The ABCs of blockchain

We’ll explain the basics of blockchain technology, how a public blockchain differs from a private one, and why you shouldn’t confuse a blockchain with a distributed registry.

Blockchain (block chain) is a technology according to which a certain database is distributed on a network in the form of successive blocks that any network participant can view or add, but cannot change or delete. Blockchain technology is also the technology behind the world's most famous cryptocurrency, Bitcoin.

Blockchain has taken the IT world by storm, allowing businesses to securely store information in a distributed database and update it in real time. This technology allows for financial transactions with Bitcoin (for which it was originally invented) and many other operations, the security of which is ensured by the distribution of data on the network. 

Blockchain is a public ledger that stores data, and updates are displayed on each copy in real time, so the information is always up to date. This data is available to anyone at any time, but it is not stored in one place (that is, there is no main storage) and hackers cannot steal or damage the main database. 

Originally developed for digital currencies, blockchain is now beginning to be used in a variety of applications where the security of the technology with real-time updates is important.

New Use Cases

Blockchain was first developed in 2008 by an anonymous group or individual Satoshi Nakamoto. No one really knows who this person/group is or if this is their real name.

Blockchain was designed to avoid using the same digital token multiple times, i.e. double spending, which has become a major problem in the digital currency industry. Blockchain also provided the opportunity to decentralize cryptocurrency so that governments and other authorities do not have to regulate or control it, making cryptocurrency a completely free global currency.

Over time, blockchain technology has become more than just cryptocurrency enthusiasts, since the idea of ​​​​having a public ledger that is not owned by anyone provides significant benefits to any enterprise.. Firstly, it is super secure because no one owns the source file, and secondly, it can be updated without the threat of hacking. This means that any sensitive data, personal information, medical information and insurance records, can be stored in a secure place.

Block Generation

Blockchain consists of blocks of data linked in a chain. The chain is cryptographically secure and distributed among those who want to change or add elements using the network. As the chain progresses, new blocks are added, and the person or node who adds the block is solely responsible for authorizing it and guaranteeing its correctness. Blockchain technology is unique in that no block can be changed or deleted once added, so the correctness and accuracy of a block must be carefully verified before being added to the ledger.

The way blockchain is created makes it an ideal technology for regulated industries that need to record all changes in paper form. Because the blockchain is tamper-proof, it is of great value to the financial sector, which is why it was created for Bitcoin.

Bitcoin miners add blocks by acting as nodes in a huge peer-to-peer network. By confirming transactions, they work together without the right to make changes to the blockchain. Since all blocks are interconnected, none of them can be changed without damaging the chain and changing all other blocks, this would require that every person who ever added a block to that chain would also change their block, which is impossible given the huge number of independent people using the network.

Not all block chains are built the same, and the time it takes to process blocks of transactions can vary. Given the nature of buying and selling, cryptocurrency blockchains are the most obvious example. The Ethereum blockchain, which powers the Ether cryptocurrency and many other industry projects, is capable of processing transactions in about 15 seconds, while the Bitcoin network typically takes about 15 minutes..

More accessible and efficient

As a decentralized public ledger, blockchain is typically operated by thousands of global computers on a public peer-to-peer network. This allows users to create and verify information quickly and efficiently, although the more participants in the blockchain, the slower the verification process. The decentralized nature of the blockchain allows data to be stored in different places on different servers, which means that the blockchain is almost impossible to disable by hacking, since this would require disabling the entire network of distributed computers.

In most cases, people using blockchain take the same approach and may have common goals. For example, if you work in the financial services sector, your main goal is to provide a secure way to store and process customer transactions. In the past, businesses used databases, but with the development of blockchain technology, data can now be processed more accurately and much faster.

Blockchain can also make financial processes more accessible and convenient while reducing the likelihood of fraud. Currently, such systems are mostly in the experimental stage of development, but they are constantly being improved and use cases will become more common in the future.

Public vs. Private

Just like cloud computing, the function and use of a blockchain can vary significantly depending on whether it is public or private. The main difference between these types comes down to who can access the system.

Public

Public blockchains operate a shared network, allowing anyone to maintain the ledger and participate in the execution of the blockchain protocol - in other words, create blocks. This is important for services like Bitcoin, which operates the largest public blockchain, because the more participants there are, the faster the cryptocurrency grows.

Public blockchains are considered fully decentralized, but they typically use economic incentives such as cryptocurrency rewards and cryptographic verifications to maintain trust.. This process requires each user or "node" to solve complex and resource-intensive tasks known as proof of work.

This means that public blockchains often require enormous computing power to maintain the ledger, and such demands increase as more nodes are added. Given the number of participants in the network, it is also incredibly difficult to achieve consensus on any technical changes to the public blockchain, as evidenced by the two recent Bitcoin hard forks.

Private

Private blockchains are arguably the antithesis of what the technology was originally designed for. Instead of a decentralized public ledger, private blockchains are completely centralized, maintained by nodes owned by a single organization.

Private blockchains have allowed the technology to flourish within those organizations that need the same streamlined transactions offered by public blockchains, only with very limited access. Because there are fewer participants in the network, transactions are typically cheaper and faster to verify, and bug fixes or network updates can be implemented almost immediately.

The distribution and use of data stored in private chains is done through access systems, and node participants can grant access to external parties, such as auditors or regulators who want to check the internal workings of a company.

Unfortunately, because there are fewer nodes supporting blockchains, private chains cannot provide the same strong level of security as in decentralized chains.

Consortium

The “Consortium” is the so-called “hybrid cloud” of the blockchain. It provides strong controls and high-trust transactions like private blockchains, but is not limited to control by a single entity.

A consortium is a cross between a public and private blockchain... Although it provides the same limited access and high efficiency provided by private blockchains, dedicated nodes are managed by external companies or agents, rather than having view-only access like a private blockchain.

To understand how it is different, imagine that consortium blockchains are a group of advisors, each of whom is responsible for managing the blockchain, and each of whom has the right to grant read access to outsiders. blockchain.

Given the structure of the consortium, it is an ideal solution for supporting the work of government committees or industry working groups in which a number of companies can come together to solve a problem - whether it is fighting climate change, or maintaining a single ledger to support the work of the United Nations.

Blockchain compared to distributed ledger technology

The concept of "blockchain" is often misinterpreted, it is often used as a catch-all term for decentralized distributed database. However, blockchain is actually just one form of the broader concept of distributed ledger technology (DLT).

A distributed ledger, as the name suggests, is a database that is distributed across multiple locations, such as buildings, organizations, or even countries. The system avoids the need for a centralized repository or intermediary, since the network itself is responsible for authorizing and recording transactions. Since there is no central database that people typically connect to, consensus must be reached across the entire network before a change is approved.

This idea has been very welcomed by all industries that are looking to modernize the way transactions are processed, as it has the potential to transform the entire financial sector.

DLT may come in different formats, but the core idea of ​​decentralized control remains. One type of distributed ledger allows data to be stored on different nodes, for example, bank records that begin with the letter "a" can be stored on one node in a specific location, and those that begin with the letter "i" in another.. This means that data is distributed across the network rather than replicated to each participant like a traditional database, making it nearly impossible to hack.

Blockchain is a different type of distributed ledger that is different from the example above. Blockchain is a specific data structure in which records are stored in blocks. It is a way of managing data in a form that ensures synchronization between all participants in the network, which is exactly what is needed to support technologies such as cryptocurrency.

Despite the success of blockchain technology as the basis for the cryptocurrency Bitcoin, a system does not necessarily have to have miners and tokens to qualify as a blockchain - the term simply refers to the structure of forming data into blocks. Blockchains are thus decentralized ledgers where data is replicated rather than distributed.

Unfortunately, the frequency with which the terms "blockchain" and "distributed ledger" are used interchangeably has created confusion about the technology as a whole, leading many to abandon blockchain as a tool used for bitcoin.