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What Is Blockchain Technology & Could It Be The Future?
TL;DR: Blockchain is synonymous with cryptocurrency, but much more can be done with this intriguing technology.
Blockchain technology is the latest buzzword in the ever-evolving tumultuous world of technology. You may have heard this term thrown around quite a bit in the news or online on social media, but what does it actually mean?
In short, blockchain technology is a way to store and track information using cryptography, the mechanism that facilitates the transaction of cryptocurrency.
Blockchain and cryptography function together to make the digital transaction process more secure and efficient than other data storage methods.
In this day and age, blockchain has many potential applications, from tracking supply chains to managing digital rights. As this technology continues to develop, businesses should keep an eye on how it could be used in their respective industries.
But back to the original question, What is blockchain technology? Also, how does it work, and what can it do for your business? In this blog post, we’ll answer all those questions and more.
So if you’re curious about blockchain technology, keep reading!
What Is Blockchain Technology? 🌐🖥️
Put simply; a blockchain is a digital ledger. Digital ledgers are transaction recording systems that store records of asset transactions and their details in multiple locations. Unlike traditional ledgers, digital ledgers don’t have a central data storage administration.
Each transaction is recorded chronologically as a “block” and added to the chain. This creates a secure, tamper-proof record of all transactions that anyone with permission can access.
Blockchain technology was initially developed in 1991 by a group of researchers who wanted to create a foolproof solution for timestamping digital documents to make them impossible to be backdated or tampered with.
Interestingly enough, the technology remained largely unused until 2009, when Satoshi Nakamoto utilised blockchain technology to introduce the cryptocurrency, Bitcoin.
Ever since, while blockchain has been used primarily for digital currencies like Bitcoin, this technology does have a wide range of potential applications.
For instance, considering its original intended use case, blockchain could be used to create tamper-proof records of voting results or even medical procedures.
It could also streamline supply chain management and reduce the need for paper records.
Ultimately, blockchain technology has the potential to revolutionise the way we store and share information.
Characteristics Of Blockchain 🤔
In its most basic form, a blockchain is a digital ledger of transactions. However, a few key characteristics set blockchain apart from other digital ledgers.
First, blockchain is decentralised, meaning it is not stored in one central location but distributed across a computer network. This makes it very difficult for anyone to tamper with the data stored on the blockchain, which is why it’s become the bedrock for the rise of cryptocurrency.
Secondly, blockchain is transparent, meaning that all transactions are public and can be viewed by anyone with access to the network.
Finally, the blockchain is immutable, meaning that once a transaction has been recorded on the blockchain, it cannot be changed or deleted.
These characteristics make blockchain an attractive option for various applications, from financial transactions to supply chain management.
How Does Blockchain Work?👨💻😎
Blockchain is a distributed ledger technology (DLT) that enables the secure, transparent and tamper-proof recording of transactions. Transactions are recorded in a digital ledger and are chained together using cryptography.
Cryptography ensures that each transaction is unique and is only be added to the chain if the network verifies it. As each transaction is confirmed, it is timestamped and added to a block. And thus, blocks are then chained together to form a blockchain.
This is where the name comes from. Essentially, each transaction acts as a block linked to one another in a chain-like formation.
The chain is continually growing as new blocks are added, making it an immutable record of all transactions that have ever taken place on the network.
Now, let’s look at the different components inside a blockchain system to understand how this digital phenomenon works.
Components Of A Blockchain System🧰
It all starts with a block, and let’s take a closer look at one. Each block contains some data, the hash of the block, and the hash of the previous block.
The data inside a block depends on the type of blockchain you’re dealing with. For example, the Bitcoin blockchain stores the details of a transaction, such as information about the sender and recipient and the transaction amount, inside the block’s data stores.
The hash of a block is its unique identifier. You can compare it to a fingerprint, for instance. The hash of a block identifies the block and its content and makes it unique from any other block in the blockchain.
However, a hash is subject to change relative to the block’s activity. Therefore, when a block is created or undergoes an action, the hash is recalculated and will change accordingly. In essence, changing the block or its content will also lead to a change in the hash of the block.
This makes hashes very useful when detecting changes within specific blocks in a blockchain.
The third aspect of a block is the previous block’s hash, which functions as a link between blocks, thereby forming the blockchain.
Let’s use an example to solidify this concept further. Let’s say we have a chain of 3 blocks containing the previous block’s hash.
The cool thing about the first block is that it cannot point to a previous block as it is the first one in the chain. So this is also called a genesis block.
Now, say you change the second block, which will also cause a change in its hash. Eventually, since block 3 no longer stores a valid hash of the previous block, all blocks from block 3 onwards will become invalid.
This is how blockchain prevents overall record tampering, as changing even a single block will make all following blocks render useless.
However, relying on the hashes will not be enough to prevent tampering, as computer systems are potent these days and can calculate hundreds of thousands of hashes in seconds.
This effectively means that hackers could tamper with a block and readjust the hashes to make the blockchain valid without any consequences. Thus, to mitigate this problem, blockchain technology comes with another feature called the proof-of-work.
So what does the proof of work do? It’s a mechanism that slows down the process of creating new blocks. For example, in Bitcoin, it takes approximately 10 minutes to calculate the required proof-of-work and add a new block to the chain.
Video Credit: Aantonop – YouTube Channel
Thus, what ends up happening is that it becomes tough to tamper with blocks because if a hacker modifies one block, they’ll have to reassess proof-of-work for all the other blocks as well – making it almost impossible.
So, we know blockchain security comes from the combined efforts of hashes and proof-of-work. But, there is one more reason why blockchain is such a secure technology, and that is by being distributed.
Absence of Centralisation 😊
Instead of relying on a central governing authority to manage the chain, blockchains adopt a peer-to-peer network where anyone can join.
This autonomy may sound counterintuitive regarding security, but it is much more sophisticated than it seems on the surface. If someone joins the network, they get a full copy of the blockchain. A node, one of the computers that run the blockchain’s software, verifies that everything is still in order.
Let’s say the new user creates a new block in the chain. When that happens, the new block is sent to everyone on the network, and each node verifies the block to ensure it hasn’t been tampered with.
If it’s all good, the nodes add this new block to their blockchains, and all the nodes in the network create a consensus. Then, nodes work together to confirm what blocks are valid and which ones aren’t. This way, the tampered ones are rejected by every node in the network.
You might now be asking, what does this mean from a more extensive security standpoint? In essence, if you want to tamper with a blockchain successfully, you’ll have to change all the blocks on the chain, redo the proof of work for each block, and take control of more than 50% of the peer-to-peer network.
Only if all of these stars align will a tampered block be accepted by every node in a network. But, of course, this is easier said than done and, in practicality, almost impossible!
Advantages Of Blockchain 💡
Blockchain is an evolving technology; there is much to discover in this domain. One of the more recent advancements in blockchain technology comes from smart contracts.
What makes these contacts unique, you ask? First, these contracts are relatively simple programs stored in a blockchain but can be used to exchange cryptocurrency based on certain transaction conditions automatically.
Importantly, smart contracts can automatically enforce the terms of an agreement. This could potentially revolutionise our business by eliminating the need for intermediaries such as lawyers and banks.
Traditional banking, while extremely useful, can be downright frustrating sometimes. For example, imagine you need to send some funds to another party, but the transaction fails due to some issues at the bank.
The issue could be many things, from technical and cyber-security problems to daily transaction limits and additional charges.
Thus, to solve such problems, cryptocurrency was developed as a form of virtual currency that runs on a technology called, you guessed it, blockchain.
All credit to the blockchain, cryptocurrencies are immune to counterfeiting, don’t need a central governing authority to function, and are secured through sophisticated encryption algorithms.
Blockchain technology is primarily suited to transaction-based use cases being a digital ledger. Computers on the network verify each transaction and then add it to the chain chronologically.
This creates a record of all transactions that cannot be altered or tampered with, emphasising the immutability aspect of blockchain.
The other benefits of blockchain technology include increased security and transparency, as well as improved efficiency and accuracy. In addition, blockchain systems are decentralised, meaning any single entity does not control them, making them resistant to corruption and censorship.
While blockchain technology was initially developed to support the Bitcoin cryptocurrency, it is now used in various applications. For example, blockchain technology can be used to create a secure, tamper-resistant system for storing data.
Ultimately, blockchain technology has the potential to change the way we interact with the world around us. The need for secure and efficient data management systems will only grow as the world becomes increasingly digitised. Blockchain can be and most likely be a front-running solution to this growing need.
Disadvantages Of Blockchain 😮
Yes, blockchain is incredible, and it will undoubtedly be a mainstay in the digital world for decades, if not centuries. But as with every technology, blockchain has some glaring drawbacks that we must be aware of.
Perhaps, the first drawback is that this is somewhat complicated technology and is challenging to comprehend, especially in the beginning.
Secondly, the claims that cryptocurrency and blockchain will eventually replace banking as we know them are a bit implausible. You just have to consider the transactions that a public blockchain such as Bitcoin allows every second.
As we discussed earlier concerning the proof of work, Bitcoin allows only around 7-10 transactions per second. The technology requires calculation time to evaluate the proof-of-work for every transaction. This will eventually cause delays and technical blockages in the system because millions of transactions occur worldwide every second.
In comparison, the global fund transfer service VISA can handle thousands of transactions every second, which is light years ahead of what Bitcoin is capable of.
Another reason there is some hesitation towards blockchain is that blockchains use excessive energy. When a transaction takes place in a blockchain, a lot of energy is used to add that transaction block to the chain, making many feel that the proof-of-work may be overkill and unnecessarily slow down the entire system.
Thus, the notable weaknesses of blockchain are its slow speed, scalability and complex architecture. Furthermore, even though blockchain is highly secure, it is not indestructible.
Is Blockchain The Next Big Thing? 🤔
It absolutely could be! Blockchain technology has the potential to revolutionise the way we interact with the digital world. This technology could change how we store and share data, making it an essential part of the digital future.
Furthermore, enabling trustless, peer-to-peer transactions could create a more equitable and efficient economy. What’s more, with blockchain being a decentralised technology, it has the potential to empower individuals and give them more control over their data.
With its ability to provide security, transparency and anonymity, blockchain is set to change how we live, work and interact with finances worldwide. The distributed databases of blockchain facilitate more secure, transparent and tamper-proof transactions.
The potential applications of blockchain technology are far-reaching and could disrupt many industries, including banking, supply chain management, and even voting.
Blockchain is also believed to be one of the most pivotal technologies for building the infrastructure for Web 3.0, the next generation of web design and development as we know it.
While the full extent of blockchain’s potential is still unknown, there is no doubt that it has the potential to change our world and, hopefully, for the better. Of course, only time will tell if blockchain technology is the future, but it is certainly an exciting area to watch.
Putting It Altogether 🤗
Blockchain technology is the digital ledger system of all cryptocurrency transactions. It’s secure and incorruptible due to the cryptographic principles it’s built on, and because it’s decentralised, there’s no need for a third party to verify or approve transactions.
This makes the technology ideal for applications and industries where trust is a prerequisite, such as finance, healthcare, real estate, and voting.
Are you curious about how innovative technologies could benefit your business to improve customer experience and enable scale? Feel free to reach out for a chat today!
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