A blockchain refers to a distributed system, which is made up of multiple computers connected by the Internet. These computers perform the bookkeeping. One ledger is distributed throughout the network in blockchain. Each computer in the network validates transactions. But, no one is able to control the network as opposed to multiple users working at a single server.
- A blockchain contains several blocks. These blocks are data units that can be used to store transactional details of the network. These are the steps required for a block being added to a cryptocurrency blockchain.
- A transaction must take place, and it should then be verified by an international network of computers.
- The transaction must go in a Block. This signifies that after the transaction is approved by the network, it will be saved in a Block with the dollar value, your digital Signature, and the digital Signature of the Receiver.
- To be distinguished from other blocks, the block must be assigned an hash. This block also contains information about the hash value of the last block to be added into a block. Once the block is hashed it can be added onto the blockchain.
- Once the block is added into the blockchain, details of this transaction are made public. Anyone in the network can see this transaction information such as the sender. Who is it? When was this transaction made? Who added this transaction into the block? The data can only be audited and verified, but they cannot be edited.
A block is only digital information. A public database can be described as a “chain”. The digital information contained in a public blockchain database is what we mean by “chain”.
Blockchain Benefits
- Transparency. In blockchain, all participants have access to the exact same database information. This shared version can only then be updated via consensus. Even if one block is deleted, it is possible to access a version history that contains the previous records. The data stored on a distributed blockchain is more reliable and transparent than those in centralized databases.
- Transaction costs are lower: Everyone has access to the exact same version of the Blockchain database. This eliminates the need for reconciliation between different databases (ledgers), third party intermediaries, and other processes. This means that businesses can save money. Internet enabled new economic opportunities by drastically lowering the cost for connections. Blockchain could significantly lower transaction costs. It can be used as the system for recording all transactions. This will cause a paradigm shift in the economy as blockchain-based businesses start to emerge.
- Transaction settlements quicker, decentralization, user controlled network: Blockchain can streamline and automate traditional paper-heavy processes, making transactions more efficient and faster. The blockchain records can be accessed and synchronized by all network participants. This makes it possible to speed up settlements.
- If a company has a complex supply chain it can be very difficult to trace the item to its source. If the entire supply chain is recorded in a blockchain (from sourcing raw material to manufacturing goods to transportation), there’s an audit trail that shows exactly where the material or good came from, and each stop it made along its journey. These historical transaction records can help verify the authenticity or prevent fraud.
- Security: Before any transaction is recorded in the block, it must be approved and encrypted by consensus. It can also be linked to the previous block. These transactions are not stored in a centralized database and can be changed by malicious actors. Blockchain has many advantages that can help protect against fraud in the supply chain, financial services and healthcare industries.
- Blockchain adoption across the globe: This technology is now widely used and supported by many investors in all industries.
- Software automates operations Private companies can run all operations.
- Open: Blockchain is developed using open source technology. Open source community runs its operations.
- Distributed architecture. All nodes have records that are stored and managed. This is distributed mode. If a node is down, the records can be retrieved from another node. Flexible: Blockchain programming is possible using basic programming concepts.
Types of Blockchain
Public Blockchain
- A public public blockchain is a type of blockchain technology that is accessible to everyone. It is a system that rewards participants. This leads to an increase in the number participating in the network. Bitcoin is the leading public blockchain. It can be compared to the Internet because anyone can join it and participate in creating new content and improving on existing ones.
- A public blockchain allows anyone to join and share the same privileges, such as being able to view, modify, or verify the transaction. The ledger can be seen by all, and the transactions can also be viewed by others within the network. However the identities of the transacting partners are not revealed.
Private Blockchain
- A private Blockchain is a technology that is not made available to the general public. Only those people involved in the creation or who are granted access to it through the network starters will have access to private blockchains. Only a few members of the network are allowed to see, modify, and authorize transactions. It acts as an intranet. It is also decentralized and immutable, transparent, secure, and highly secured, just like a private blockchain.
- Quorum is a private blockchain. It’s an Ethereum-based protocol with transaction/ contract confidentiality and new consensus mechanisms. Corda was created by JP Morgan. Hyperledger can be described as an “open source collaborative effort designed to advance cross industry blockchain technologies.” The Linux Foundation hosts Hyperledger. This group includes leaders in finance banking, manufacturing, Internet of Things and technology.
Hybrid Bitcoin
- The hybrid/consortium type of blockchain is third, and it’s not very widespread. A hybrid/consortium Blockchain connects a publicly accessible blockchain to a private one (running in an environment that allows for permission), which limits access.
- The hybrid blockchain provides both the public and private benefits of the blockchain. It consists of both a public and private blockchain. All participants are members. However, a private network is used to restrict participation to selected members. Hybrid allows for a better fit between highly regulated entities and governments. This is because they have more control over which data is kept confidential and what is made public on a public ledger. These organizations also require quicker transaction times, security features, and auditability features that are not always available on public blockchains.
- A hybrid blockchain gives you all the benefits of a private, but without limiting your operational control. It is similar to trusting elders. The council members can be trusted entities and decide who has access to blockchain data. Although they offer the same advantages as private blockchains, the consortium blockchain platforms operate under the leadership and direction of groups rather than one entity. This platform is ideal for collaboration between organisations.
