Many people have become millionaires after investing in blockchain. It has been predicted that the global spending on this technology will be about $19 billion by the year 2024. Blockchain is the unique database technology behind all cryptocurrencies. By distributing identical copies of a database across an entire network, blockchain makes it very difficult to hack or cheat the system. While cryptocurrency is the most popular use for blockchain presently, the technology offers the potential to serve a very wide range of applications and that’s why the use of blockchain is growing. With such a tremendous growth rate, more people are now becoming interested in investing in blockchain. However, most of them don’t have much idea about blockchain and in this article, you are going to know all about it.
What Is Blockchain?
A blockchain is a shared and distributed database containing a list of ordered records or blocks that keep on growing. Every block has a cryptographic hash of the past block, transaction data, and a timestamp. It is a public ledger that records many transactions across different computers so that no one can alter the record. It can track all kinds of tangible and intangible assets like cash, intellectual property, copyrights, and others in a business network, thus reducing any risk and cost involved in managing the transactions. Blockchain is primarily used to record and store cryptocurrency transactions. It can track orders, accounts, production, and payment, and all the members get a single view of the information. However, the experts are coming up with other useful functions of blockchain.
History Of Blockchain Technology
A computer scientist named Ralph Merkle came up with something called ‘Merkle trees’ or ‘Hash trees’ in the 1970s. These structures represented a data storage system by joining blocks with cryptography. Later towards the end of the 1990s, Stuart Haber and W. Scotto Stornetta used these trees to create a system where document timestamps were not possible to alter in any way. Over the years blockchain technology evolved. The first generation was the Bitcoin and virtual currencies. The modern form of blockchain became available in 2008 and it was the work of Satoshi Nakamoto. During the second generation, different activities of blockchain other than cryptocurrencies were discovered. It was used in transactions related to asset transfer and smart contracts. The future of blockchain technology is bright and it will continue to evolve.
Uses Of Blockchain
As mentioned earlier, blockchain is a storage for recording and storing transactions related to cryptocurrency. It is also used for safe money transfers and payment processing. This type of transaction requires less time and fees. Blockchain helps to identify the inefficiencies in the supply chain of a business. It can locate products in real-time and supervise their quality control. Digital IDs use blockchain which provides control in case of data access. Big companies like IBM, Walmart, Siemens, Unilever, and others are using blockchain technology. IBM came up with the Food Trust blockchain to track how food products go from origin to destination. That way the company can find out if any viruses of hazardous materials were introduced and where. So, they can fix the problem quickly and save lives.
Blockchain can develop a decentralized database for musicians so that they can maintain their music rights and also get royalty in real-time. It can regulate IoT networks and monitor the activities of the devices. Blockchain helps to create electronic medical records. Creating different cryptocurrencies, non-fungible tokens or NFTs, and decentralized finance (DeFi) are also applications of blockchain. The banking industry can progress by incorporating blockchain technology into its system. Some transactions in a bank take two to three days. For example, if you deposit a bank cheque on Friday evening then it won’t reach your account till Monday morning as the bank is closed for the weekend. If blockchain technology is present, your money will be in your account within seconds the time of the day, or any holiday.
Benefits Of Blockchain
Blockchain can be used to record lots of transactions in a decentralized database. As transactions happen within seconds, it saves time. In this business there is no middleman, so information is transparent and cost savings occur. It can be accessed only by the permissible members. The strict security measures of blockchain make it safe against fraudulent activities. In blockchain people record the time and sequence of transactions; this transparency makes auditing faster.
Bitcoin vs. Blockchain
Bitcoin and blockchain are often used interchangeably; however, they are quite different. Bitcoin is a digital currency that is unregulated and uses blockchain technology. Bitcoin is only one application of blockchain. Bitcoins can now be converted into normal currencies like USD or Euro. Bitcoin transactions are anonymous and there is no transaction fee. Blockchain is a database that records the transaction that takes place between two parties. Blocks of data are included in chronological order to form a chain and it keeps on growing as new blocks are added.
Elements Of Blockchain
Blockchain has four elements which include shared ledger, permissions, smart contracts, and consensus. A shared ledger is a distributed database that every member has access to and can record transactions once only. So, duplication or alteration of records cannot occur here. In case of an error, a new record must be added. Permissions make transactions verifiable and secure. So, organizations have to comply with data protection regulations. A smart contract is stored inside the blockchain and is executed automatically. It’s a set of rules that must be followed during business transactions. Different parties come into agreement on the transactions through different types of consensus like multi-signature, proof of stake, or PBFT. Blockchain has a header that contains timestamps and other metadata and the hash of the previous block. Hash is a unique number used for verification purposes. Block time is the time needed to create a new block. If the block time is short, transactions take place faster.
Blockchain Security
The main selling point of blockchain is its unhackable technology. It is the most secure means of transaction through networks. There are two types of blockchain technology: public and private. The public blockchains use computers that are connected to the public internet; whereas private blockchains only let the known companies join. In public blockchain anonymity is maintained; but in private blockchain, consensus can be achieved using ‘selective endorsement’, and here known people can verify the transactions. Only users having permission can access the private blockchain. Despite the highly secure platform, security issues may come up. So, activities like performing code analysis, risk assessments, and developing threat models must be done.
How Blockchain Works
Recently blockchain technology has been used by many businesses. This technology has a promising future and it’s important to know how it works. It uses cryptographic keys, a peer-to-peer network, a shared ledger, and computing for storing records and transactions. Cryptography keys can be public or private. It is the digital signature that authorizes and controls transactions. The cryptographic keys are used in peer-to-peer networks to achieve consensus on transactions. After a deal is authorized, verification takes place. The following steps show how a transaction takes place.
⓵. Each transaction is recorded in terms of a ‘block’ of data. It shows the movement of assets and includes detailed information like who, when, what, how much, where, and others.
⓶. Every block is connected to the previous and next blocks and forms a chain of data. As an asset moves from one ownership to the other or from one place to the next, the chain of data gets longer. The exact sequence and time of the transaction are indicated by each block. No block can be inserted, deleted, or altered from the chain; that is the chain is totally blocked and thus the name is ‘blockchain’.
⓷. As more blocks are added the chain becomes stronger in terms of verification. This eliminates any malicious activity and develops a ledger of transactions that any member of the network can trust. It uses hashing and encryption to make transactions more secure.
⓸. Public or private blockchain networks can be used. The latter is more secure and offers privacy. Businesses that choose the private blockchain network will have a permissioned blockchain network. In such a case, a person needs to get permission to enter the network. Multiple organizations can maintain a blockchain together; this is called a consortium blockchain.
⓹. Include a comprehensive security strategy. Best practices and cybersecurity frameworks are needed to protect the transactions against fraud. Some organizations have taken necessary steps for security; for example, Golden State Foods uses blockchain to track goods through the supply chain and make sure the quality is great. Vertrax and Chateau Software started a multi-cloud blockchain solution developed on the IBM Blockchain Platform to prevent disruptions in the supply chain.
⓺. Miners make new blocks through mining. As a block has references to the hash of the past blocks in the chain, things can get complicated when the chains are long. A block also has a nonce which is a unique number created in authentication protocol to protect transactions from cyber attacks. Miners use special software to generate nonce and hash. This way people share valuable data with the highest level of security.
Investing In Blockchain Technology
When you think of investing in this new technology, the first thing that comes to your mind is probably Bitcoin. However, there are other cryptocurrencies like Ethereum where you can invest. You can purchase coins and when the prices go up you can sell them. You can also invest in startups using blockchain technology.
Conclusion
In the traditional record-keeping system, duplicate records appear and the records are sometimes vulnerable to different cyber attacks. The database is not very transparent; the data verification and record management process is slow. Today because of IoT (Internet of Things) we have to deal with a huge volume of data and it can be very difficult to record and maintain a database containing these data. The traditional record-keeping system would be inappropriate in this case. Blockchain technology can ensure quick and safe record-keeping. So it is evident that with time the importance and use of blockchain technology will increase.
