All You Need To Know About Blockchain Technology
All You Need To Know About Blockchain Technology
A blockchain is a distributed and shared database where the database storage devices are not all linked to a common processor. It is a list of growing records, called as blocks, which are connected and secured by cryptography. Every block is connected to the previous block and has a transaction data and timestamp.
Cryptography ensures the safety and security of a blockchain. Users are only able to edit the blockchain parts they own, and that is if they have the private keys which are mandatory to write to the file. Cryptography also makes sure that your copy of the distributed blockchain remains in sync with others.
Blockchain is intrinsically resistant to data modification. It is a public, open, distributed and shared ledger that can record transactions between parties in a certifiable, efficient and permanent way. Blockchain is used as a distributed ledger and is managed by a P2P (peer-to-peer) network jointly sticking to a protocol for authenticating new blocks. And, once data is recorded in any block, it cannot be changed. To change the data, all the subsequent blocks have to be altered, which is not an easy task and can happen only with majority collusion.
Blockchains by design are secure and represent a distributed or shared computing system with high levels of Byzantine-like fault tolerance. As a result, blockchain technology allows data management in a decentralized and an autonomous way. Therefore, blockchain is best suited for medical record keeping, recording of events and other record management activities like transaction processing, identity management, food traceability, voting or documenting provenance.
The Invention of Blockchain
As mentioned earlier, blockchains are designed to be secure databases. The concept of blockchain came into existence in 2008 by a person or group under the pseudonym of Satoshi Nakamoto, and then introduced as the part of the digital Bitcoin currency for the first time in 2009. For all Bitcoin transactions, the blockchain acts as the public ledger. With the help of blockchain technology, Bitcoin became the first digital currency to solve the problem of double-spending, and that, too, without the use of a central server or an authoritative body.
What Are The Different Types of Blockchain?
Public blockchains – Public blockchains like Bitcoin are big distributed networks that work through a native token. Anyone can participate in this forum, and at any level. They have open source code, which is maintained by the community.
Permissioned blockchains – A permissioned blockchain like Ripple control roles that people can have in a network. They are big and distributed systems, and also use a native token. In permissioned blockchains, the core code may or may not be open source.
Private blockchains – These are smaller systems, and do not use a token. Membership in private blockchains is closely controlled. Consortiums prefer this type of blockchain where members are highly trustworthy, and confidential information can easily be traded without any problem.
All of these are blockchain types, and all of them use cryptography, which allows users on any given network to securely manage the ledger in a decentralized way.
The Importance of Blockchain
The internet is a decentralized forum, which we use to share most of our day-to-day information, but for financial transactions, we are forced to resort to a tried and tested system of a centralized financial institution, such as banks. Even the popular PayPal payment for online transactions only becomes effective once we integrate it with a credit card or a bank account.
With blockchain technology in place, people can transact and do business with each other directly without the involvement of a middleman. The blockchain technology helps remove the middleman as it performs these three vital roles:
- Records all transactions
- Establishes identities
- Establishes contracts (typically a prerogative of the financial services sector)
Blockchain technology, if implemented, can have a far-reaching effect on the financial services sector, as it has huge market capitalization. Though it will cause an upheaval in the financial services market, the technology can considerably improve the efficiencies of the financial services business.
Not only will the financial services sector be able to benefit from blockchain technology – other industries also stand to gain tremendously. Other than Bitcoin, the technology can also be used to store all sorts of digital data, including computer code.
The piece of code can be programmed to perform a function when some parties key in their entries, which is nothing but getting into a contract. This code could also decipher external data feeds, anything that can be analyzed by the computer – such as news headlines, weather reports or stock prices – which could be used to create contracts that will automatically be filed as and when the conditions are met. These are referred to as smart contracts, and this can open an exciting number of opportunities.
How blockchain is different from Bitcoin
Bitcoin and other cryptocurrencies are able to exist only because of blockchain technology. For example, Twitter is a social medium platform that is on the internet. The internet makes Twitter possible, but Twitter itself is not the internet.
How blockchain functions
Blockchain is comprised of blocks, each of which records some current transactions. These blocks permanently go into the blockchain, and new blocks are created as soon as old ones are completed. All these blocks are linked to one another in a sequential and linear manner, and each block has a hash of the previous block. The blockchain contains all the information, from the last block to the first-ever block.
Once a transaction takes place, the information remains in the blockchain permanently. It cannot be copied or deleted, it can only be distributed. The technology is completely secure, as blocks can only be added with complex cryptography.
Blockchain databases are autonomously managed for sharing information between two parties. Since it is a P2P network that has a shared or distributed timestamping server, there is no need for an administrator. The person using the blockchain is the administrator.
There is no third party involvement in blockchain because the users validate each time one person pays to another for anything. The details of the transactions are recorded in the blocks publicly, which are later verified by other users. All the participating computers – referred to as nodes – share the database of the blockchain. Every node gets a blockchain copy, which means that you get public records of all the transaction that ever happened on the network.
Blockchain technology has the potential to improve our existing financial services sector, including banks. As this disruptive new technology stands ready to change the world, the decision-makers in financial services and other industries now face the challenge of developing a strategic approach to adaptation.