What is Blockchain Technology and how it works? A sophisticated database system called blockchain technology makes it possible for information to be shared transparently inside a company network. Data is kept in blocks that are connected in a chain within a blockchain database. Because the chain cannot be removed or altered without network approval, the data is constant across time. Thus, you may monitor orders, payments, accounts, and other transactions by creating an unchangeable or immutable ledger using blockchain technology. Like a cell in a spreadsheet storing information, the blockchain gathers transaction data and stores it in blocks. When it is filled, an encryption technique is used to the data, resulting in the hash—a hexadecimal number—being generated.
There are an ever-increasing number of active blockchains every day. In 2023, there will be several hundred non-cryptocurrency blockchains and more than 23,000 active cryptocurrencies based on blockchain technology.
Blockchain technology achieves decentralized security and trust through various mechanisms. Firstly, new blocks are consistently stored in a linear and chronological manner, always being appended to the “end” of the blockchain. Once a block is added to the end, it becomes immutable, preventing any modifications to previous blocks. Any alteration in the data within a block results in a change in its hash value.
Since each block contains the preceding block’s hash, any modification would subsequently affect the subsequent blocks. Consequently, any tampered block would be rejected by the network due to the mismatched hashes.
Why is Blockchain Important?
Traditional database technologies pose significant challenges when it comes to recording financial transactions. Take, for example, the sale of a property. Once the money changes hands, the buyer assumes ownership of the property. While both the buyer and seller can record the monetary transactions, neither source can be considered reliable. The seller may falsely claim that they have not received the money, while the buyer may argue that they have paid even if they haven’t. To avoid potential legal issues, a trusted third party must oversee and validate transactions.
However, the presence of this central authority not only complicates the transaction but also creates a single point of vulnerability. If the central database is compromised, both parties could suffer.
Pros and Cons of Blockchain
- Higher accuracy as a result of eliminating human verification
- Savings by doing away with third-party verification
- Decentralization makes it more difficult to manipulate
- The transactions are efficient, confidential, and safe.
- Open-source technology
- offers a substitute for banks and a means of protecting personal data for those living in nations with unreliable or undeveloped governments.
- Several blockchains have a high technological cost.
- low speed per second of transactions
- used in the past for illegal purposes, including the dark web
- Regulation is still ambiguous and differs by jurisdiction.
- Limitations on data storage
What is Blockchain Technology Types and Working
How Blockchain Works?
You may have seen that a growing number of companies worldwide have been utilizing Blockchain technology in recent years. But how does blockchain technology operate specifically? Is this a little addition or a big change? Let’s start by dispelling some of the myths surrounding Blockchain technology, as these developments are still in their infancy and might become revolutionary in the future.
Blockchain combines three cutting-edge technologies:
- Cryptographic keys
- A distributed ledger on a peer-to-peer network
- A kind of computation that stores the network’s records and transactions
Two keys make up a cryptography key: a private key and a public key. These secrets aid in the execution of successful transactions involving two parties. These two keys belong to each person, and they are used to create a safe digital identity reference. Perhaps the most significant feature of Blockchain technology is this encrypted identification. This identification, known as a “digital signature” in the context of cryptocurrencies, is used to authorize and manage transactions.
The peer-to-peer network and the digital signature are combined, and a lot of people who function as authorities use the digital signature to agree on transactions and other matters. The two network-connected parties engage in a successful secured transaction after they approve an agreement, validated by a mathematical check. In conclusion, users of blockchains utilize cryptographic keys to carry out various digital operations over the peer-to-peer network.
What are the Types of Blockchain Networks?
There are four primary types of decentralized or distributed networks in the blockchain:
1. Public Blockchain Networks:
Public blockchains are open to anyone and do not require permission to join. All participants in the blockchain have equal privileges to read, edit, and validate the blockchain. Public blockchains are commonly used for exchanging and mining cryptocurrencies such as Bitcoin, Ethereum, and Litecoin.
2. Private Blockchain Networks:
Private blockchains, also known as managed blockchains, are controlled by a single organization. The authority within the organization determines who can become a member and what rights they have within the network. Private blockchains are only partially decentralized as they have access restrictions. An example of a private blockchain is Ripple, a digital currency exchange network designed for businesses.
3. Hybrid Blockchain Networks:
Hybrid blockchains combine features from both private and public networks. Companies can establish private, permission-based systems alongside a public system. This allows them to control access to specific data stored in the blockchain while keeping the rest of the data public. Smart contracts are utilized to enable public members to verify the completion of private transactions. For instance, hybrid blockchains can provide public access to digital currency while keeping bank-owned currency private.
4. Consortium Blockchain Networks:
Consortium blockchain networks are governed by a group of organizations. These organizations share the responsibility of maintaining the blockchain and determining data access rights. Industries where multiple organizations have common goals and benefit from shared responsibility often prefer consortium blockchain networks. An example of this is the Global Shipping Business Network Consortium, a not-for-profit blockchain consortium aiming to digitize the shipping industry and enhance collaboration among maritime industry operators.