This article focuses on the aspects which are essential to know about blockchain, its working, different types of blockchains, what are the best-case scenarios to use Blockchain, why is it being called the future of data centres, and more.
So let’s learn more about this technology…
Let’s consider an Analogy:
Blockchains can be considered as a large set of Data storing structures that are identical to spreadsheets, but you cannot edit the data once that enters, and any changes to that data should constitute a new block, or append!!
These sets of data are not stored in one single centralized server but on a lot of its user’s devices, hence distributed. Of course, there are more functionalities to the blockchain, but this must give you a very simple idea to define this not so easily definable technology.
History of Blockchain
The idea of blockchain protocol was first proposed by Cryptographer David Chaum in his 1982 dissertation “Computer Systems Established, Maintained, and Trusted by Mutually Suspicious Groups.
However, the year 1991 was regarded as important for the blockchain, when computer scientists Stuart Haber and W Scott Stornetta introduced a practical solution for timestamping digital documents so that they could not tamper.
The technology or the system uses the secured chain of Blocks backed by the cryptography method to store the timestamp documents. MERKLE TREE in 1992 came up with the Blockchain’s Design to make it more efficient by allowing several documents to be collected and stored in one block.
But unfortunately, the patent lapsed in the year 2004. After this, Stefan Konst published his theory of cryptographically secured chains, plus ideas for implementation. Computer scientist Nick Szabo works on ‘bit gold’, a decentralized digital currency. Hal Finney, a computer scientist, and Cryptographic analyst introduced the Reusable proof of work (R PoW). It can be considered as the earliest prototype for Blockchain technology.
However, it took almost three decades to see the first blockchain implementation in the real world by a person (or group of people) known as Satoshi Nakamoto in 2008. Nakamoto significantly improved the design using a Hashcash-like method to timestamp blocks without requiring them to be signed by a trusted party.
Types of Blockchain
There are at least four main types of blockchains that are in use: Public blockchains, Private blockchains, Hybrid blockchain & Sidechain.
Public blockchains
As the name suggests, these types of blockchains have no access restrictions. These are usually open-source and are transparent to everybody with Internet access. Anybody can take part in the process of validation to submit the proof of work and maybe incentivized proportionately!!
Another very important feature of a public blockchain is that it is designed to be not owned by an organization or an individual, hence completely decentralized.
Ex: Bitcoin blockchain, Ethereum blockchain, etc.
Private blockchains
Private blockchains, also called permissioned blockchains, unlike public blockchains, have restrictions on who can access the network. These are administered by an administrator, who approves the access of users in the ecosystem.
Primary users may include individuals or companies who want their transactions or data to be secure and only accessible by the selected few, Hence centralized. The advantage of private blockchain over the public blockchain is that the consensus or verification mechanism takes less time.
The similarities between blockchain are that these perform similar functions :
Both function as an append-only ledger- where no data can be altered or edited once validated.
Both blockchains types have a complete set of transaction ledgers on each node, Hence distributed over peer-to-peer.
Validation is only approved after the majority of the nodes reach a consensus.
Examples: Ripple (XRP) and Hyperledger
Hybrid blockchain
Hybrid blockchains are a combination of public and private blockchain systems depending on the needs of the users and the applications. These types are best for companies that are working on some secret projects hosted on a private blockchain, but also have a product that needs to be used by their customers, hence should be a public blockchain.
Sidechain
Sidechains can be classified to be blockchain ledgers that can run in parallel with the primary blockchain. Entries from primary sources can be stored and linked if needed, with a different algorithm. It could be used as a backup blockchain.
How Does a Blockchain Work?
Blockchain is a distributed, decentralized public ledger which is a continuously appending list of records that are stored in the form of blocks. These blocks in a blockchain are secured through cryptography, which keeps the confidentiality of the transactions intact.
A blockchain is a time-stamped series of immutable (tamper-proof) records of data that is not managed by a central authority but managed by a cluster of computers, called nodes.
So imagine, John wants to invest in digital assets, so he has to carry out transactions, and he does that on an electronic device! When John requests blockchain for a transaction, he gets connected to a person directly without the interference of any third party like a bank. This is called a peer-to-peer system.
A Block is initiated for storing the transaction details. The data formed at this level is sent throughout the network to identify the transaction’s authenticity. The first Device(node) that verifies the transaction gets awarded.
When John’s transaction gets verified, it becomes a part of this database permanently that stores all the transactions. This database is used additionally to validate other such transactions on a peer-to-peer network, if necessary.
If John wants to sell his digital assets to another person, the original block created while he purchased the digital assets, will remain the same. To record the new transaction between John and the buyer, a new Block will be created on the Blockchain network with another unique number.
Let’s consider an example: A Scientific Research Lab, that is conducting trials for a vaccine against a deadly virus! Every iteration of the vaccine trial is to be recorded to observe the progress! If the data of vaccine trials are saved on a server database, there are chances that the data stored may get formatted, deleted or can be erased/manipulated by Hackers.
But in Blockchain, one can neither erase the data that is once stored nor can they manipulate it. It is so safe, that it has not been hacked despite all the efforts. Any changes to the data result in the creation of a new block, and the previous version of that data remains in its original form. Mainly, this data can be accessed from any part of the world, if the system is connected with the blockchain platform.
Also, the transaction when completed produces data related to transactions and will be stored in blocks, which are chained together with the help of the Hash number of the previous block.
Regarding safety, the network is decentralized, no single person can alter the asset according to their specific needs but has to be validated by the majority of the nodes. As long as a single organization or a person owns the majority of the assets over the blockchain network, the assets on the network cannot be modified or altered. Hence it is safe.
Evolution of the Blockchain technology
All the inventions need timely upgrades to solve the issues related to the previous version and for better performance, blockchain technology also has been modernized over time and requirements.
Bitcoin/Currency
Cryptocurrency, mainly Bitcoin, is the first use case of blockchain technology. It allows financial transactions based on DLT.
Smart Contracts
After the blockchain technology was separated from bitcoin to discover more use cases, the Ethereum blockchain came into existence aiming to execute smart contracts. It is intended to reduce the cost of verification, execution, and fraud prevention. Smart contracts are the predefined computer programs that contain the terms and conditions of the agreements between the two parties. They cannot be altered or changed.
Dapps
DApps or decentralized applications work similar to other normal applications but, the only difference is that Dapps work on peer-to-peer networks such as blockchain.
Blockchain for Business
Blockchain 4.0 aims at implementing blockchain 3.0 in real-life commercial usage. Some of the real-life use cases are supply chain management, financial sectors, and healthcare.
Different types of consensus protocols used for validating transactions on the blockchain
A consensus algorithm is a procedure through which all the peers of the Blockchain network reach a common agreement about the present state of the distributed ledger. In this way, consensus algorithms achieve reliability in the Blockchain network and establish trust between unknown peers in a distributed computing environment. New blocks in the blockchains are added only after the transaction details are verified and the consensus is reached.
Here are some of the algorithms designed:
Proof of Work (PoW)
Proof of Stake (PoS)
Delegated proof-of-stake
Proof-of-Authority(PoA)
Proof-of-Elapsed-Time(PoET)
Benefits Of Blockchain in Cryptocurrency
The need for a physical or trust-based validation process is eliminated.
Better speed of transactions.
Better connectivity in a peer-to-peer system.
Transactions may be carried out irrespective of time, location, unlike banking processes.
Accessible from anywhere in the world.
Lower transaction charges. Lower transaction failure risks.
No risk of double-spending.
Less fear of account suspensions.
No need to secure a minimum balance to carry out transactions.
Future of Blockchain
Blockchain has advanced over years and has proved it’s trustworthy technology. It is easily scalable as a data structure. Blockchain can be used by banking sectors, as Card payment transaction ledgers, in stock markets for keeping a record of stock delivery and verify with ease.
Blockchain enables us to perform more transactions digitally and reduces the risks involved in the present system. The current financial system works on the trustworthiness of the financial institutions or the governments.
The Blockchain system reduces the transaction charges significantly since the verification is done by algorithms in a matter of minutes. without third parties such as banks and financial institutions.
Possible use case scenarios of Blockchains in the Future:
Maintaining medical records of the patients in hospitals
Payments or asset transfers around any parts of the world
Real-time IoT operating systems
Personal identity security
Anti-money laundering tracking system
Supply chain management and logistics monitoring
The voting mechanism for democratic countries
Keeping records of governance or history
Advertising insights Original content creation
Cryptocurrency exchange
The real estate processing platform
Final Thoughts:
Blockchain, since its inception in 2008, has proved its worth over the current systems in place which is less efficient. Understanding the importance of technology, many central banks and governments have shown interest to study and adopt blockchain for good.
Although there is room for improvement, it is to be observed how technology will be implemented by various beneficiary industries!!
