Blockchain is a rapidly growing area of data storage that is showing immense potential for application in various sectors of the economy. In this article, we will explore what Blockchain is, its key elements, and use cases to explain how the novel distributed ledger technology is redefining the world of information.
What Is A Blockchain?
Blockchain is a distributed database or ledger that is shared among the network’s nodes powered by computers. The technology is the underlying architecture of cryptocurrencies and facilitates the decentralized manner of recording transactions and tracking assets in circulation on an immutable ledger.
However, the technology is not limited to cryptocurrencies as blockchain can be used to track and trade anything of value, be it tangible or intangible. It also helps reduce the risk and cuts costs for all parties involved.
Key Elements Of A Blockchain
- Distributed Ledger Technology
All participants in the blockchain network have access to the distributed ledger’s immutable record of transactions. All transactions are recorded only once, thus eliminating any attempts to duplicate data.
- Immutable Records
No network participant can change or tamper with a transaction once it has been recorded on the blockchain. In case there is an error in the transaction, a new transaction must be added to rectify the error, and both transactions will be visible to auditors.
- Smart Contracts
In order to speed up the transaction process, a set of pre-determined rules is stored in a smart contract on the blockchain. A smart contract will be executed automatically if the conditions are met by the particular transaction.
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Why Is Blockchain Important?
Blockchain is the ideal method for delivering information because it provides immediate, shared, and completely transparent data stored on an immutable ledger that can only be accessed by permissioned members.
A blockchain network can track orders, payments, accounts, production, and so much more, and is beneficial for businesses. Since all transactions can be viewed end to end, it gives users much greater confidence, as well as improves efficiency and the opportunities to implement the model in varying use cases.
How Does A Blockchain Work?
Blockchain consists of programs called scripts that conduct the task of entering and accessing information and saving it somewhere. Since the network is distributed, multiple pieces of data are saved on the computers connected to the network, and they must all match for the transaction to be valid.
The blockchain collects data and enters it into a block, which can be simply defined as a spreadsheet containing information. Once the block is full, the program is run through an encryption program, which then creates a hexadecimal number called the hash.
The hash is then entered into the block’s header and is encrypted alongside other information contained in the block. This creates a series of blocks that are chained together, called the blockchain.
Transactions on a distributed ledger follow a specific process, depending on the blockchain they take place on.
For example, on the Bitcoin network, a transaction is sent to a memory pool, where it is stored and queued until a miner or validator picks the data and encloses it in a block. Once the block fills up with transactions, it is closed and encrypted, after which it is mined. Once a block is closed, a transaction is complete. However, the block is not confirmed until five other blocks have been validated.
Meanwhile, on Ethereum, the blockchain randomly chooses a validator that has staked Ether (ETH) to validate the block. This validation is then confirmed by all nodes on the network, thus making the transaction process much faster and less energy-intensive than Bitcoin.
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Types Of Blockchain Networks
- Public Blockchain
As the name suggests, public blockchain can be joined and participated in by anyone. Bitcoin is a prime example of a public blockchain.
- Private Blockchain
Private blockchains are also peer-to-peer decentralized networks but will be governed by one organization. They will have the final say on who is allowed to participate, execute a consensus, and maintain a shared ledger. Private blockchains are optimal for businesses.
- Permissioned Blockchain
Businesses that employ private blockchains are most likely to set up permissioned ones. It should be noted public blockchains can also have permissions. This places restrictions on who is allowed to participate in the network and what transactions can be carried out.
- Consortium Blockchain
Multiple organizations can share their responsibilities to maintain a blockchain. This is called a consortium blockchain network, where a pre-selected group will determine who may perform transactions or access data. It is ideal for businesses where all participants need to be permissioned and have shared responsibilities for the blockchain.
Use Cases And Applications Of Blockchain
Various industries are employing blockchain technology to make their operations highly efficient, such as supply chain, healthcare, government, retail, telecommunications, manufacturing, insurance, financial services, and transportation.
Let us take a look at some real-world examples:
IMB Food Trust is assisting wholesale seafood supplier Raw Seafoods in increasing trust across the supply chain by tracing every catch right from the ocean, all the way to supermarkets and restaurants.
- Oil and Gas
Vertrax and Chateau Software launched a multi-cloud blockchain solution to help prevent supply chain disruptions in the distribution of bulk amounts of oil and gas.
Home Depot is using the IBM Blockchain Platform to gather shared and trusted information on shipped and received goods. This helps reduce vendor disputes.