What is the Blockchain?
Learn about the Blockchain and how Cryptocurrency and NFTs use it
The increasing popularity of cryptocurrencies has triggered impressive research on blockchain technology and web3.
According to a report by Grand View Research, the blockchain industry was valued at $5.92 billion in 2021 and is projected to grow at a compound annual growth rate (CAGR) of 85.9% from 2022-2030. Although many people hear about blockchain technology today, quite a few can grasp what it actually means.
When we talk about blockchain technology, many people think it is the same as Bitcoin. The truth is, bitcoin is only an offshoot of blockchain; it is only a digital coin created using blockchain technology.
Blockchain is a model of storing digital data that assures immutability, security, and a low risk of manipulating or hacking stored information by fraudulent means.
General Overview of Blockchain
Blockchain is a ledger built so that it is impossible to be altered once data has been imputed. Due to the immutability of the blockchain ledger, all records and information stored in it are safe and secure.
The technology is a model for storing data. This model consists of various interlinked chains of blocks of data arranged chronologically and secured through cryptographic computations. Blockchain is the structure on which almost all cryptocurrencies are built upon.
Blockchain first appeared in public discourse in 1991 when two young research scientists, Stuart Haber and Scott Storntta, described blockchain technology.
They utilized cryptographic networks on a chain of blocks in a bid to protect data stored digitally from manipulations. Though their work on blockchain development had limitations, it inspired other computer research scientists, including the anonymous Satoshi Nakamoto, who invented Bitcoin, the first crypto asset, in 2008.
The Working Principle of Blockchain
Blockchain functions through a multi-step process that includes:
An authorized user enters a transaction that the system must validate.
The entered transaction constitutes a block embodying that particular transaction or information.
The block created in step 2 will be forwarded to all computer nodes (miners) in the system.
Certified nodes authenticate the transaction, then add the new block to an existing blockchain.
The information is spread across the network, signaling the execution/completion of the transaction.
For clarity, nodes are considered the structure of blockchain technology. They exist either as small servers or computers. On the network, blocks of data are stored safely on connected nodes and share information on recent updates on the Blockchain.
Blockchain ledgers contain two records forms: transactions made by individuals and blocks. There are timestamps to creating a chain of blocks; this is called a hash. Hashing algorithms that link a block to an existing block make it highly improbable to guess the length of a particular hash by manipulators.
When the first block, which has a header, has been created, any other block in the ledger will calculate its hash using the previous block's hash.
Validation or consensus is required for the addition of a new block. Nodes in the system must verify the block's authenticity before confirmation by agreeing that the hash length has been calculated correctly.
Blocks successfully added to the blockchain ledger can neither be changed nor modified; they can only be referred to in creating other blocks.
Types of Blockchain
There are four types of Blockchains:
Public or Permissionless Blockchain
Private or Permissioned Blockchain
These four types of Blockchains have different use cases and applications. The nature of the project will determine the best type of blockchain suited for it. Let's further analyze these blockchain types and their applications.
Public Blockchain is a decentralized network where users have their copy of the blockchain ledger. The network is open to anyone provided they have a computer and access to the internet network. The public Blockchain is both secure and trustable.
One of its major limitations is that it consumes more energy as it uses the proof of work protocol; the transaction processing time is also very slow due to its large size, making verification and confirmation of transactions time-consuming.
Nevertheless, public Blockchain is a perfect replacement for the traditional financial system. Bitcoin, Litecoin, and Ethereum are examples of public Blockchains; users can add blocks to the network anonymously.
Unlike the public Blockchain, the private Blockchain is partially decentralized. The network is governed by a central authority that decides who can participate, verify transactions and manage the ledger. Therefore, irrespective of the public restrictions, private blockchains are highly secured and save time as there are just fewer people verifying transactions.
Companies use private Blockchains to manage assets, conduct audits and collate votes. Countries CBDC is the most remarkable private blockchains. Others include R3 Corda, Tezos, Hyperledger, etc.
Hybrid Blockchain, also known as a bridle network, blends the significant features and protocols of private and public blockchains. Information stored on the hybrid network is personal and secure, though it grants access to the public through smart contracts.
Companies developing networks on the hybrid Blockchain enjoy the benefits of permission-base and permissionless-based systems. A hybrid network is mainly used to keep medical records and in the Real Estate industry. Ripples network, XRP token, XinFin, etc., are examples of hybrid Blockchains.
Consortium Blockchain, also named “federated Blockchains,” like hybrid Blockchain, combines the salient features of private and public blockchains. The only difference is that a consortium comprises private companies collaborating on a public/decentralized network to facilitate transparency and improve workflow.
Consortium blockchain saves enough time, resources, and energy. It has also proven more efficient than public Blockchain, which is centrally managed. Consortium blockchains are mainly used in the finance, supply chain logistics, healthcare, and banking sectors.
Use Cases of Blockchain
There are over 100 use cases and real-time applications of blockchain technology. The application of blockchain technology has cut across all sectors of the global economy.
For example, in the financial industry, blockchain is used for seamless and fast cross-border money transfer, development of digital currencies like bitcoin, smart contract creation, etc.
We can also apply blockchain in supply chain management to record certification, price, date, and other relevant information to manage the supply chain network effectively.
Other real-world applications of blockchain are evident in the healthcare, real estate sectors, security, transportation, non-fungible tokens (NFTs), media, the Internet of Things (IoT), etc.
The future of blockchain technology is packaged with endless possibilities. Blockchain has the potential to revolutionize all existing traditional systems, replacing them with digital processes.
In the real estate industry, blockchain technology is bound to ease the stress experienced by realtors, agents, and buyers in securing and managing assets, which are crowded by weighty paper-works and expensive transactions.
Real estate tokenization will use digital tokens in place of physical assets. Deedcoin is an example of a real estate company using blockchain technology to transfer ownership of physical assets to their new owners.
Blockchain technology is poised to lead the future green revolution. Recently, the Ethereum blockchain announced it has moved to a proof-of-stake model to minimize its energy consumption.
In addition, countries like El Salvador have adopted bitcoin as a legal tender, and there is every possibility that other countries will consider the same in the future.
The rise of NFTs and the metaverse has brought about a paradigm shift in entertainment. Although we are still in the early stages, the future potential is enormous.
Today, people can own properties and execute transactions in the metaverse. We can only imagine what blockchain holds for us in the near future.
Blockchain technology is currently having an unprecedented impact across global industries. It can be likened to the dot.com wave of the 90s.
However, like any new innovative technology, there are always a few cons. Unfortunately, one of its major downsides regarding blockchain technology is the humongous amount of resources and energy required to operate due to the cryptographic computations needed to validate transactions and make them accessible.
However, the pros of the technology outweigh its cons due to the high level of security, transparency, immutability, and reliability it provides to its users. As a result, every sector is gradually abandoning traditional systems and adopting digitalization through blockchain technologies.
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