin transactions by using either a blockchain browser or node due to the decentralized nature of Bitcoin. Each node updates its own version of the Blockchain when blocks are confirmed and added. Track bitcoins anywhere they are.
Hackers have in the past hacked cryptocurrency exchanges and caused large amounts of currency to be lost. Hackers were anonymous except for their wallet addresses. The crypto that they stole is easy to trace since wallet addresses are visible on the Blockchain.
All records on the Bitcoin Blockchain and most other blockchains are encrypted. The owner of a particular address is the only person who can disclose their identity. Users of blockchain can maintain anonymity and transparency.
Does Blockchain Security Exist?
The blockchain technology offers decentralized security and trust in many ways. All new blocks are stored initially in chronological and linear order. The blocks are always added to the chain at the "end". The previous blocks are not able to be changed once a block has been added.
The block hash will be altered by any change in data. Every block contains the hash of its previous block. The next blocks will be affected by a change made to the first. A block that has been altered would be rejected by the network because its hashes don't match.
Imagine that, for instance, a hacker runs a node on a blockchain network and is trying to steal cryptocurrency. If they want to change their copy, they would have to convince the other nodes that their copy is valid. This would mean they'd need to be a majority on the network, and insert code just at the right moment. The "51 percent" attack is so named because more than half of the network must be controlled.
Timing is key for this type of hacking. The network may have moved on from the block the hacker tried to alter by the time he took action. Hashing happens at an extremely high rate. On April 21, 2023 the Bitcoin network will hash in 348.1 seconds (18 zeros).
Want More Information About Our Services? Talk to Our Consultants!
Why are Blockchains Used?
The Bitcoin blockchain is used to store information about transactions. Blockchains are used by more than approx 23,000 crypto systems today. The Blockchain is also a great way to keep track of other transactions.
Walmart, Pfizer and AIG have all been experimenting with Blockchain. For instance, developed the Food Trust Blockchain, which tracks food products' journeys to their destination.
Why? Accidental introduction of hazardous materials into food is also possible. Food industry used to be able to detect outbreaks of illnesses and their causes within a few weeks.
The blockchain allows businesses to track the path of a particular product, from the source to the final destination. They can also see what other products that food item may have come into contact with. This allows them to detect the issue much earlier, possibly saving lives. This is only one application of the blockchain.
Banks and Finance
Blockchain integration will have the greatest impact on banking. The majority of financial institutions only operate during regular business hours. This is normally five days a week. It will be Monday morning before you see the money in your bank account if you deposit a check on Friday at 6pm.
Verification of the deposit can take 3 days due to the sheer volume of transactions that banks have to settle. Blockchain is constantly working. If banks integrate blockchain, consumers could see transactions being processed in minutes or seconds depending on time and day. The blockchain allows for faster and more secure transfers of funds between banks. The large amounts of money can make even a few days in transit costly for the banks.
Stock traders could have to wait for up to three days to settle and clear their trades (or longer if trading is done abroad). This means their stocks and money will remain frozen. Blockchain technology could drastically reduce the time.
You can also Learn More About Currency
Blockchain is the foundation of Bitcoin and all other crypto currencies. The Federal Reserve is in charge of the U.S. Dollar. The central authority means that the currency and personal data of a person are in their hands. If a client's bank is hacked, their private information is at risk.
Currency value may be affected by the failure of the bank the client uses or the fact that he is living in a country with a low level of trustworthiness. Taxpayers helped bailout several banks in 2008 that were having financial difficulties. Bitcoin was created out of this concern.
The blockchain allows Bitcoin, and other crypto-currencies to operate without needing a central authority. This reduces both the transaction fees and risk.
People without state ID can benefit greatly from using cryptocurrency wallets for savings or as a payment method. In some countries, the governments are in a state of war or lack an infrastructure to identify citizens. Some countries do not have access to savings or brokerage accounts, and therefore cannot store their money safely.
Healthcare
Healthcare providers can use Blockchain to store medical records securely. Patients can have confidence that their medical records are secure because they will be stored on the Blockchain. The Blockchain can store personal health records encrypted with a secret code that is only accessible to specific individuals. This ensures privacy.
Property Records
If you've visited the local Recorder's Office, then you're familiar with its inefficiency and heavy burden. The local Recorder's Office still requires a physical deed to be given by an official. The central database and public index will be manually entered. The index should be checked against any property claims by both parties if there's a dispute.
This is time consuming, expensive and prone to errors due to the human factor. It makes it difficult for property owners or managers of properties. The blockchain technology reduces the cost and time of scanning documents, as well as the difficulty in finding files and records at local record offices. If property ownership data is stored and verified on Blockchain, owners can rest assured that their deeds will be recorded accurately and permanently.
It can be challenging to prove property ownership in areas that are war-torn or where there is no government or financial infrastructure. Blockchain could be used by a group of local residents to create a timeline that is transparent.
Read More: What is Blockchain Technology and its Benefits in 2023?
Smart Contracts
Computer codes can be embedded into Blockchains to create smart contracts. Smart contracts are governed by a number of agreed upon conditions. When the agreed-upon conditions are met, an agreement's terms will be automatically carried out.
Say, for example, that a renter is interested in renting an apartment via a smart contract. The landlord will provide the code to the apartment once the tenant pays the security deposit. The smart contract automatically emails the code when the tenant pays the security deposit. If the tenant fails to pay rent or other conditions have been met, then they could change the code.
Supply Chains
Blockchain can be used by suppliers to record the origins of materials, such as IBM Food Trust. The authenticity of products and labels such as "Organic," “Local," or “Fair Trade" could be verified.
Forbes reports that food companies are increasingly using the blockchain to track the origin and safety of their food, from farm to end-user.
Voting
As mentioned previously, Blockchain can be used to develop a modernized voting system. Voting with Blockchain, as demonstrated by the midterm elections in West Virginia in November, can help reduce election fraud and encourage voter participation.
This would make voting almost impossible to manipulate. The blockchain protocol will ensure that the entire electoral process is transparent. The number of staff needed to conduct an election is reduced, and officials receive almost immediate results. It would maintain the transparency of the electoral process by reducing personnel required to run an election, and giving officials almost instantaneous results.
Blockchains: Benefits
Accuracy and The Chain
The blockchain network is approved by thousands of devices and computers. This is because thousands of devices and computers are used to verify the data, eliminating any need for human involvement. The data is recorded more accurately and with fewer mistakes. A computer error in computation would only affect one copy of Blockchain. The error would not be accepted by the rest of the blockchain.
Reduction in Costs
Most of the time, consumers pay for a transaction's verification by a bank. A notary may sign a document. Blockchains eliminate the need for third party validation, and their associated costs. Businesses pay fees to accept credit card payments because banks and payment processors must process the transactions. Bitcoin does not have a central authority and its transaction fees are restricted.
Decentralization
Blockchain does not store data centrally. Instead, the Blockchain is copied and distributed across multiple computers. Each computer will automatically update their Blockchain every time a new block is created.
The blockchain is more secure than a central database because the information can be spread over a larger network.
Transaction Efficiency
The central authorities can settle transactions over a few days. It may take up to a week for you to see funds that were deposited on Friday evening in your account. The majority of financial institutions operate during regular business hours five days per week. A blockchain, however, is accessible 24 hours a day every single day.
Some blockchains are able to process transactions in just a few minutes, and they're considered secure after a handful. This is particularly useful for cross-border payments, which can take much longer because of time zone differences.
Private Transactions
Several blockchain networks have public databases. Anyone with an internet connection can view the history of all transactions in a blockchain network. The users can see transaction details, but cannot identify the user. Bitcoin and blockchain are often viewed as completely anonymous. They're actually pseudonymous, since they have a visible and identifiable address.
Secure Transactions
Blockchain network has to verify authenticity. After the transaction has been verified, it will be added into the Blockchain block. Each block of the Blockchain contains its own unique hash as well as the previous blocks' hash. Once the blocks have been confirmed by the network, they cannot be altered.
Transparency
Open-source software is used by the majority of blockchains. Anyone can view its code. This allows auditors the ability to verify that cryptocurrencies like Bitcoin are secure. This also means that there is no central authority controlling the Bitcoin code or editing. Anybody can suggest changes to the Bitcoin system. Bitcoin code can be updated if the majority of users agree it's a good update.
How to Bank the Unbanked
It is important that anyone can access cryptocurrency and blockchains, no matter their ethnicity, gender or where they live. According to the recent report, 1.3 billion adult adults don't have bank accounts and no other way of storing their money or wealth.
They usually get paid in physical currency. They must then hide the cash in their homes or elsewhere. This encourages violence and robbery. Cryptography makes it more difficult for thieves to steal. Blockchains will be used to store medical records, wealth, legal agreements, and property rights.
The Drawbacks of Blockchain
Technology Cost
Blockchain technology is a good way to make money but not for free. Bitcoin, for instance, relies on a system of proof-of-work that uses large amounts of computer power to confirm transactions. Millions of Bitcoin devices use the same amount of energy as Pakistan's annual consumption.
There are solutions. Solar energy or natural gas from fracking can be used to create Bitcoin mining farms.
Data Speed is Inefficient
Bitcoin is a good example of inefficiencies with Blockchain. Bitcoin's PoW requires around 10 minutes for a new block to be created on the Blockchain. At this rate, the blockchain network can only handle three transactions per seconds (TPS).9 While other cryptocurrencies such as Ethereum perform better than Blockchain, it still limits their performance. Visa's legacy product can handle up to 65 000 transactions per second.
Blockchains with more than 30 TPS are available. There are blockchains that offer more than 30 transactions per second. This is expected to increase network participation, reduce congestion and speed up transactions.
A second problem is the fact that every block has only a small amount of information. The size of the block has been and continues to be an issue when scaling blockchains.
Illegal Activity
Blockchains are a secure network which protects users from hacking, maintains privacy and allows illegal activity. Silk Road has been the best-known example of Blockchain's facilitation of illicit transactions. Dark-web market operated between February 2011 and October 2013 when the FBI shut it down.
Tor allows users to buy and sell illegal goods without having their location tracked. Bitcoins and other crypto-currencies can be used to make purchases. In the United States, financial service providers are required to gather information about their customers when they open an account. Financial service providers are required to confirm their client's identity, and make sure that the name of the client does not appear on any lists of known or suspected terrorist organizations.
Both pros and cons exist for the system. The system makes it easy for criminals and anyone else to carry out transactions. Some people have said cryptocurrency's positive applications, like banking for unbanked individuals, is more important than negative ones, especially when the majority of illegal activities still involve untraceable cash.
Regulations of the United States
There are many members of the crypto community who have expressed concern about government regulation. As the network becomes more decentralized, it is becoming harder and harder to prevent something like Bitcoin. However, governments could theoretically prohibit cryptocurrency participation or ownership.
Comparison of Public and private blockchain
Public Blockchain
Everyone can participate and join the main public blockchain activities. Anyone can read, write or audit the current activities on a blockchain. This helps to create the self-governing, decentralized nature of Blockchain.
Benefits
Incentives are used to motivate and engage participants in public networks. Public Blockchains are a great option because they're truly decentralized.
Public blockchains are extremely valuable, and can be used as the basis for virtually any type of decentralized solution. Many participants protect a public blockchain from cyber attacks, data breaches and other issues. The more participants, the safer a blockchain is.
Drawback
The energy consumption of blockchains that are public and secured is one major drawback. The consensus mechanism requires participants to compete with each other for information validation and receive payment for their computer power. Validating information in some blockchain networks does not require a high energy process. They don't consume a large amount of energy.
Another issue is the lack of anonymity and privacy. On public blockchains, anyone can see the amount of a transaction and its addresses. If the address is revealed, the anonymity of the users will be compromised.
Public blockchains may attract participants who are dishonest. Most public blockchains are designed to accommodate cryptocurrencies. They are highly valuable and hackers and thieves target them.
Private Blockchain
Participants can only join a blockchain private network through an invitation. The participants' identity, as well as other details must be verified. The blockchain operator, or an automated system or protocol that is implemented on the network through smart contracts and other methods of approval performs the validation.
The private blockchains limit who is allowed to participate. Private Blockchains could restrict which users are allowed to execute consensus protocols that decide mining rights and rewards. The ledger may also be only maintained by a select few users. The Blockchain can be edited or removed by the owner or operator.
Benefits
A private blockchain is not decentralized. Private blockchains are not decentralized. A private blockchain is a distributed database which uses cryptographic methods and suits the requirements of a company. Only those with permission can run a full node, make transactions, or validate/authenticate the blockchain changes.
Private blockchains prioritize unchangeability and efficiency, putting less importance on protecting user identities and promoting transparency.
Supply, finance, accounting and payroll are just a few of the many important areas that business and enterprise encompass.
Drawback
Private blockchains are designed for enterprise applications but lack some of the valuable features that permissionless systems have simply because they are limited in their use. They are instead designed to accomplish specific tasks and functions.
A private blockchain is vulnerable to breaches of security. When there is a consensus-based system, only a small number of validators are able to reach consensus.
A private blockchain can only store immutable data, if an operator or administrator is unable to alter it.
Want More Information About Our Services? Talk to Our Consultants!
The Bottom Line
Blockchain has made its mark thanks to Bitcoin. Blockchain has been a popular word among investors. The technology promises to make business and government operations more accurate, efficient, secure, and cheap.
The question is not whether or when legacy companies will embrace blockchain technology. The number of NFTs is increasing and assets are being tokenized. Blockchain will grow rapidly in the next decade.
