If you go to Google or look through your timeline, you will notice various advertisements from Cryptocurrency or Blockchain companies offering their services. The obvious question is, "Why Blockchain?" Why are big firms investing heavily in Blockchain? You're obviously eager to learn, as evidenced by your presence here.
Introduction to Blockchain
Blockchain is simply a chain of blocks just like the name is. It is a technology used in storing data which cannot be changed after they are created. In our present day world, when you create a file on your PC, you can decide to edit some documents- probably you remove or add information and then save again. In Blockchain it is not so easy to do because there are several PCs involved and these PCs (called nodes) have the same information on all of them without the presence of a central authority or server and it will require the unanimous approval of every PC on the network for a change to be effected.
In addition, most Blockchain ledgers are immutable, that is, you can't edit, change or alter them, you can only add new information. Take for example, there are 10,000 PCs on a Blockchain network, imagine the load of work for one person or a group of persons to start hacking into each system one by one to edit the information on each system not to think of having to wait for the approval of other systems before you can edit a piece of information.
However, an attack on the Blockchain like Bitcoin is possible once you have access to 51% of the nodes on the network (we will discuss attacks on the Blockchain at a later date).
A Distributed and Peer-to-Peer Network
There are two synonymous word and statement with Blockchain which are: "distributed" and "peer-to-peer." This is because data are recorded identically in multiple locations (distributed) and nodes are responsible for maintaining the correct database of past transactions in a distributed way, by validating each other’s records on the network without a central authority (peer to peer).
Nodes, Blocks and Miners
Now, what makes up Blockchain. Blockchain is made up of three important concepts, they are Nodes, blocks and miners (validators). I'll explain what each of these concepts mean right away. A node is one of the computers that run the blockchain’s software to validate and store the complete history of transactions on the network. It is safe to call a computer a node here.
Over to Block, a block is a permanent store of records that, once written, cannot be changed or altered. Blocks are data structures within the blockchain, where transaction data are permanently recorded. A block records some or all of the most recent transactions not yet validated by the network. Once the data is validated, the block is closed. Then, a new block is created for new transactions to be entered into and validated. A block has both the head component -block header and body component- block body. The block header contains information about the block itself and it is made up of about 4-6 components namely;
- the hash of the previous block
- timestamp in seconds
- hash representation of the block data.
- the nonce
Others include, version number of the software used, the goal of the current block etc. Blocks are stored on the nodes.
Miners: Let it be known that not all blockchains require mining, private Blockchain does not require mining. Mining is used to describe the process of adding transaction records to the blockchain network. This process of adding blocks to the Blockchain is how transactions are processed on the network. This mining process is performed by a person or a group of persons called Blockchain miner(s). These Blockchain miners install and run a special Blockchain mining software that enables their computer to communicate securely with one another. Once a particular computer installs the software, joins the network, and begins mining on the platform, it is now referred to as a ‘node’.
What is Blockchain?
After all these, let's now give a more advanced definition of what Blockchain is. A blockchain is a decentralized, distributed, peer to peer and public digital ledger that is used to record transactions across many computers so that the record cannot be altered without the alteration of all subsequent blocks and the unanimous approval of every system on the network.
Why is Blockchain Popular?
Bitcoin is a type of Blockchain but Blockchain is not Bitcoin. This saying is popular because the first commercial application of the Blockchain itself is Bitcoin. To discuss why Blockchain is becoming so popular, we might need to look into the benefits over other types of technologies out there.
- Advanced security
The distributed and encrypted feature of blockchain means that it is difficult to hack. Since all the nodes are expected to have a copy of the blockchain, trying to edit any information will alert other nodes.
- Highly Decentralized
No central authority controls transactions on the Blockchain, once all the required conditions are met, a transaction will be processed on the Blockchain.
Before a record can be added to the platform, all nodes have to come to an agreement. This gives Blockchain tech an advantage over traditional forms of technology.
- Fast processing rate
As it has been established earlier that there are no central authorities regulating Blockchain transactions, transactions between two or more people become very fast and straightforward. The transaction is simply between the sender and the receiver.
- Traceability and Transparency
All nodes on the network can see information about the Blockchain at the same time. With Blockchain, transactions can be monitored in real life at every step of the journey.
Types of Blockchain
There are 4 major types of Blockchain and they include; Public, Private, Hybrid and Consortium.
- Public Blockchain
Worthy of mention is that Bitcoin is a public Blockchain. Public Blockchain stores data across a peer to peer network. To verify the authenticity of data also known as consensus algorithm, different nodes on the network reach an agreement on the present state of the ledger. Examples of these consensus methods are
a) Proof of work - used by Bitcoin and Ethereum.
b) Proof of stake - used by Ethereum 2.0, Celo, Cardano, Solana etc.
Public Blockchains are also known as permissionless Blockchains because it is available to everyone.
- Private Blockchain
A perfect example of public vs. private blockchains is the internet vs. intranet. A private Blockchain is a network that works within a small environment and that is under the control of an entity. Private Blockchains are decentralized and also peer to peer. For an organization running a private Blockchain, the management can decide on the nodes that can view, add or change data on the network. Private Blockchains are usually faster and process transactions much more quickly than public Blockchains. Private Blockchains are also known as permissioned or Enterprise Blockchain.
- Hybrid Blockchain
This type of Blockchain combines the technology of both public and private Blockchain. It lets organizations set up a permission-based system at the same time a public permissionless system, that allows them to control who can access specific data stored on the Blockchain, and what type of data will be displayed to the general public.
- Consortium Blockchain
Consortium Blockchain just like Hybrid Blockchain has both private and public Blockchain features. As against Hybrid Blockchain where only one entity controls the Blockchain, multiple entities can control the data on the network in Consortium Blockchain. The similarity between Consortium Blockchain with Private and Hybrid Blockchain is that they all provide access control. Another name given to Consortium Blockchain is Federated Blockchain.
Examples of Blockchain Applications
This is the same as asking the question what can be done on the Blockchain? Since the introduction of Bitcoin in 2008, several use cases have emerged on the Blockchain platform asides cryptocurrencies. Here is a list of some of them.
- Internet of Things(IoT)
With Blockchain, important information like data, systems etc. used in IoT can be stored in a decentralized way instead of a centralized server. Blockchain provides a much more robust level of encryption that makes it virtually impossible to overwrite existing data records by hackers. Smart contracts native to Blockchain can allow IoT devices to automatically execute a contract once certain conditions are met. This is what allows a smart device to function on its own without the need for a centralized server.
- Election and Voting
Several measures have been put in place by different governments to curb electoral malpractices but Blockchain technology promises to do that at a minimal cost and fast rate. Blockchain stores everything on the network as transactions and gives receipts in form of transaction IDs, votes can be likened to transactions and can be monitored during the electoral process with transaction ID of the voter. Since everybody on the Blockchain can see what is going on within the network, rigging is practically impossible. Other advantages of using Blockchain in voting include; security/transparency, ability to vote anywhere and anytime in the world.
Using Blockchain technology could help reduce fraud as the total amount disbursed for a particular project can be seen on the network and details of the recipients of the money disbursed can be traced also. This will help hold government and citizens accountable.
- Money transfers
Using the traditional financial system to make transactions can be slow at times and tiring especially in the cases of Cross-border payments. Blockchain allows money transfers within minutes at a less expensive and faster rate.
- Health Care
Blockchain could create a platform to manage access to electronic health records stored on the network. Using a blockchain can increase interoperability while maintaining privacy and security of data. It contains inherent integrity and conforms to strict legal regulations. Doctors can have access to the information of patients without stress, this is very important in case of emergency where the health background of the patient involved is required.
Other applications of Blockchain include;
Non-fungible tokens (NFTs)
Copyright and Ownership protection
Future of the Blockchain
In the coming years, governments of nations will undoubtedly have no choice than to incorporate Blockchain technology to solve most of their problems from finance to healthcare to communication to several other aspects of their economy. Few days ago, the bank of Russia agreed to legalize crypto for cross-border payments. This is coming a year after El-Savador and months after Central Africa Republic accepted cryptocurrency as a legal tender.
Asides financial systems, Blockchain would be employed as a result of its use cases in several industries over the years. This is a strong indication that the future is bright for Blockchain platform.
Do you have any question or contribution, please do well to drop them in the comment section. Thank you for reading through.