One of the biggest-consuming technological disruption of the current era is the blockchain technology. From being used for remittances in finance to walling other industries such as health, supply chain, and entertainment, the blockchain is here to stay. So what exactly is it? How does it work? What are the different types of blockchain networks? This article will break it all down and provide you with clear explanations so that you can understand the basics of the blockchain technology.
Essentially, a blockchain is a digital ledger of transactions shared across a network of computers called nodes. Every transaction is put into a block and these blocks are then chained sequentially and chronologically. Being a decentralized ledger enabled by multiple participants, it offers immunity against manipulation or tampering.
Unlike a traditional centralized database where the central authority controls and maintains the data, blockchain uses a decentralized network of computers with every participant being able to obtain a copy of the whole ledger. Once a transaction goes through verification and is recorded in the blockchain, the data concerning the transaction become forever immortalized. It may never be altered, nor deleted.
Think of it as a public ledger or a shared document everyone can access but no one can lock down and alter without the consent of others in the network.
Blockchain operation can be explained in a few simple steps:
The process begins when someone initiates a transaction. It could be anything, say, sending cryptocurrencies or transferring ownership of a digital asset. After the transaction is initiated, it is broadcast to the blockchain network.
Before being committed to the blockchain, the transaction must be accepted or declined by the network. Verification depends on the consensus protocol underlying the particular blockchain. Either miners, as in proof-of-work (POW) blockchains like Bitcoin, or validators, in cases of proof-of-stake blockchains like Ethereum 2.0, carry out the action. The validators are the ones checking the transaction's validity and making sure it complies with the rules of the network.
Transactions have been deemed valid and are now grouped with other transactions to form a block. This block contains info on the transaction such as timestamps, sender and receiver addresses, and a cryptographic hash linking it to the preceding block in the chain.
Most of the time, a blockchain is validated to make sure a transaction is valid with an order of events in agreement amongst network peers. In a proof-of-work system, miners compete to solve challenging mathematical puzzles with the very first solving adding the new block to the chain. In a proof-of-stake system, validators add blocks based on the amount of cryptocurrency which they "stake," thus locking it up as collateral.
Once the block has been passed through the verification process and reaches consensus, the block is appended to the blockchain, which is a public ledger of all transactions to date. Each block has a one-of-a-kind code (hash) that binds it to the previous block, thus making an unbreakable chain of blocks.
The transaction is confirmed on the blockchain and is thereafter recorded for eternity. Once added to the blockchain, it is immutable, making sure there is transparent security for all participants.
Each kind of blockchain is a little bit different. Different types of blockchains exist with their respective characteristics, uses, and levels of decentralization. The primary varieties include: public blockchains, private blockchains, consortium blockchains, and hybrid blockchains. Now, let's closely examine each:
A public blockchain is basically an open network open to anybody who wishes to join in, be a part of the transactions, or even read the ledger. Bitcoin, probably, is the most famous public blockchain. In a public blockchain, there is no central authority; anyone can join it as long as they obey the rules.
A private blockchain is a permissioned network. A private blockchain can only be entered by people who have been authorized to do so. Transactions are then duly validated by these people entering the network. These blockchains are commonly used by businesses and organizations trying to obtain the advantages offered by blockchain technology yet maintain strict control over who can access the network.
A consortium blockchain works as a middle ground between public and private blockchains. The control is undertaken by more than one organization rather than by a single organization, which allows many trusted parties to maintain control on it. Consortium blockchains are well-suited for industries that require collaboration but still need to keep a certain degree of privacy.
A hybrid blockchain provides a mix of both public and private blockchain environments. A hybrid blockchain, therefore, has that portion of the network exposed to the public, while the other portion is more private under the control of a single entity or a consortium. This gives flexibility to make the network as open or as private as specific needs demand.
For industries to be transformed by any technology in the blockchain ecosystem, it must be decentralizing control, securing transactions, and providing transparent records. From cryptocurrency to supply chain management, healthcare, and even voting systems, blockchain can increase efficiency, reduce the risk of fraud, and enhance security. These processes can be streamlined and cost-reducing if blockchain eliminates the middlemen. Benefits of Blockchain:
Blockchain technology is more than just being the basis for cryptocurrencies; it is a disruptive technology that may be explored to gain from the banking or health sector industries or even governance. With some knowledge about the working of a blockchain and the types of blockchains available, one can appreciate the massive opportunities in front of blockchain. Be it the transparency and security of public blockchains or the control of private blockchains; these opportunities are shaping up to bring about a change in how we carry out business, interact, and share information in the future.