What is Blockchain Technology

what is blockchain technology, advantages and disadvantages of blockchain, usecases of blockchain technology

BLOCKCHAIN TECHNOLOGY

Blockchain technology is a distributed secure database and immutable ledger.  

·       Blockchain is a distributed ledger across the network. All the nodes running on the network have a recurrence of every transaction. It is used for secure transfer with a large peer-to-peer network without centralized management.

·       Data in the blockchain remain permanent and unchanged. As it has a strong cryptographic algorithm and a hash value.

For example, the most popular application of blockchain technology is Bitcoin cryptocurrency.

Blockchain Architecture

As the name indicates it is linked blocks that form a chain. In a block there are five major pieces:

Own set of transactions

Unique cryptographic hash

It contains a cryptographic hash of the previous block in the blockchain.

A timestamp and transaction 

Blockchains are resistant to data modification. If any tampering occurs in a transaction, the hash will change. Because the previous hash of the next block in the chain would be incorrect. To fix that, tamper with every single block in the chain, and that would immediately become clear. So blockchain is immutable and very tamper-resistant.

For example, the bitcoin blockchain stores the details about a transaction. Such as a sender, receiver, and amount of coins. A block also has a hash-like fingerprint which is unique to each block.

Proof of Work

A Proof of work algorithm is the consensus algorithm. It uses a cryptographic hash, puzzle all the nodes are working together to solve. One of the nodes solves it, unlocked the position of the next block. Then broadcast that position of the next block of all other nodes in the network adding it into their blockchain. 

Working of Blockchain Transaction

1.    A client first requests a transaction that will join a list of other transactions on the network. This may be cryptocurrency or other digital information.

2.    Then the request is broadcast to the peer-to-peer network.

3.    The node starts picking up those transactions. Verify it by looking at all transactions that are valid in the Blockchain. To make an entry into the blockchain, all the nodes have to agree about their state. So that no one node can make an alternation without the consensus of the others.

4.    After the transaction is complete. The new block gets added to the existing block in the blockchain.

Advantages of Blockchain Technology

1.    In a decentralized blockchain network, every node exchanges blockchain information. 

2.    It provides high-security data transactions as it uses distributed ledger technology. 

3.    It reduces hacking threats. 

4.    The transactions are traceable, and it is transparent.

5.    It is easy to access. That allows different parties to share information, ensuring the smooth and fast flow of data.

6.    Every piece of data in the block is immutable.

Distributed Ledgers

Blockchain technology creates a permanent and secure database. This makes it suitable for the storage of the record or transaction. It involves a value that needs to be secure and trusted information. These records are distributed ledgers. A distributed ledger is a database that is consensus, transparent, shared, and synchronized digital data. This data is dispersed across many sites countries without centralized data storage.

This distributed ledger technology enables a multiplicity of private databases within each organization. This technology is using one shared database for trust and access by all parties involved. Thus, it enables trust between parties. Also, trusts each other without dependency on third-party centralized information.  

Smart Contracts

Smart contracts are self-executable computer programs. It includes the terms and conditions of an agreement between the peers. And that is stored inside a blockchain. It eliminates the need for intermediaries. A Blockchain-based decentralized platform that provides a democratic system where transactions are authorized with the participants. The identity of the participant is kept anonymous. As the data are stored in a decentralized system, the chances of modifying data are difficult. Based on the requirements, the terms and conditions of a contract are recorded.

Blockchain implementation of the smart contract:

Using blockchain in the voting process can avoid malpractices. Without third-party dependency, counting will happen with terms and conditions. These are set in the contract. The users on the network do the validation. Every voter's vote gets recorded in the ledger. There is no possibility of changing the information.

Permissionless or Public Blockchain

Anyone can register in one of the nodes in the network having a copy of the blockchain. Anytime it gets updated new transactions are made. If new transactions come in, which transactions will make up the next block? This is done using a consensus algorithm. It is open to all, brings trust to all users, and offers high security.

Bitcoin and Ethereum are examples of permissionless blockchain. It is a digital cryptocurrency and its works on peer-to-peer or distributed systems. 

Permissioned or Private Blockchain

Permissioned Blockchain is something like hyperledger fabric. In a permissioned blockchain, nodes are trusted. They know each other and need prior approval from a central authority to join and interact. For businesses, banks, and companies privacy must be part of the Blockchain. They can control who can see the particular transactional information. It provides fast output, a scalable network, and offers energy efficiency.

The Ripple is an example of a permissioned blockchain.

Challenges in Blockchain Technology

1.    Initial cost - It needs several servers to keep the network. It consumes a lot of electricity which is not affordable.

2.    Proof of work consensus mechanism consumes energy because of a complex algorithm.

3.    The public perception most people don’t believe that blockchain technology lasts for long.

4.    Integration with legacy system

Identifying a Blockchain Use Case

1.    It should have a business problem that requires blockchain technology to solve.

2.    Blockchain provides a real-time view of the data to people connected to the network to verify transactions and data. To achieve this, choose an identifiable business network.

Use cases of Blockchain Technology

1.    Amazon, Microsoft, IBM, Google, Samsung use blockchain for managing their global supply chain. 

2.    Spanish multinational banking group BBVA. It is the first global bank to issue the entire loan process on a blockchain. It is currently experimenting with the blockchain back-end. 

3.    Blockchain in the land registry - Exonum. There is a guarantee of immutability, and only the owner can change the data.

4.    Healthcare industry, government organizations, finance, industry, and other industries worldwide.