What is Blockchain Technology?
Blockchain is a method of recording information that is impossible to modify, hack, or manipulate. But do you know why is Blockchain important? Let’s find out!
Blockchain technology is one of the most commonly heard terms, especially regarding cryptocurrency and Bitcoin. But do you know what it is and why it benefits the digital world? Through this article, we will help you understand what is blockchain in simple terms, its importance, and its types.
Table of Contents
Blockchain is a decentralized and transparent digital ledger technology that enables the secure and immutable recording of transactions across multiple computers. It is the underlying technology behind cryptocurrencies like Bitcoin but has far-reaching applications beyond digital currencies. In a blockchain, data is organized into blocks linked chronologically, forming a chain. Each block contains a unique cryptographic hash, a timestamp, and a set of transactions. Once a block is added to the chain, altering or tampering with the stored data becomes extremely difficult.
Simply said, it is a method of recording information that is impossible to be modified, hack, or manipulate. It stores the transaction records, known as ‘blocks,’ of people in multiple databases called ‘chains’ in a network connected through peer-to-peer nodes. Blockchain meaning has evolved since the introduction of Bitcoin and the creation of multiple cryptocurrencies, non-fungible tokens (NFTs), decentralized finance (DeFi) applications, and smart contracts.
Now that you know about the blockchain basics and, primarily, what is a blockchain used for, let’s delve into the functionality of crypto using blockchain.
How does Blockchain work in a Bitcoin Network?
A blockchain is quite similar to the concept of spreadsheets and databases. However, the difference lies only in the way it is structured. Unlike traditional databases, the blockchain enters the transaction information into a block and runs the encryption algorithm through the information, creating a hexadecimal number called a hash. It is encrypted with the block information, creating a series of blocks chained together.
One of the earliest blockchains that operated successfully was the Bitcoin blockchain. So, let us understand the detailed working of crypto, explained through blockchain programming.
- Facilitating a transaction – Consider A and B as two nodes on a Bitcoin blockchain network. A wants to send 50 Bitcoins to B via the blockchain network (Secured channel). Before initiating the transaction, the information to be exchanged will be doubly encrypted by public and private key encryption algorithms. Therefore, both A and B will have public and private keys.
- Verifying the transaction – When the information is encrypted, a verification message is sent to all nodes present on the network. As soon as all the nodes check upon all the parameters like – Are A and B registered nodes? Does A have atleast 50 Bitcoins? Etc., they verify the transaction. Please note that a green tick is mandatory from all the participant nodes to ensure complete verification.
- Formation of a new block – When a transaction gets verified, it is saved in a mem pool, and such multiple mem pools combine to form a new block.
- Proof-of-Work – The nodes that created new blocks will try to add them to the main blockchain to make them permanent. But isn’t it a significant security threat? To avoid such situations, the Proof-of-Work concept ensures that only a valid block is added to the main blockchain.
- Now that you know about what is a blockchain platform and how it works, let’s delve into the use of the technology in the crypto world.
Blockchain and Cryptocurrency
The blockchain was first outlined by two researchers, Stuart Haber, and W. Scott Stornetta, in 1991, aiming to implement a system where document timestamps could not be tampered with. Blockchain had its first real-world application in 2009 with the launch of Bitcoin, an encrypted cryptocurrency.
Bitcoin uses blockchain technology to record transactions between parties transparently. In a digital currency research paper, Bitcoin’s pseudonymous creator, Satoshi Nakamoto, called it “a new electronic cash system that’s fully peer-to-peer, with no trusted third party.”
Cryptography in blockchain is one of the best ways to make secured transactions without the need for a middleman like banks or credit card agencies. Popular currencies like Bitcoin, Ethereum, Litecoin, and Bitcoin Cash use blockchain to record and process transactions securely. It has opened many new opportunities for expansion in terms of increased connectivity and transparency between organizations and streaming processes.
This technology gave rise to the concept of ‘impossible turned possible.’ IT enabled the creation of something that can never be duplicated and can be easily transferred from one person to another without the interruption of any third party as the source of trust.
Cryptocurrency and blockchain are not the same. The former is a mode of online transactions, while the latter is the technology that enables it. Unlike physical currency, blockchain cryptocurrency uses a decentralized system for controlling transactions. This feature is based on a distributed ledger technology called blockchain.
Types of Blockchain
Let’s have a look at the four major types of blockchain!
- Public Blockchain – Any private entity does not own this and is open to the public. There is no restriction in a public blockchain; it openly follows the concept of decentralization. Anyone with good internet and computer can use this network and hold a copy of other blocks present in the network. It is secured with Proof-of-Work and can displace traditional financial systems. Some of the popular public blockchains are – Bitcoin and Ethereum.
- A public blockchain is trustable as the algorithms can detect no fraud.
- Its large size ensured its secure nature, maintaining a more excellent distribution of records.
- You don’t have to reveal your identity and name to participate in this blockchain.
- Here, every user has a copy of the ledger. There isn’t any single platform maintaining the ledger.
- Private Blockchain – This is not decentralized and can be used by only authorized users. Private blockchain operates in a closed network with proper security and maintenance. Companies majorly use it for internal audits, votes, and asset management. Some of its examples are – Hyperledger and Corda.
- Its small size leads to a higher transaction rate and less-time consuming verification.
- The network’s size can be manually decided, modifying the scalability.
- It has a much more level of confidentiality and privacy.
- It is much more balanced than the public blockchain, as only limited users can access transactions.
- Hybrid Blockchain – It is an amalgamation of public and private blockchains. Some organization controls some part here, making the remaining visible as a public blockchain. Even a primary entity with a hybrid blockchain cannot alter any transaction. It is best used to provide solutions for government, financial companies, health care, and realty industries, where the data can be accessed publicly but needs personal protection. Examples of hybrid blockchain are – the Ripple network and the XRP token.
- The best part about this blockchain is its hybrid nature. It cannot b hacked because 51% of users won’t have access to the network.
- The computational cost is much less than others, as only a few nodes have verification access.
- Its customizable nature ensures integrity, transparency, and security.
- The operations are secured as it can choose the participants in the blockchain and decide which transaction can be made public.
- Consortium Blockchain – It is an innovative approach to solving an organization’s needs. Also called Federated Blockchain, it validates, initiates, and receives transactions. It is a mix of public and private and is managed by multiple organizations. This approach highly benefits businesses, banks, and other payment processors.
- Its high speed makes it a popular choice for organizations, allowing faster verifications.
- It can be decentralized at every level, with multiple organizations participating.
- Information belonging to the private blocks is unknown to the public view. However, those that belong to the blockchain can access it.
- There is much divergence in the flexibility of the Consortium blockchain.
Impact of Blockchain on digital marketing
Blockchain marketing can revolutionize how businesses operate and interact with customers. SkyTrust has highlighted some ways it can shape the digital marketing landscape.
- Improved data security – Blockchain’s secured and decentralized nature solves the problem of data security in digital marketing.
- Increased Personalization – It enables you to create more personalized marketing campaigns by securely storing and analyzing customer data.
- Greater transparency – By using smart contracts, businesses can easily track the effectiveness of their marketing campaigns with transparency.
- New marketing types – Blockchain technology and non-fungible tokens (NFTs) have enabled new styles and possibilities of marketing and engagement.