If you work in finance or investment, you’ve probably heard of bitcoins, cryptocurrency, and blockchain technology. Blockchain is a well-known 21st-century innovation working as a digital ledger emerging to support bitcoins and other cryptocurrencies. Developers are also attempting to integrate this technology into the field of arts and medicine to offer innovative solutions. Although directly related to bitcoin, blockchain didn’t face a drop in its reputation like the former in recent years. However, people are still curious to know how this new emerging technology works?
Let’s begin by understanding the meaning of blockchain.
Meaning of Blockchain technology
Blockchain, also called the Distributed Ledger Technology or DLT, uses decentralization and encryption computing to make the history of any digitally available asset irrevocable and visible.
Google Document is a basic illustration for learning about blockchain technology. When we create a document and distribute it among many people, it is shared instead of copied or sent directly. This offers a flexible supply network where everyone can simultaneously access the document. No one has to wait for modifications from another party, and all changes are recorded in the document in real-time, making the process transparent.
Undoubtedly, blockchain is more intricate than a Google Doc; however, the comparison can be perceived close to how blockchain works.
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Types of Blockchains
Public blockchain
A public blockchain is a distributed chain one can join without any approval. Because it is decentralized and not controlled by anyone, the public is welcome to engage without authorization. All the chain sectors can generate and verify data on the public blockchain.
Two popular examples of blockchain are Bitcoin and Ethereum (a blockchain platform with its own cryptocurrency and programming language). As these coins are publicly available, they can be accessed and utilized by anyone. The more the public blockchain becomes busy, the more secure it becomes. The greater the network’s strength, the more challenging it becomes to obtain control of the blockchain.
Private blockchain
A private blockchain enables a single organization full access to the data. Private blockchain technologies provide some degree of security to govern who has access and can be trusted with data. Within a company, the company’s employees are frequently the only ones granted access to this information. Centralization of private blockchains allows rapid decision-making; following, Private blockchains can execute a plethora of transactions every second with a limited number of receivers.
Ripple (XRP) and Hyperledger are popular examples of private blockchains.
Consortium Blockchain
A consortium blockchain or a federated blockchain is an authorized blockchain managed by various organizations rather than just one. With so many organizations keeping records, it is hard for everyone to get away with criminal activity. A consortium blockchain’s purpose is to facilitate commercial collaboration. Creating consortiums can be a complex process that demands coordination across several organizations, posing logistical challenges and legal risks.
Accessible technology platforms such as Hyperledger, Corda, Ripple, Multichain, Ethermint, Tendermint, Quorum, and others are examples of consortium blockchain.
Hybrid Blockchain
A hybrid blockchain is an innovative blockchain technology transforming the world in an unprecedented way. Delivering effective options, hybrid blockchain assists enterprises, governments, and other organizations in better workflow management and system improvement.
A hybrid blockchain’s data is public, which means it is available to the users and can also be altered. However, there is an exception that sometimes keeps the data private.
For example, The IBM Food Trust is a hybrid blockchain developed to increase productivity throughout the food supply chain. It is a network where everyone is allowed to participate, such as farmers, traders, retailers, and others.
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Steps involved in the working of a Blockchain
Blockchain’s operation is dependent on the following components: data, hash, and preceding block hash.
Step 1: Data
The type of data recorded in a block varies according to the blockchain. For instance, if the information is about Bitcoin, the blockchain stores transaction details such as the sender, receiver, and payment amount.
Step 2: Hash
The blockchain also includes a hash, which is equivalent to a fingerprint. The hash of a block is generated when it is formed. If anything alters within the block, the hash also changes. As a result, hashing aids in detecting updates in a blockchain. If the fingerprint of a block changes, it will no longer be the same.
Step 3: Preceding data hash
The final component of a blockchain is a hash of a preceding block. Because of these features, the blockchain is incredibly safe to trust or use. Every block in a blockchain is related to the preceding hash’s contents. Therefore, if the data of a block is modified, the hash will instantly change as well, and the succeeding block will recognize the modifications to make necessary modifications. Computers today can store a large number of hashes every second. The hashes of modified blocks and all other blocks are changed by default to restore the blockchain’s validity.
How can a blockchain help a business?
Blockchain solutions aren’t just for exchanging bitcoins. Its decentralized nature provides several benefits to enterprises in a variety of industries:
More Transparency
The most notable feature of blockchain is its transaction record for official communications is publicly accessible. This provides an unparalleled layer of responsibility to financial systems and enterprises, keeping every business sector accountable to behave ethically towards the growth of a company, society, and customers.
Enhanced Efficiency
Because of its decentralized structure, blockchain eliminates the need for intermediaries in several activities, including transactions and estate development. Unlike traditional financial services, blockchain enables faster transactions by enabling peer-to-peer cross-border payments using a digital currency. A uniform ownership record system and leaseholder agreement’s automating smart contract make real estate operations more efficient.
Increased Security
Since every payment update is secured and connected to the preceding transaction, blockchain is considerably more secure than traditional record-keeping methods. As the name implies, blockchain is generated by a computer network working together to confirm a block which is then added to a database, forming a chain. Blockchain comprises a complex chain of numerical numbers that cannot be changed once created. Because blockchain is immutable and incorruptible, it is immune to forgery and hacking. Its distributed nature also lends it the distinct attribute of being trustless, meaning partners do not require trust to deal safely.
Increased Traceability
When a transfer of products is registered on a blockchain database, an audit trail is available to identify the arrival of goods. It can help increase security and fraud prevention in exchange-related enterprises and verify the legitimacy of exchanged assets. Businesses such as medicine can use blockchain to follow the distribution network from producer to distributor or provide indisputable ownership rights in the arts field.
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