What is Blockchain?
What is Blockchain Technology?
The popularity of blockchain (also called Blockchain Technology or a Distributed Ledger) has been rapidly on the rise in past years. You have likely heard the word blockchain used in conjunction with another relatively new term – cryptocurrency. Both blockchains and cryptocurrencies have become massively popular in the world of the technology fans over past years.
Initially, blockchains were only brought up when discussing cryptocurrencies such as Bitcoin and Ether, but nowadays programmers and intellectuals working in various fields have proven that potential applications of blockchain technology span much wider than what we initially thought was possible. Blockchain technology is now being applied to various sectors such as health, real estate, law, entertainment, finance, identity, and many more.
The initial idea of blockchain stemmed from a desire to prevent middlemen from controlling currency flow. The inventor of this concept is credited to either an anonymous group or single person, who carried a pseudonym Satoshi Nakamoto. Satoshi Nakamoto was the official inventor of Bitcoin (the first cryptocurrency) and is also credited for designing the first truly decentralized public blockchain.
As we explain on our education page – What is Cryptocurrency?, cryptocurrency is a new form of internet-based currency that replaces the traditional form of physical and centralized currency exchange systems. Cryptocurrencies are decentralized currency systems where digital currencies are distributed over the internet, powered by blockchain technology.
So does blockchain only work for currency systems? No! Blockchain is the core underlying technology that focuses on decentralizing different forms of centralized structures and eliminating all forms of middlemen. Be it currency, data, or records stored in a blockchain, distributing it all over the internet allows for greater network resiliency and open accessibility to everyone in the network.
Satoshi’s original concept of a blockchain has evolved into something much more widely used since it’s humble beginning. Nevertheless, the concept of blockchain is so simple in nature that you don’t need to understand it’s intricate inter-workings if you want to use it. Moreover, with a little reading, any layman can use and understand the concept very easily.
Blockchain and the Concept of a Distributed Database
Consider a massive file of some sort that has been distributed over a LAN (Local Area Network) or MAN (Metropolitan Area Network). This particular file is openly distributed among all computers in this network. The network is then used to regularly update this particular file, and none of the users who are using the network, are a particular owner of this file. Thus, the file belongs to everyone, and no one at the same time. At any point of time, anyone with a computer can join this network and the file will belong to new users too. This basic scenario explains the fundamental concept of the blockchain distributed database.
Files in a blockchain network are globally distributed among all members of the network, where they are continuously merged, used, and shared. Consider Bitcoins to be the files and the network to be internet. These files (i.e. Bitcoin transactions) are very transparent in nature; which means there are positives such as free and continuous network validation, and negatives such as limited privacy. The decentralized nature of the network makes it almost an impenetrable target for a hackers. As of the date of this writing, the bitcoin blockchain has yet to be hacked.
Types of Blockchain Networks
Several types of blockchain networks exist and listed below:
A Public Blockchain is a type of blockchain network that is decentralized and open source in nature. Such types of blockchain networks allow everyone to participate in the transactions without requiring any permissions, prior to joining the network. Such blockchains are based on proof of work or consensus mode. Anyone who joins this network by having an internet connection can read, write and audit the blockchain. The person who sees the transactions within the network can also see and send the transactions within the blockchain network. The major benefit of a public blockchain network is that all of the transactions that take place within the network are concurrently anonymous and transparent. Digital currencies that are based on such network include – Bitcoin (BTC), Litecoin (LTC), Monero (XMR), Ethereum (ETH), etc.
2. Private Blockchains
A Private Blockchain is a type of blockchain network where all of transactions take place via a centralized body. Such types of blockchain networks have a set group that specifically checks transactions. Since data is not freely shared among network users, the central authority determines what information is shared with the public. Chances of data leakage or fraud are very lower within said network, as these closed networks are more efficient and secure. An example of a private blockchain network is Ripple, which also has its own cryptocurrency – XRP.
3. Consortium or Federated Blockchains
A Consortium or Federated Blockchain is a type of blockchain network where a group leader provides permission to anyone with internet access, to validate transactions that are performed or yet-to-be performed. All transactions within the network are validated with the help of pre-selected nodes. Such type of blockchain network is faster and more scalable, when compared to public blockchain networks. An example of a blockchain consortium is Hyperledger – An industry-wide open source initiative to advance blockchain technology, governed by The Linux Foundation.
Blockchain and Ethereum
Ethereum Blockchain Explained
Bitcoin is the oldest concept based on blockchain technology, however, a new and more advanced deviation of blockchain has emerged – Ethereum (ETH). Bitcoin is a decentralized currency system that predominantly operates to satisfy currency transfers and monetary transactions. Ethereum applies the concept of blockchain to a much broader field. Multiple applications developed on Ethereum already exist, which test the practicality and durability of Ethereum on a much broader scale.
For example, there is an Ethereum based social media application that works just like Twitter. The application is known as Ether Tweet. Ether tweet is a decentralized social media application. The application takes half of its name, as well as concept, from the famous social networking site Twitter. Similar to Twitter, posts have a character limit of 160 and the communication is decentralized. Apart from Ether Tweet, there are countless other applications based on Ethereum and blockchain technology.
Examples include Raiden Network, which enables users to transfer data at a lightning speed; TenX, which works as a point of sale in Ethereum’s own decentralized currency system; Gnosis, which works as another decentralized social media platform which enables users to share various things such as weather, locations etc. Other notable examples include Totle, DopeRaider, CryptoPioneers, IDEX, Ether.Camp, IPFS, N4psChain, OwlChain, AKASHA, Bloom, IP.Gold, EthDraw, and Ethfinex. All of these applications take the concept of ‘blockchain’ for a new ride, and are based on Ethereum.
The Concept of Nodes in Blockchain
Technically speaking, a blockchain is simply a collection of nodes, where individual nodes are capable of network validation. Blockchain networks use clients to validate transactions. These transactions then get downloaded and compressed. Once they are compressed, the downloaded transactions are what get put into the chain (i.e. blockchain). At any given point of time, all nodes individually act as operators of the network, and any particular node can be the network administrator.
The concept of each network node acting as an administrator eliminates the concept of predetermined administrator itself. If this blockchain is a public blockchain, these functioning nodes are rewarded for their work with newly minted cryptocurrency. The process of “Mining Bitcoins” can best be explained as “The nodes of the network continuously solving complicated cryptographs, which in turn provides Bitcoins”.
Blockchain Technology Explained Conclusion
Initially, it was thought that Bitcoin was the main technological innovation, and blockchain was just a byproduct of bitcoin. We now know that bitcoin is only one of countless applications made possible by blockchain technology. Since the birth of Bitcoin in 2009, there has been more than 700+ Cryptocurrencies invented based on the concept of blockchain technology. Moreover, many sectors are using blockchain as the working modus operandi. The applications made possible thanks to blockchain technology, are truly huge in nature with endless possibilities.