There was a time when people used to store information on sheets of paper. These paper sheets got replaced by the digital excel sheets that store the data in tables.
However, have you ever thought about what the next advancement could be?
Can it be Blockchain Technology?
Will it become the future of storing data? This blog will tell you everything about it.
Blockchain technology is a technique developed to store information in a decentralized manner where no single authority has the right to control or change it.
Blockchain means a chain of blocks. It means that a "block" is the fundamental unit of a blockchain. This block consists of three components- Data, its hash, and the previous block hash.
Let's understand these three terms.
DATA- It is the specific information that a block stores for the network. For example, if we talk about a bitcoin blockchain, the data will be the details of the sender and receiver, along with the amount involved in every transaction.
HASH- A hash is like the fingerprint of a block. It is the unique identity of a block to make it easily distinguishable for the network.
PREVIOUS BLOCK HASH- Along with its hash, a block also has the hash information of its previous block. It helps the block to keep connected with the previous block to stay in the correct order.
With each block in a network connected to the previous block through their hashes, it creates a chain of blocks called a Blockchain.
How does the Blockchain work?
Unlike centralized systems that store all the information in a single computer, a blockchain network sends a copy of the data to every participant. This way, all the participants of a blockchain network have the same information, but none of them owns the sole right to make changes to it.
All participants running the computers in a blockchain and owning a copy of its data are called "Nodes". Out of these nodes, some are "Miners" or, in some cases, "Validators". Whenever a piece of new information comes into a blockchain network, these miners verify it before sending it to the blockchain to store. If these miners (s) verify the information successfully, they get rewards from the network. This process of rewarding and selecting miners depends on the consensus mechanism of that blockchain.
Once the blockchain stores data, it becomes immutable. It is because all the blocks are connected through hashes. Thus, any change in one block changes its hash value which causes the change in the hash of every successive block. As a result, all the blocks will be disturbed and deteriorate the blockchain.
Advantages of Blockchain Technology
Here are some prominent advantages of blockchain technology:
Blockchain is secure
The record created by a Blockchain is immutable or unchangeable. This quantity makes blockchain technology very secure from fraud and hacks. Also, the information is stored across many nodes instead of one single server. Therefore, hackers need to hack more than 50% of nodes in a blockchain network, which is very challenging.
Blockchain is transparent
In Centralized networks like that of banks, you do not have any access to their databases. However, in decentralized blockchains, since all the participants of a blockchain network have a copy of its information, they automatically get access to its database. Every entry in the blockchain is visible to its participants with the exact time and date stamp. Hence, blockchain technology is transparent as compared to its counterparts.
Blockchains are highly efficient
Since it digitally stores all the data, Blockchains eliminate the need for a third party and needless paperwork to execute transactions or other deals. Also, a blockchain reduces the chances of human errors and delays because most of the work is automated. All these make a blockchain highly efficient.
Blockchain removes the need for trust
Unlike the traditional financial systems and organizations that require you to trust their legitimacy and validity, a blockchain works on some well-specified pre-decided rules. Thus, anyone participating in a blockchain network knows its rules and regulations. With this approach, a blockchain eliminates the need to trust an individual or organization.
Blockchain reduces cost
Because a blockchain mostly has an automated mode of functioning, it reduces the considerable cost of any business. The cost of third-party vendors, intermediaries, paperwork, and improvement expenses can be saved by involving blockchain technology in your business.
Types of Blockchains
To meet different needs, there exist four main types of blockchains as of now.
1. Public Blockchain
Blockchains in which anybody can join and participate are called Public blockchains. They come under permissionless blockchains because their networks do not require permission for anyone to join the network. Most types of coins and tokens work on these public blockchains. Such blockchains are largely anonymous because participants do not need to reveal their identities in most cases. They are considered the most decentralized and transparent type of blockchain.
Examples of Public blockchains are - Bitcoin, Ethereum, Litecoin, etc.
2. Private Blockchain
A Private blockchain is one in which only selected members can participate. It usually operates within a company or organization because they have a closed network. All private blockchains are permission blockchains because they require permission from the controlling organization for participation. Due to this reason, such blockchains are not fully decentralized because the single authority has the power to grant permission. Such blockchains are transparent and accessible only to their participants.
Examples of Private blockchains are- Enterprise Ethereum, Hyperledger, and Tezos.
3. Hybrid Blockchain
Like its name, a Hybrid blockchain is a hybrid combination of private and public blockchains. A section of Hybrid blockchains stays private under the control of their organization, and the remaining part is visible and available as public blockchains. It occurs when an organization requires a private permissioned system for private data and a public permissionless system for public data. The transactions involved in hybrid blockchains are private but are still verifiable by getting access to their smart contracts. In terms of benefits, a hybrid blockchain offers the best of both worlds of public and private blockchains.
An example of a Hybrid blockchain is XinFin. It is developed by amalgamating Ethereum (public blockchain) and Quorum (private blockchain).
4. Consortium Blockchain
A Consortium blockchain is a permissioned blockchain that grants permission to an entity or organization instead of a single individual. Consortium blockchains are considered more decentralized than private blockchains because power is equally distributed in different organizations instead of a single entity. The benefits of such blockchains are scalability, fast transaction speed, and high security. However, setting a Consortium blockchain can be difficult because such blockchains require bringing multiple entities on the same page. Once involved, all organizations in a Consortium blockchain enjoy equal power.
Examples of such blockchains are Energy Web Foundation and IBM Food Trust.
Use cases of blockchains
Many assume that blockchains are useful for cryptocurrencies only. But their use cases are way beyond digital assets.
Supply chain & logistics
The supply chain & logistics industry lacks the required level of synchronization and transparency. Blockchain can solve this problem. Their immutable ledger eliminates the chances of any confusion because shared information and database would provide a clear-cut idea to everyone about their roles and responsibilities. A blockchain can also bring real-time tracking of goods throughout their movement. It can also add considerable automation to the logistics infrastructure by involving blockchain technology to save huge costs.
Finance and Banking
The biggest reason for the development of the bitcoin blockchain was the lack of security and transparency in the traditional banking industry. Today, it can completely transform the way the banking industry works. It can elevate the security of these institutions and the speed of transferring assets. A Blockchain can also automate many tasks to reduce the operational cost of financial institutions.
The fragmented information and research work in the healthcare industry can become an immutable database with the help of blockchains. Better trekking of medicines, organs, and equipment through blockchains can save multiple million dollars for the healthcare industry. It can also minimize the breach of regulatory compliances by various pharmaceutical by compelling them to follow the same rules and regulations. Product distribution and supply-demand management in medical fields can also improve with the help of blockchain technology.
Conflicts arising due to confusion and misunderstandings in land distribution are a concerning problem in many countries. Blockchains can solve this problem by making the whole data unchangeable and precise. A real-life example is the Colombian government, which declared to connect the process of registering land deeds to the blockchain developed by Ripple labs.
Regardless of its scale, the current voting process has a lot of space for cheating and corruption. It occurs because a single authority manages and organizes the elections, which increases the chances of unfairness. In addition, many voters can not vote due to a lack of accessibility and privacy. A decentralized, transparent, and easily accessible blockchain can solve all these issues to improve this voting process.
The above use cases are only the most popular use cases of Blockchain technology. More uses keep coming into the scene with time.
A blockchain is a technology that stores data in the form of blocks. All the participants in a blockchain contribute to its decision-making and have a copy of its data. Its decentralized nature makes it difficult for bad actors to execute any hacking activity. Due to its transparency, security, better speed, and high efficiency, blockchain technology can potentially transform many existing industries and sectors in the upcoming time. Cryptocurrency, the first blockchain product, has already made a unique identity and market. Hence, it is likely that blockchain will penetrate many industries in the upcoming time.