The popularity of blockchain has peaked over the last few years. Though the concept of blockchain is associated with financial asset management, once you dive deeper into it, you can see its wider applications. Blockchain technology has been familiar to the world since the launch of the popular cryptocurrency, Bitcoin, and from then till now, the growth has been unanimous.
Blockchain offers enhanced security, transparency, immutability, traceability, and cost savings through new efficiencies, a dream come true for many business enthusiasts. Integration of an effective blockchain network into a business firm will definitely boost its overall growth.
Understanding the concept of blockchain
Blockchain technology is a database mechanism that stores data in blocks that are connected to each other. The stored data can be shared securely through the network without being changed or manipulated. The immutable ledgers in the blockchain network allow tracking orders, payments, and other transactions.
Blockchain technology has eliminated the risks of traditional database technologies, the decentralised tamper-proof system allows secure transactions across the network. Blockchain has been adopted in many industries and the ‘use case’ is more than one can expect. Blockchain technology is utilized in media and entertainment companies, traditional financial systems, energy companies, retail organizations, and many more.
A blockchain transaction shows the transfer of digital assets from one person to another and records the details of the transaction in an immutable block. The participants in the blockchain network have to validate the transactions after which the data is transferred to the ledger book and is linked to a new block. The addition of every new block strengthens the authenticity of the entire blockchain. A copy of the central ledger is shared with all the participants in the network.
What is decentralization in blockchain?
Decentralization is the distribution of control and information from a central entity to a shared network. A decentralized network eliminates the authority of individuals or groups over the network and promotes even distribution of power. Decentralization enhances the security of the blockchain through encryption.
The data in the blockchain is accessed in real-time, thus the chances of loss or error are nill. Decentralization helps in the sharing and editing of data by multiple people at the same time. It promotes the optimum utilization of resources by ensuring a uniform distribution of data among different nodes. A decentralised blockchain eliminates the need for intermediaries and supports faster transactions compared to traditional transaction systems.
What is a distributed ledger?
Distributed ledgers are transaction databases that are stored and shared across a network. These ledgers are controlled and organized by multiple parties around the globe. A participant in the blockchain network can access a distributed ledger from the network node.
These network nodes store copies of the ledger and inform about changes to other nodes if any. Distributed ledgers store identical copies of ledgers in multiple machines in different geographical locations. Nodes automatically update their ledger copies and also verifies other node’s ledgers.
Hacking a distributed ledger is difficult, as it requires altering multiple distributed copies simultaneously, which is next to impossible. The transparency of distributed ledgers makes it easy for authorities to conduct audits and reviews. It also speeds up the transactions by reducing the inefficiencies that occur during operations.
Distributed ledgers prevent data tampering thereby improving the efficiency and accuracy of data management. Public, private, permissioned, and permissionless are the different types of distributed ledgers.
How does consensus work in blockchain?
The consensus mechanism is a set of software protocols written on the blockchain code that checks for the validity of a transaction before authenticating it. The consensus mechanism aims to prevent the chances of intruding from hackers contradicting the records.
This system keeps a record of all legitimate transactions and ensures the transaction is reflected in the blockchain after validating them. The consensus mechanism ensures all the transactions of a coin are correctly listed in the blockchain. If a user requests a transaction using previously spent coins that are already listed in the blockchain, the nodes cross-check the transaction data with the existing records, and if a similar record is found, it will deny the transaction.
If a node intends to challenge a record, it will send a network-wide recall request and if more than two-thirds of the nodes approve, the transaction will be confirmed and written permanently in the blockchain ledger.
What are nodes in a blockchain network?
Blockchain nodes are computers integrated with the blockchain protocol forming a blockchain network. Nodes are responsible for keeping the encrypted data of past transactions and storing copies of ledgers. With the increasing number of people in a blockchain network, the requirement of nodes also increases for the better functioning of the network. While a user retrieves information from a blockchain network they are interacting with the nodes. Nodes authenticate transactions and execute the decision-making protocols. It helps in the decentralization of a blockchain, the higher the number of nodes the stronger the decentralization of the network. Different types of nodes serve different purposes. Full nodes, light nodes, and miner nodes are popular types of nodes.
What is a blockchain protocol?
Blockchain protocols are sets of rules and regulations that control how data is stored and the transaction is executed across the network. These protocols aim to ensure security, transparency, and integrity over the blockchain network. By utilizing the cryptographic technique, blockchain protocols secure and authorize transactions.
Blockchain protocol enables a decentralized transaction without the need for a central authority. Proof of Work (PoW), Proof of Stake (PoS), Delegate Proof of Stake (DPoS), Byzantine Fault Tolerance (BFT), and Directed Acyclic Graph (DAG) are the main blockchain protocols.
How is blockchain different from a traditional database?
Blockchain are distributed network with no single controlling authority. The data stored in the blockchain are immutable, which means once entered it can’t be undone or altered. The transactions on a blockchain are transparent to the participants of the network, promoting easy verification of transactions and reducing the risk of fraud.
A database is a collection of data organized using a database management system. The data stored in a traditional database can be changed or modified. Data are organized into ‘tables’ for easy storage and retrieval. Database reduces errors and ensures accuracy throughout the system.
| Traditional database | Blockchain |
| Centralized storage of data. | Decentralized storage of data. |
| Modification of data requires permission from the database. | Modification of data requires no permission. |
| Data can be easily deleted or modified. | Data entered are immutable, and can’t be changed or deleted. |
| Less expensive | More expensive |
| Search and query operations are fast. | Slow search and query operation. |
| Prone to system failure. | Highly resistant to system failure. |
Final Thoughts
The scope of blockchain is not limited, understanding the concept and diving into the possibilities of blockchain helps business firms to engross potential benefits. Blockchain technology has paved the way for a secure, reliable, and transparent transaction mechanism.