What is blockchain technology?
Bitcoin and many other alternative cryptocurrencies like Ethereum, Ripple, and Litecoin keep growing super famous around the world. People refer to these currencies as the future of finance and the best ways of bypassing the bureaucratic, centralized, at times even corrupt systems that are currently ruling the world. However, people usually forget that the heart and soul of these and many more digital assets is a sole innovation known as the blockchain technology that merits all the credits of the real game changer.
The appearance of cryptocurrencies has been creating ripples among the internet geeks. These digital currencies have a lot of hype with many people even seeing them as a move towards independence from government constraints. The most famous of these cryptocurrencies is Bitcoin that was created in 2009 after the discovery of the blockchain technology. Many articles about blockchain are all over the internet trying to help people understand this innovation. That is our intention in this article.
Blockchain technology is a fantastic invention that lets data be recorded on a decentralized platform.
- It is a sort of a public ledger.
- In simple terms, it is an internet of value
- It lets peers freely distribute money much the same way information is shared on the internet.
- The individual or a group of computer geniuses who invented blockchain technology are known only by the pseudonym “Satoshi Nakamoto.”
- The name blockchain is very common for its relation to Bitcoin that people call it the digital gold.
- This technology can be used for several purposes like architecture planning and legal business, apart from its sole purpose of transferring money.
- As simple as in case of Google Docs, people can modify and edit information at the same time while verifying simultaneously.
- All the data stored on the blockchain is transparent and incorruptible.
- It has no central point of control as it is recorded within a distribution of computers thus enforcing transparency and is never censored by any authority.
- Anybody can access this data, as far as they have access to the internet.
- It is verified every ten minutes to guarantee that no hacker has full control.
A group of transactions recorded on the blockchain is referred to as a block. This block is typically listed on the blockchain once it is complete and verified.
The blockchain is an excellent innovation with several uses. It was first designed to record financial transactions of digital currencies like Bitcoin, Ripple, Ether, and many others. Now, it can be used for other purposes like:
- Peer-to-peer energy trading.
- Peer-to-peer ride sharing.
- Peer-to-peer insurance.
It is crucial to note that there are different types of Blockchains:
- Transactions are within a single centralized system.
- The central organization determines which information should be public.
- In such a blockchain, a group is explicitly set to check transactions.
- They are essential for preventing fraud, enhancing efficiency and warranting security within private organizations.
- Suitable examples of this type of blockchain are auditing and database management within a particular company.
- These are based on a Proof of Work or consensus mode.
- They are open source and decentralized letting anyone participate in its transactions without authorization.
- Anyone can read, write and audit the blockchain as long as they have access to the internet.
- Anyone can view the transactions, and also make transactions within the blockchain.
- These transactions are open, but anonymous at the same time.
- Some models of this technology are Bitcoin, Dash, Litecoin, Monero, and Ethereum and many others.
Federated or Consortium Blockchains
- These operate under a group leadership and does permit everyone with internet to validate transactions.
- They provide better privacy and more scalability and are faster.
- Financial institutions like banks are the main users of such a chain.
- A set of pre-selected nodes validates transactions.
- A group of organizations agrees which nodes should sign to authenticate transactions.
Blockchain and Bitcoin
Now you may be wondering what the relationship between blockchain and bitcoin is. While blockchain is a list of ongoing blocks (transactions) recorded in a distributed public ledger, bitcoin is a cryptocurrency that has its transactions recorded and verified using this technology. Here are some more issues that may interest you:
How does blockchain work?
- Bitcoin blockchain is a public database or ledger in which transactions are recorded.
- It is usually disseminated across a network of peers who check and verify transactions before they are entered in the chain.
- It only relies on some protocols like the Proof of Work and Proof of Stake and does not have any central authority.
- Peers can mine bitcoins by solving complex mathematical problems that are updated every ten minutes.
- If the peers in the network approve of any solution, the individual or group who solved the problem is given coins, and the transaction is added to the blockchain as a block.
Who maintains blockchain?
- Bitcoin blockchain does not have any central control or management.
- To ensure only valid transactions are recorded, peers in the network collaborate over the distributed network.
- Peers have an equal stake as each can download the code and make changes that are seen by others at the same time.
- You can also engage in this management as an anonymous person if you have an internet connection and a computer.
Is Bitcoin blockchain technology good?
The blockchain technology was to allow financial transactions online without going through traditional financial institutions.
- It is a decentralized technology that seeks to bypass many currency constraints by the government.
- It lets peers carry out financial transactions without revealing their identity.
- When compared to traditional financial institutions, it has relatively low transaction fees.
- It is used for illegal activities like money laundering.
- It is not scalable.
- Due to the bulk of transactions carried out, it is relatively slow.
- Most of the mining pools are within China posing a serious threat to the decentralization feature.
- With one pool managing a massive amount of hash power, they can quickly bring down the technology or get seized by the government.
Blockchain explorer is a blockchain browser that renders human-readable information. It is the same as other internet browsers such as Chrome and Mozilla, but now with information on bitcoin. It is essential for everyone involved in the digital currency world. This content consists of bitcoin transactions and blocks. You can view latest blocks and also click on links to move to previous related data. This information is essential because:
- It reveals the sizes of blocks.
- It displays the time each block was mined and recorded in the chain.
- All the transactions contained in every block will be displayed.
- You will be able to see how block rewards are shared among miners.
- The explorer reveals all unconfirmed transactions.
- A part of the explorer, Blockchain.info, reveals charts and statistics of the network.
- Shows whether the challenge in mining will become complicated or easier.
- You can also search for transaction IDs and addresses.
Why do we need blockchain?
Blockchain can help to record transactions and contracts transparently and make them verifiable. It will also be possible to abolish middlemen like lawyers, brokers, and bankers who make the charges on these transactions very high.
The technology would instead enable organizations, individuals, and other entities to communicate freely with one another. The world is by large dominated by transactions and contracts. The conventional method of recording and keeping the records is not as productive and secure. Blockchain technology guarantees to have these records in a secure and transparent ledger that will not be easy for anyone to manipulate. If this particular functionality is successful, it will significantly change the world.
Blockchain and Decentralization
A blockchain is a public decentralized ledger that transactions their records are distributed across a set of open servers. Everyone in the network has the authority to work on the data overseen by a network of peers. In a sense, it is a combination of peers who don’t trust each other and have to verify transactions before they are entered onto the blockchain individually. No single peer has the upper hand nor is there a super regulating central authority.
Why is it good?
- There is no central authority.
- There is no chance of manipulation, as everyone can carry transactions that will be verified by peers.
- The system is less likely to fail, as there is no central point of failure.
- Collusion between peers is impossible.
- There is a consensus agreement that none of the peers can breach.
Centralized things that blockchain can decentralize:
- Financial transactions such as sending money from one individual to another.
- Legal and business transactions. Transactions can be closely monitored by the peers and recorded permanently in a decentralized platform.
- The encrypted is difficult to hack, as peers verify it.
- Can be used for forecasting.
- In insurance contracts, the technology will promote trust management.
- Cloud storage. Compared to data stored in a centralized system, this will be more secure and flexible.
- Ride-sharing and private transport. This tech can let car owners and users properly negotiate terms without including any third party like Uber.
- Irregularities sometimes mar voting. Blockchain can be used to register voters and provide electronic ballot that will diminish cases of rigging.
- Health institutions will be able to overcome the challenges related to storing and sharing data. The technology will let hospitals store data and give access to the required personnel properly.
- Real estate. It is set to remove the bureaucracy associated with the real estate industry.
Blockchain and transparency
The blockchain is public and open. All transactions are entered and stored in a decentralized general ledger that is accessible to all peers. Entries into this ledger are only possible if everyone in the network has authorized the transaction. This level of transparency removes the need to have balances and checks.
Though the blockchain is relatively incorruptible, it is possible to be corrupted. For example, if a large segment of pools is in one location, governments can easily cease and destroy the hardware. The pool peers can also collide and modify some transactions since they have a significant hash power.
Blockchain and Security
There is no central governing authority within the decentralized blockchain. It is, therefore, tough for a hacker to access data from the separate servers. The data is recorded in hash functions making it hard to change or overwrite. Unlike centralized locations that criminals always target to manipulate data, decentralized ledger cannot allow such. Any alterations in this ledger are instantly made visible to the network participants who have to authorize them. If any of the participants are not satisfied with the changes, they will not be registered.
Explanation of all blockchain terms you don’t understand:
In your quest to learn about the blockchain technology, there are some terminologies you will come across. It is crucial that you know what they mean to keep up with what is going on in this industry. Here is a few of them:
Distributed Ledger (DLT)
This is a database that is distributed across a network of various sites, institutions, and geographies, through a consensus mechanism. A model of such a ledger is the bitcoin blockchain Transactions are recorded and stored on this platform, and it is often decentralized.
- It lets the participants in a network witness and publicly verify a transaction.
- Participants can access data from any sector of the network and make a copy of the same.
- Any modifications made on such a ledger are sent to each participant for verification.
- Information can only be assessed using a private key as it is stored with cryptography.
- All the data stored on this ledger is under the controls of the network.
- The transactions are very secure since a hacker would need to attack the shared servers at the same time which is almost impossible.
- Can be used to record business transactions and contracts eliminating the need for balances and checks.
This innovation has the potential of transforming how governments and other institutions operate. It can help the government to control tax fraud, enhance service delivery like giving out licenses, land registries, passports among others. It can also make a vital reform in the electoral process. It is also affecting the entertainment industry, supply chains, and others.
A P2P (peer to peer) is a decentralized model of transaction that allows individuals to contact and interact directly with each other in trade and other activities. This kind of interactions aims at avoiding the use of a third-party intermediary.
- P2P is a deflection from conventional capitalism where workers do not own the means of production.
- In the blockchain technology, P2P is the underlying means of transactions.
- Individuals can make all kinds of transactions avoiding the third party.
- Bypassing the third party decreases operational costs.
- In the basic sense, there are risks associated with the P2P, as the seller might provide low-quality goods or not provide the goods at all, and the buyer might refuse to pay.
- The low transaction costs and the drop of bureaucracies, however, make this a viable alternative.
Let’s see how P2P relates to the blockchain
- Initially, blockchain was all about cryptocurrency.
- The purpose of this innovation was to let peers buy goods, pay for services and exchange money electronically.
- Blockchain technology allows the transaction to take place without going through a third party. Since all activities are recorded on a public ledger, the risks of not getting paid have been removed since peers must authorize all legal transactions.
So, P2P is a form of interaction between peers without involving a third party. This idea underpins the blockchain technology.
These are rules that each participant in a network must follow. They govern the whole system. These rules include validation of transactions, guidelines about the consensus module, as well as the standards for network participation. Any peer who breaks the network protocol is essentially kicked off that particular network.
A good example of a network protocol (PoW) is Bitcoin. In the process of mining bitcoins, miners must solve difficult cryptographic problems. Once a group of miners succeeds in solving a given problem, the peers must verify that particular action and let the miner add that block on to the blockchain. These are the protocol that applies to the mining of many other cryptocurrencies like Ethereum, Dash, and Litecoin, etc.
- Protocols can also be referred to as an access method.
- It is a standard that participants use to set policies or methods of exchanging data with a given network.
- Every protocol within each platform has its unique methods of checking information and verifying its authenticity.
- Among the most common standard protocol is the HyperText Transfer Protocol (HTTP) This protocol is used to disseminate data over the World Wide Web. Blockchain uses this same type of technology to check the sharing of data. Bitcoin, Dash, Ethereum, and all other cryptocurrencies have their protocols.
Blockchain as a Service (BaaS)
Here is a BaaS solution that will expatiate this term;
Ethereum BaaS by Microsoft Azure
The system was a collaboration between Microsoft and ConsenSys creating Ethereum Blockchain as a service also known as EBaas. This service strives at
- Enabling developers, partners, and clients to use the distributed ledger technology with just one click. It provides a cloud-based developer environment for them.
- Allows parties to learn, play and fail at a minimal cost, as the environment is ready made and tested.
- Enables participants to design private, public and consortium blockchain environments.
- Such a service will give transparency and openness not only in the financial sector but also in other industries that contracts and transactions are made.
- BaaS will revolutionize offering of services like licensing, management, voting, and social services among others.
- It will also provide stronger cybersecurity stopping unwarranted hacks.
APIs & Overlays
Application Programming Interface (API) is the code required to build the back-end that operates the system. The code is essential to run most FinTech innovations. Simply put, APIs is a set of procedures and functions that allow the development of specific applications. The applications manage the data of an operating system, a different application or service. They are mostly the engine of any system software or application.
- APIs speed up operations as businesses have more time since they do not start from scratch that needs one to create a back-end.
- An overlay is merely a computer system put on another network in which some virtual links connect nodes.
- An overlay comprises transferring a block of a code or other data into particular internal memory, basically replacing that which is already there. It requires splitting a program manually into object codes that are self-contained referred to as overlays.
- These overlays are arranged into a tree structure.
So, what are the applications of overlays?
- It produces new applications.
- It enhances security within the system.
- Use of encryption demands that the end-users be authorized to use the connections.
The Bottom Line
Blockchain technology is indeed a life-changing invention, which already has and will continue improving further many fields.