What is the meaing of Blockchain (Distributed Ledger)?

Blockchains are virtual, and therefore, they have no physical form. However, we've illustrated a simple diagram that helps people understand how they work better. The graphic above shows a line of blocks, each containing data in the form of a distributed ledger.

This is essentially a database that can be shared among multiple devices or institutions, and information is shared instead of copied or transferred. The blocks that make up this ledger are arranged in chronological order.

The parties with which the information on a blockchain is shared are called nodes. You'll find several different features within each block, including the previous block's hash (or unique algorithm) and its own hash (which passes on to the next block in the chain). Each block must contain its hash, but it can also have whatever necessary information the network's developers want. But we won't get too deep into the contents of a block here.

Blockchains exist in a peer-to-peer network (as you can determine by their distributed structure) and can be either public or private. In a private blockchain, all users are anonymous. In a public blockchain, they are not. You can also get consortium blockchains in which multiple organizations, and their data or assets, can exist.

A blockchain is a tamper-resistant distributed ledger that's used to validate and store digital transactional records. No single authority is responsible for maintaining a Blockchain. Instead, computers in a peer-to-peer (P2P) network each store a copy of the ledger. Transactions are verified through a decentralized consensus mechanism.

Transactions are stored in permanent, time-stamped units called blocks and each block is connected (chained) to the previous block with a cryptographic hash that is created by using the previous block's contents. The hash links make it impossible to alter data in one block without making changes to each subsequent block in the chain at the exact same time. Essentially, this means that any attempt to alter or delete information will break the cryptographic chain and immediately alert all nodes in the network that there is a problem.

Blockchains either be public or private. In a public blockchain, anyone can view the ledger and participate in the consensus mechanism. In a private Blockchain, the consensus mechanism is restricted to certain nodes on the network. The views of the private ledger may also be restricted.

Originally created for digital currency, Blockchain is now being used by many types of businesses as a decentralized database technology to support smart contracts as well as records management for health care and identity and access management (IAM).

Blockchain can as well be thought of as a distributed database technology that's maintained by multiple computers in a network. The security of this system is based on the idea that the financial cost of conducting a fraudulent transaction will be much higher than any potential reward.

How Blockchain Works

Any movement of an asset within the blockchain, also known as a transaction, is recorded within a block. The addition of each block and transaction is irreversible, keeping the chain completely accurate.

When the first block in a blockchain is created, its hash is created simultaneously. More blocks are needed to keep recording these transactions, which wouldn't be possible to create without the help of miners.

Miners help build upon a blockchain by mining new blocks. A miner adds data to a new block and creates a new hash, thereby adding it to the chain. A miner must complete a mathematical equation to verify blocks and ensure their accuracy.

When a mining node creates a new block, it is instantly sent to every other node, or user, in the network (in other words, it is distributed). It is then up to the nodes to validate the block's transaction. This entire process is known as the proof of work mechanism.

This process, along with the structure of a blockchain, makes the data within each block secure and immutable. A blockchain is complicated to hack, which is why such technology is becoming increasingly popular in data storage. This is because of the cryptographic signature each transaction has, which always remains unchanged.

Each block in a chain includes the location of the next record. To add a new block to the chain, computers on the P2P network compete to verify and share (broadcast) the new block.

Each computer is given a Proof-of-work (PoW) mathematical problem that requires a lot of processing power to solve, but can be easily verified through consensus algorithms. The first computer to solve the problem "wins" the broadcast and is issued a small reward.

Once a block has been added to the chain, the information it contains becomes permanent and the block cannot be deleted.

Computers on a Blockchain P2P network sync periodically to ensure that all copies of the shared database contain the exact same information, but it is the linkage between blocks that keeps Blockchain ledgers secure.

Types of Blockchains

There are four kinds of blockchain:

• Public: anyone with internet access can weigh in on the consensus.
• Private: a single, central authority holds the deciding factors.
• Consortium (or Federated): multiple organizations have authority status.
• Hybrid: elements are public access, but privately held authority.

Advantages of Blockchain

Digital ledgers using Blockchain can significantly shorten the time it takes to transact business by eliminating the need for transactions to be approved and verified by a centralized authority. This not only speeds up the time it takes to execute a transaction, it lowers transaction costs while still providing high levels of security and trust.

Disadvantages of Blockchain

One of the criticisms of blockchain transactions is that it requires a lot of computing power, which can be expensive.

The investment required to maintain the security of a public blockchain has incenticized some companies to use private blockchains. When the blockchain network is private, PoW consensus mechanisms are not necessary.

Some critics maintain that because private networks are centralized and include levels of trust, it negates the benefits of using Blockchain. It has been argued that private Blockchains are essentially just convoluted databases.

Another potential disadvantage of private Blockchains is that they could lead to the development of closed technology platforms that do not support common standards for security, privacy and data exchange.

Uses of Blockchain Tech

What's exciting about blockchain technology is that it is extremely versatile, and we can use it in a wide range of industries. Of course, blockchain technology is mainly known for its use in the cryptocurrency market to record transactions. However, blockchain tech is also now utilized in some other sectors.

Today, you'll find blockchains being used in real estate, medical data storage, voting systems, and many more kinds of organizations. Several huge companies use blockchain technology, including Microsoft, Amazon, and J.P. Morgan. Its list of applications is truly endless.

History of Blockchain

The theory of Blockchain has been around for quite some time. David Lee Chaum is credited for proposing the idea in 1982.

Although he presented the theory in his doctoral dissertation Computer Systems Established, Maintained, and Trusted by Mutually Suspicious Groups, it wouldn’t be until 2008 that Blockchain technology was introduced to the world along with the digital currency Bitcoin.

Blockchain and Bitcoin

The white paper Bitcoin: A Peer-to-Peer Electronic Cash System outlined the implementation of Bitcoin’s blockchain technology. The paper was published by "Satoshi Nakamoto", who created Bitcoin, but that name is widely accepted to be a pseudonym.

Nakamoto claims that the problem with current financial institutions is that they rely on trust. Payees have to trust a bank and the bank needs to vouch for payments. Blockchains, on the other hand, provide a non-alterable record of all transactions and are available to all parties. This system gives users proof of transactions and removes the necessity for centralized management and trust in a mediator.

The Future Is Bright for the Blockchain

Regardless of whether cryptocurrency survives over the next few decades, blockchains will undoubtedly continue to serve in several ways. Their ability to provide enhanced security levels and a transparent, trusted network of data makes them a top choice for a range of different companies. Who knows, one day, blockchain technology could replace all other data storage and record-keeping options.