What is Blockchain: Features, Benefits, and Real-World Usage
Few can answer “What is blockchain? The blockchain system has built-in mechanisms that prevent unauthorized transaction entries and create consistency in the shared view of these transactions.
But, did you know that you can use blockchain technology to create an unalterable or immutable ledger for tracking orders, payments, accounts, and other transactions? There’s so much to learn about blockchain right here.
What Is Blockchain?
A blockchain is a decentralized and distributed database that maintains a continuously growing list of ordered records, called “blocks.” These blocks are linked using cryptography.
In simple terms, a blockchain is a shared, immutable public digital ledger that carries the records of transactions and asset tracking across many computers so that the record cannot be altered without the knowledge of other blocks in the network.
Each block possesses a cryptographic hash of the previous block, a timestamp, and transaction data.
Why Is Blockchain Important?
Let’s see why blockchain is taking center stage in our modern world.
- Blockchain has proven to be ideal for delivering that information because it provides immediate, shared, and observable information that is stored on an immutable ledger that only permissioned network members can access.
- Using blockchain, as a member of a members-only network, you can rest assured that you are receiving accurate and timely data. And that your private blockchain records are shared only with network members to whom you are granted access.
- There is greater security in blockchain use since consensus on data accuracy is required from all network members, and all validated transactions can be altered because they are recorded permanently. No one, not even a system administrator, can erase a transaction.
- With a distributed ledger that is shared among members of a network, time-wasting record reconciliations are eliminated. To speed up transactions, a set of rules that are called a smart contract can be stored on the blockchain and operated automatically.
- A blockchain network can track orders, payments, accounts, production, and many more. Since members share a single view of the truth, you can view all the details of a transaction end to end, giving you greater confidence, and new efficiencies and opportunities.
How Does Blockchain Work?
Here’s the trick:
- As each transaction occurs, it is recorded as a “block” of data and is distributed to different places for the safety of that information. The data block can record any information of your choice: who, what, when, where, and how much. It can even record the condition, such as the temperature of a food shipment.
- Each block is linked to the ones before and after it. These blocks constitute a chain of data as an asset moves from place to place or ownership changes hands. The blocks confirm the exact time and sequence of transactions, and the blocks link securely together to stop any block from being altered or a block being inserted between two existing blocks.
- Transactions are blocked together in an irreversible bond: a blockchain. Each additional block reinforces the verification of the previous block and hence the entire blockchain. Rendering the blockchain tamper-evident, delivering the essential strength of immutability. Dismissing the possibility of tampering by a malicious actor, and building a ledger of transactions you and other network members can trust.
What Are the Features of Blockchain Technology?
Blockchain technology contains the following main features:
1. Public Key Cryptography
Public key cryptography is a security element to uniquely identify participants in the blockchain network.
This structure generates two sets of keys for network members. One key is a public key that is common to everybody in the network.
The other is a private key that is unique to all members. The private and public keys work hand-in-hand to unlock the data in the ledger.
For example, John and Jill are both members of the network. John records a transaction that is encrypted using his private key. Jill can decode it using her public key.
This way, Jill is certain that John completed the deal. Jill’s public key would not have functioned if John’s private key had been compromised.
2. Decentralization
Decentralization in blockchain refers to transferring control and decision-making rights from a centralized entity (individual, organization, or group) to a distributed network.
Decentralized blockchain networks use transparency to lessen the need for trust among participants.
These networks also deter participants from exerting control over one another in ways that degrade the functionality of the network.
3. Smart Contracts
Firms use smart contracts to self-manage business contracts without the need for an assisting third party.
They are programs stored on the blockchain design that run automatically when predetermined conditions are met.
They run if-then checks so that transactions can be finalized confidently. For instance, a logistics company can have a smart contract that automatically makes payment once goods have arrived at the port.
4. Immutable Records
Immutable records are digital records that cannot be changed or altered. No participant can tamper with a transaction once somebody has recorded it to the shared ledger.
If a transaction record includes a mistake, you must add a new transaction to reverse the error, and both transactions are visible to the network.
5. Consensus
A blockchain system sets rules about participant consent for recording transactions. You can record new transactions only if the majority of participants in the network give their consent.
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How Do Various Industries Use Blockchain?
Blockchain is an emerging technology that is being adopted in innovative manner by several industries. We illustrate some use cases in different industries in the following subsections:
1. Energy
Energy companies use blockchain technology to form peer-to-peer energy trading platforms and streamline access to renewable energy. For example, consider these uses:
- Blockchain-based energy companies have developed a trading platform for the sale of electricity between individuals. Homeowners with solar panels utilize this platform to sell their excess solar energy to neighbors. The process is mostly automated: smart meters create transactions, and blockchain records them.
- With blockchain-based crowdfunding initiatives, users can finance and own solar panels in communities that lack energy access. Sponsors might also collect rent for these communities once the solar panels are constructed.
2. Finance
Traditional financial systems, like banks and stock exchanges, utilize blockchain services to manage online payments, accounts, and market trading.
For instance, Singapore Exchange Limited, an investment holding company that provides financial trading services throughout Asia, makes use of blockchain technology to build a more efficient interbank payment account.
By adopting blockchain, they solved a lot of challenges, including batch processing and manual reconciliation of several thousand financial transactions.
3. Media and Entertainment
Companies in media and entertainment employ blockchain systems to manage copyright data. Copyright verification is crucial for the fair compensation of artists.
It takes numerous transactions to record the sale or transfer of copyright content. Sony Music Entertainment Japan makes use of blockchain services to make digital rights management more efficient.
They have successfully used blockchain strategy to boost productivity and reduce costs in copyright processing.
4. Retail
Retail companies utilize blockchain to track the movement of goods between suppliers and buyers.
For instance, Amazon Retail has filed a patent for a distributed ledger technology system that will use blockchain technology to verify that all goods sold on the platform are original.
Amazon sellers can map their global supply chains by letting participants such as manufacturers, couriers, distributors, end users, and secondary users add events to the ledger after registering with a certificate authority.
Types of Blockchain Networks
There are several kinds of blockchain networks. Let’s see what they are.
1. Public Blockchain Networks
A public blockchain is one that anybody can join and participate in, such as Bitcoin.
Drawbacks might include the substantial computational power that is required, little or no privacy for transactions, and feeble security. These are vital considerations for enterprise use cases of blockchain.
2. Private Blockchain Networks
A private blockchain network, equivalent to a public blockchain network, is a decentralized peer-to-peer network.
Meanwhile, one organization governs the network, controlling who is allowed to participate, running a consensus protocol, and maintaining the shared ledger.
Depending on the use case, this can greatly boost trust and confidence between participants. A private blockchain can be operated behind a corporate firewall and even be hosted on-premises.
3. Permissioned Blockchain Networks
Businesses that run with a private blockchain will generally set up a permissioned blockchain network. It is vital to note that public blockchain networks can also be permissioned.
This puts restrictions on who is allowed to participate in the network and in what transactions. Participants need to obtain an invitation or permission to join.
4. Consortium Blockchains
Numerous organizations can share the responsibilities of maintaining a blockchain. These pre-selected establishments determine who submits transactions or accesses the data.
A consortium blockchain is perfect for business when all participants need to be permissioned and have a shared responsibility for the blockchain.
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Difference Between Bitcoin and Blockchain?
Bitcoin and blockchain may be used interchangeably, but they are two different things.
Since Bitcoin was an early application of blockchain technology, people inadvertently started using Bitcoin to mean blockchain, creating this misnomer.
However, blockchain technology has many applications outside of Bitcoin. Bitcoin is a digital currency that runs without any centralized control.
Bitcoins were created to make financial transactions online but are now considered digital assets that can be transformed into any other global currency, like USD or euros.
A public Bitcoin blockchain network develops and manages the central ledger.
Bitcoin Network
A public ledger records all Bitcoin transactions, and servers around the world retain copies of this ledger. The servers can be likened to banks.
Although each bank knows only about the banknotes its customers exchange, Bitcoin servers are aware of every single Bitcoin transaction in the world.
Anybody with a spare computer can set up one of these servers, known as a node. This is like opening your own Bitcoin bank rather than a bank account.
Bitcoin Mining
On the public Bitcoin network, members mine for cryptocurrency by solving cryptographic equations to form new blocks.
The system broadcasts every new transaction publicly to the network and shares it from node to node.
Every ten minutes or so, miners collect these transactions into a new block and add them permanently to the blockchain, which serves as the definitive account book of Bitcoin.
Mining crypto requires significant computational resources and consumes a long time due to the complexity of the software process.
In exchange, miners earn a small quantity of cryptocurrency. The miners act as contemporary clerks who record transactions and collect transaction charges.
All participants across the network reach an agreement on who owns which coins, using blockchain cryptography technology.
What Is the Difference Between a Database and A Blockchain?
Still on “What is Blockchain?” Blockchain is a unique type of database management system that has more features than a regular database.
We describe some significant distinctions between a traditional database and a blockchain in the following list:
- Blockchains decentralize authority without damaging trust in the existing data. This is not possible in other database systems.
- Companies involved in a transaction cannot share their full database. However, in blockchain networks, each company has its copy of the ledger, and the system automatically maintains consistency between the two ledgers.
- Although in most database systems you can edit or delete data, in blockchain you can only input data.
How Is Blockchain Different from The Cloud?
The term cloud points to computing services that can be accessed online. You can have access to Software as a Service (SaaS), Product as a Service (PaaS), and Infrastructure as a Service (IaaS) from the cloud.
Cloud providers manage their hardware and infrastructure and grant you access to these computing resources over the Internet.
They deliver many more resources than just database management. If you desire to join a public blockchain network, you have to provide your hardware resources to store your ledger copy.
You could use a server from the cloud for this objective too. Some cloud providers also deliver complete Blockchain as a Service (BaaS) from the cloud.
What is Blockchain as a Service?
Blockchain as a Service (BaaS) is a managed blockchain service that a third party delivers in the cloud.
You can develop blockchain applications and digital services while the cloud provider delivers the infrastructure and blockchain-building tools.
All you have to do is customize existing blockchain technology, which makes blockchain adoption quicker and more efficient.
Some firms experimenting with blockchain include Walmart, Pfizer, AIG, Siemens, and Unilever, among others.
Our Takeaway
Using blockchain lets brands track a food product’s route from its origin, through each stop it makes, to delivery.
Not only that, but these firms can also now see everything else they may have come in contact with, allowing the identification of the problem to occur far sooner—potentially saving lives.
This is one instance of blockchain in practice, but many other forms of blockchain implementation exist or are being experimented with.
We believe you’ve gotten the answer and more. Leave your thoughts about this post in the comments section, and don’t forget to share it with the people you care about if you find it valuable.
