Originally developed to support the cryptocurrency Bitcoin, blockchain is a digital ledger technology designed to store information securely in a transparent, decentralized and immutable way. Today, the possible uses of blockchain technology extended to far beyond financial transactions.
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Blockchain and its characteristics
In simple terms and in its core concept, a blockchain is a database formed by a series of blocks, with each block storing a set of transactions. Each time a new transaction is added to the network, a verification process is made by nodes (a network of computers) and added to a newly formed block, which gets added to the end of the chain.
Each blockchain block has a unique digital signature known as “hash”. Each hash is linked to the previous block in the chain, which creates an chronological, unbreakable record between all the transactions that have been verified on the network.
The way transactions are validated and processed by the nodes provides a decentralized nature to the blockchain, which is not controlled by any central authority or intermediary (banks or government for example). These nodes have the responsibility to maintain the integrity of the system.
Since each block has its own hash, which is linked to the previous block, any attempt to alter the data in a specific block would require changing the hash of every subsequent block in the blockchain, this makes “on chain” transactions resistant to tampering and secure. This security makes blockchain an ideal concept for applications that require high levels of transparency and security, such as voting systems, digital identity verification and supply chain management.
Introduced in 1994 by the computer scientist Nick Szabo and first implemented by Ethereum blockchain in 2015, some blockchains today have the ability to support “smart contracts” which are programmed to automatically execute when certain conditions are met, the code for these contracts are stored in the blockchain. There is a great potential in smart contracts for automation in many types of transactions, removing middle man like lawyers and banks for several types of contracts.
Types of blockchains
There are currently different types of blockchains. Some examples of networks are public, consortium, and private blockchains. Each network has its own unique characteristics and use cases.
Public blockchains
Such as Bitcoin, Ethereum, Bitcoin Cash, Cardano, Monero and many others, these blockchains are open, decentralized and accessible to anyone who wishes to participate. In this type of blockchain, a distributed network of nodes has the responsibility of maintaining the operation, validating and adding transactions to the blockchain. Any person who wishes to participate in this process can do it by mining, running a node or validating transactions.
Consortium blockchains
Controlled by a group of organizations working together to validate transactions and maintain it, it is a hybrid blockchain between public and private parties. Only members of the consortium can access it, but still not controlled by a central authority. As examples of consortium blockchains we can cite IBM Blockchain and Quorum, and is often used when multiple organizations are required to collaborate such as in supply chain and healthcare industries.
Private blockchains
Unlinke public and consortium blockchains, private blockchains are controlled by a central authority and transactions are validated by a select group of nodes. These permissioned networks are closed and accessible only to authorized participants. Like Hyperledger Fabric and R3 Corda, it is typically used by an organization or a consortium of organizations to improve transparency and streamline business processes.
Each type of blockchain has its own strengths and weaknesses and serves different purposes. Private blockchains are permissioned and closed, while public blockchains are decentralized and open. Consortium blockchains are a hybrid between private and public blockchains.
Potential applications
Blockchain is a relatively new technology and still in its early stages, but it has the potential to transform industries and markets and greatly changes how information is stored and transmitted. Blockchain can provide more transparency, security and efficiency to business and for several different industries like digital identity verification, financial transactions, supply chain management and many others.
