What Is Blockchain?
While you’ve likely come across the world of cryptocurrencies, you most probably have stumbled upon the term “blockchain”. But what is the blockchain solution? Blockchain is not only the revolutionary technology behind cryptocurrencies, it also has a large use case outside of the cryptocurrency and even the finance sector.
In the decade since blockchain technologies and digital ledger technology came to light, a host of blockchain networks have been created, most with their own digital currency. As the industry has grown and new blockchain networks have emerged, innovation in the space has increased significantly.
From the Ethereum blockchain providing a platform on which developers can create digital assets and smart contracts to corporate organizations implementing a private blockchain in order to streamline their services, the technology is propelling mankind forward in ways not witnessed in decades.
The blockchain solution provides much more than just digital assets, and industries far beyond just the payment processing ones are catching on. With traditional business networks incorporating the technology, the world of permissioned blockchain is igniting.
What is Blockchain?
Blockchain is a decentralized, transparent, immutable technology that keeps a public record of all information entered. Designed to record and distribute information, not to be edited. Also referred to as a public ledger, a blockchain keeps a record of all information ever inputted and stores it chronologically in blocks.
These blocks are linked to each other through a hashing system, which ensures that no one can ever tamper with the previous records, or try to manipulate the information on them. The “chain” of blocks make up the blockchain database.
The decentralized technology is not typically run by one entity, but rather from a variety of computers (also known as nodes) that make up the network, and work together to validate transactions and all information added to the blocks. Blockchain can be used in two forms, as a public blockchain or as private blockchain networks.
The public version allows anyone to view all information on the network, while the private reserves the information for members granted access.
The Advantages of Blockchain Technology
Invented in 2008 alongside Bitcoin by an anonymous entity Satoshi Nakamoto, blockchain is the technology that fueled the new way that money is transacted. Not only that, the technology offers incredible use cases far beyond the financial world.
Fully Trusted, Fully Automated
One of the key features of blockchain is its ability to function without a central authority. The technology is designed to be maintained by various operating systems on the network, with full autonomy dispersed evenly. Information is stored on the blockchain in such a way that everyone can view it but no one can go back and tamper with it.
While blockchain is the technology behind crypto, it also offers an incredible backbone to a diverse range of industries outside of this space. Companies like Nestle, Microsoft and Walmart are onboarding blockchain, proving to offer a strong and highly adaptable infrastructure to financial, property, and supply chain management entities. The number of blockchain companies is growing by the day.
The Core Benefits of a Blockchain Network
Blockchain networks are designed to be entirely decentralized meaning that there is no one central authority. The entire network is maintained by nodes (computers) around the world and no single entity has control.
Once the information has been added to a blockchain, no one can tamper, edit, or remove it. As information is verified and added to blocks, this solidifies its presence on the blockchain forever.
Blockchain offers a transparent view of all the activity that takes place on the network. This takes away the need for any checks or balances as all the information is available at any given time, in real-time.
What is the Difference Between a Public Blockchain and Private Blockchain?
When understanding what is blockchain, a common question is whether blockchain is secure. The answer is yes, blockchain is very secure.
Due to its decentralized nature, the technology requires a network of operators (computers) to verify and input all the information. As soon as one tries to input incorrect information or conduct illicit transactions, the network will recognize this and reject it immediately.
The difference between a public and private blockchain is that public blockchain networks are open for anyone to see, while private blockchains are closed to an organization or a selected group of people.
Cryptocurrency networks are examples of public blockchain networks in that anyone can view all the transaction data. For a private blockchain, however, users will need special permission to access this information.
How is Blockchain Tamperproof?
Each block is made up of three things: the hash code of the previous block, the relevant information, and its own hash code.
When a new block is added, the new block will again have the hash of the previous block, the relevant information, and its own hash. This special sequence of hashes ensures that all blocks are stored chronologically, in a linear fashion, meaning that you cannot tamper with one block's information without tampering with every block after that.
Tampering with blocks would take an enormous amount of computing power and is largely considered impossible. Hence the security of using a digital asset or digital currency.
Blockchain Explained: How Does It Work
At its core, blockchain records and distributes information to a wide network of users that participate in verifying the information and maintaining the network. Let’s take a deeper look at Bitcoin transactions to further explain how blockchain works.
If one user wanted to send a portion of Bitcoin to another user, they would require the user’s wallet address. Each wallet is made up of two codes, a public and private key, which enable the user to receive BTC (through the public key), as well as access BTC and conduct transactions (through the private key). The sender will then input the receiver’s wallet code and send the amount of Bitcoin they desire.
This transaction will then enter a pool of transactions waiting to be verified by a miner on the network. The miner will ensure that the sender owns the amount they are sending, and verify the transaction along with a number of other transactions.
On the Bitcoin network, the size of one block is 1MB, which equates to roughly 3,200 transactions able to be stored in one block. When building a blockchain network, the size of the blocks can be increased or decreased to suit the use case.
Once the transaction has been verified, the miner will record transactions processed and ensure they are added to the chain. The transaction ledger will then be distributed to the rest of the operators on the network. This new version will then override the older versions, and so on as more blocks are added.
Once the block is added to the blockchain and distributed, the funds will reflect in the receiver’s wallet. No need for a bank account or legal contracts, Bitcoin (and other digital currencies) operate entirely separately from traditional banking institutions and allow for the fast, efficient and cost-effective transaction of value.
Fraudulent transactions cannot take place as this will be flagged long before the block is added to the chain. Blockchain work in such a way that network participants can immediately flag ill actors and dismiss fraudulent financial transactions.
Understanding the Difference Between Blockchain and The Bitcoin Blockchain
The burning question: how does blockchain compare to Bitcoin. The answer is that it doesn’t, there are two separate, co-dependent technologies. Bitcoin, the cryptocurrency, is built on blockchain technology and requires it to function. There is no Bitcoin without blockchain technology.
Consider it the backbone of all cryptocurrencies. Blockchain technology, however, is an adaptable technology that can be used outside of the cryptocurrency industry. The technology can be used in any industry, provided that they require a transparent, immutable public ledger.
One thing the two do have in common is that they were both introduced to the world at the same time. While the concept of blockchain technology was initially invented by researchers W. Scott Stornetta and Stuart Haber in 1991, it was referred to as distributed ledger technology (DLT) and was created purely to store office documents.
The anonymous entity Satoshi Nakamoto built on this and ultimately solved the double spending problem it was plagued with. In 2008, Nakamoto released both blockchain technology and Bitcoin in a whitepaper titled Bitcoin: A Peer-to-Peer Electronic Cash System.
The Bitcoin blockchain refers to the network, while blockchain technology refers to the technology as a whole.
What is blockchain? Blockchain technology is the transparent, immutable storage of information. As mentioned earlier, this technology has use cases far outside of just the cryptocurrency and financial ecosystems.
Industries like renewable energy, supply chain management, and even farming sectors are now incorporating blockchain technology into their business systems, empowering them with a fully automated and safe means of storing records.
This article is for general information purposes only and is not intended to constitute legal or other professional advice or a recommendation of any kind whatsoever and should not be relied upon or treated as a substitute for specific advice relevant to particular circumstances. We make no warranties, representations or undertakings about any of the content of this article (including, without limitation, as to the quality, accuracy, completeness or fitness for any particular purpose of such content), or any content of any other material referred to or accessed by hyperlinks through this article. We make no representations, warranties or guarantees, whether express or implied, that the content on our site is accurate, complete or up-to-date.