What is Blockchain: a Definitive Guide for Everyone
Blockchain is the revolutionary technology behind bitcoin and thousands of cryptocurrencies and has potential beyond digital currencies. Our guide will walk you through what it is, how it’s used and its history.
- By NFTExplained
- January 12, 2022
The technology behind Bitcoin, the first cryptocurrency, was introduced as blockchain. Consider it the infrastructure for cryptocurrency: if cryptocurrencies were automobiles, blockchain would be the highway. While there is some debate among experts about the future of cryptocurrencies, there is no doubt that blockchain technology has a bright future. The next big thing is blockchain technology.
What is Blockchain?
Everyone agrees that this technology is a significant advancement—perhaps the most significant since the internet’s inception. As a result, major corporations such as Google and Amazon are vying for a piece of the pie by developing their own blockchain solutions. The time you spend reading this guide will pay for itself many times over. Consider reading an Internet book in 1994, when TV shows were still debating the birth of e-mail.
The future of decentralized technology is bright, and understanding the fundamentals of blockchain is essential whether you’re interested in cryptocurrencies or blockchain technology. This includes a basic explanation of how blockchains work, the problems they solve, and the enormous benefits they provide to the world today. Blockchains are widely discussed, not just in the financial world. Blockchain is already being used to store and process personal data and identification in marketing and computer games. But what exactly is blockchain? Let’s put it like this: A continuous chain of blocks is what blockchain refers to in its most literal sense.
It keeps track of all transactions, including tulip bulbs in a botanical garden. These records, unlike traditional databases, cannot be changed or deleted; only new ones can be added. Because many independent users store the entire chain of transactions and the current list of owners on their computers, blockchain is also known as distributed ledger technology. The information is not lost if one or more computers fail.
Blockchain is a shared, immutable registry designed to record transactions, record assets, and build trust. Learn why companies around the world are adopting blockchain.
Blockchain definition: Blockchain is a shared, immutable registry that simplifies the process of recording transactions and accounting for assets in a business network. An asset can be tangible (house, car, money, land) or intangible (intellectual property, patents, copyrights, branding). Almost anything of any value can be tracked and sold using blockchain. This technology reduces risk and cost for all parties involved.
What's the Importance of Blockchain
Businesses depend on data. The speed and accuracy of data is critical. Blockchain is ideal for providing this information because it offers authorized participants in the network instant, shared, and fully transparent access to information in an unchanging registry. The blockchain network makes it possible to track orders, payments, accounts, goods and more. And because all participants share a single source of reliable data, you can view all transaction information at any time to work with more confidence and gain new benefits and opportunities.
Key Elements of Blockchain
- Distributed ledger technology
All network participants have access to a distributed ledger and immutable transaction record. The shared registry implements a single transaction record, eliminating the duplication of effort common in traditional business networks.
- Immutable records
Once a transaction is recorded in the shared registry, no participant can alter or tamper with it. If an error is found in the transaction record, a new transaction with a correction must be added, and both transactions will be visible.
- Smart contracts
To accelerate transactions, a set of rules (“smart contract”) is used that is stored on the blockchain network and executed automatically. A smart contract can define conditions for transferring corporate bonds, adding criteria for payment of travel insurance, and more.
Benefits of Blockchain
Very often significant effort is spent on unnecessary record keeping and external checks. Record-keeping systems can be at risk of fraud and cyberattacks. Limited transparency can delay data verification. The proliferation of the Internet of Things has led to an explosion of transactions. All of these things combine to slow business, reduce profits, and mean you need to look for a smarter approach. Implement blockchain.
- Building trust
When you join a blockchain network, you can be assured that you will always receive accurate and up-to-date information, and that your confidential blockchain records are available only to your chosen network members.
- High security
A transaction requires the agreement of all participants as to the accuracy of the data, and the records of all verified transactions are immutable. No one, not even the system administrator, can delete a transaction.
- Increased efficiency
A distributed registry, accessible by all network members, eliminates the time spent reconciling entries. Transactions are accelerated by a set of rules (a “smart contract”) that is stored on the blockchain network and executed automatically.
How Blockchain Works
- Each transaction is recorded as a block of data
Transactions reflect the movement of an asset, which can be tangible (goods) or intangible (intellectual property). You have full control over the contents of the data block: who, what, where, when, how much, and even the conditions, such as the temperature of the food transport.
- Each block is linked to the previous and subsequent blocks
The blocks form a data chain as the resource moves from one place to another or changes owners. Blocks confirm the exact timing and order of transactions. In addition, blocks are inextricably linked together, eliminating the possibility of changing a block or inserting a block between two other blocks.
- Transactions form an immutable chain of blocks: the blockchain
Each new block is considered an additional validation of the previous block and the blockchain as a whole. In this way, the blockchain is protected from unauthorized changes, and this is one of its main advantages: immutability. Because the possibility of hacking is eliminated, it creates a reliable transaction ledger that you and others in the network can trust.
Applications Outside the Field of Cryptocurrencies
Blockchain technology is currently of interest to a wide variety of industries. However, the degree of interest varies considerably across sectors. The financial sector is actively preparing for the widespread implementation of blockchain, while manufacturing companies leave this technology unattended. Many authors consider only decentralized public blockchain options, seeing centralized blockchains as “wrong,” variations of outdated administrative technology. More often than not, objections to private or consortium blockchains are more philosophical or rebellious, although there are classes of tasks that administered or blended blockchains do better than decentralized ones.
Banking, Investment, and Exchanges
Payment systems VISA, Mastercard, Unionpay and SWIFT have announced developments and plans to use blockchain technology.
Deutsche Bank’s London-based Innovation Lab is developing a blockchain-based investment system that speeds up, simplifies and cheapens the investment process by eliminating or reducing the role of intermediaries, lawyers (attorneys), auditors and clearing agents.
In July 2017, S7 Airlines and Alfa Bank launched a Ethereum-based blockchain platform to automate trading transactions with agents. In 2019, Sberbank won the Finaward Award in the “Pilot in Blockchain” category, for organizing and successfully placing commercial bonds of mobile operator MTS using smart contracts based on the blockchain platform of the National Settlement Depository. The buyer was Sberbank CIB (Sberbank’s corporate investment business). This is Russia’s first full-cycle transaction, including cash settlements using the “delivery versus payment” mechanism, implemented using distributed ledger technology. One of the objectives of the placement was to “prove by experience the advantages of this format over classical bond placements”.
Land Registry
Sweden, Ukraine and the UAE are planning to maintain a land registry using blockchain technology.
Indian government fights land fraud with blockchain[Andhra Pradesh has become the first Indian state where the government has taken steps to implement blockchain solutions. for this, a technology park will be created in Vishakhapatnam city with the participation of blockchain companies Apla, Phoenix and Oasis Grace.
In the first half of 2018, an experiment will be conducted to use blockchain technology to monitor the reliability of data from the Unified State Register of Real Estate (USRN) in Moscow.
Bitnation
In 2014, Bitnation was founded, providing traditional government services such as ID cards, notary publics and a number of other.
In June 2017, Accenture and Microsoft unveiled a blockchain-based digital identity card system. In August 2017, the Brazilian government began testing a blockchain-based ID card system.
Finland identifies refugees using blockchain technology.
Estonia operates a blockchain-based e-citizenship system.
Payment Medium
The World Food Program uses blockchain technology to provide food to refugees through locally existing outlets and networks instead of directly distributing food or giving cash to refugees to buy food. The idea comes from Houman Hadad . Biometrics (iris scans) are used to identify food recipients. Savings in 2018 from using this technology in Jordan alone were $150,000 per month
Gaming industry
Based on blockchain technology and smart contracts, game items can be represented in the form of unique non-interchangeable tokens (NFTs).
Online Voting
Blockchain technology can be used for online voting. Such votes can be conducted by individuals, companies or at the government level. A traceable ring signature algorithm can be used to ensure anonymity while guaranteeing no double voting.
Problems and Possible Solutions
As a technology for building massively distributed databases, blockchain has a number of specific problems that make it difficult to use. Among these problems are the following: Constant growth in the size of blockchain files Bandwidth limitations of communication channels between network nodes and the difficulty of synchronizing individual replicas associated with this limitation, general blockchain performance limitations associated with the specifics of consensus algorithms The development of new types of blockchain often involves overcoming or circumventing these problems and limitations. That said, there are a number of features that no blockchain system can do without: Data is stored in a blockchain structure in which each block is linked to the previous block. It is impossible to change information in a block without making changes to all subsequent blocks.
Each participant in the network has a copy of all data (the entire blockchain). The participants interact with each other in a peer-to-peer format ((peer-to-peer). The consensus mechanism is a certain interaction of nodes that provides consensus on the correctness of the information, written into the next block in the chain and the choice of the block included in the chain from several possible alternatives. Vitalik Buterin distinguished three types of blockchains: public, private and consortium.
Buterin notes that a wide variety of mixed forms are possible (e.g., private smart contracts on a public blockchain, an exchange gateway between public and private blockchain), optimal for a particular industry or problem to solve. In some cases, openness is clearly better; in others, administrative control is simply necessary.
Public Blockchains
Public blockchains are publicly accessible. Anyone can read the blocks, send information to them, and participate in the consensus mechanism. Users can remain anonymous, however. Such blockchains are usually fully decentralized, meaning that they have no administrators or trust centers. The immutability and integrity of information is ensured by economic incentives and cryptographic checks using mechanisms such as proof-of-work or proof-of-ownership. Public blockchains usually have significant limitations in the volume and speed of data placement in blocks. Users of public blockchains are largely protected from the arbitrariness of developers: developers initially refused to act without the approval of user representatives.
On the one hand, this increases confidence that the program will not have the features hidden from users. On the other hand, under pressure from the state authorities, the developers can sincerely say that they have no authority to do so, even if they wanted to. At the same time, changes in the operation of the network can be a problem, since at least half of the participants must agree to the innovations, but even this does not protect against the separation of the blockchain into parallel projects that support different protocols. Cryptocurrencies use public blockchains.
Private Blockchains
In private blockchains, only one participant or nodes authorized by this single administrator have the right to record information. These are centralized, personalized systems because there is a hierarchy of authority. Failures can be quickly fixed manually. There is no point in applying proof-of-work or proof-of-ownership – information is delay-free in blocks generated as needed and requires no additional confirmation, which maximizes network speed and minimizes transaction cost.
However, the distributed nature of data storage is preserved, with nodes holding complete copies in the format of interconnected blockchains. Access to information may be publicly available or have arbitrary restrictions. Most often it is a system of information transfer within the same company, which does not require public access to all information, but may provide for publicly accessible auditing.
Despite internal personalization, but restrictions on access to information can provide a higher level of privacy in private blockchains. In a private blockchain, not only rule changes, but also transaction cancellations, information changes, etc. are easily implemented. This is necessary, for example, in land registries – without the ability to correct errors, such systems can become unmanageable and lose legitimacy If nodes begin to act maliciously, it is easy to detect this and block them from accessing the network.
Consortium Blockchains
In consortium blockchains, the approval process is provided by a number of pre-specified peer nodes. For example, a consortium of 15 banks agrees to consider a block with the multi-signature of at least 10 consortium members as valid. The rate at which new blocks can appear can be very high. At the same time, members of the consortium can make access to information from the blockchain publicly available, or restrict it to a select circle or introduce other quantitative, meaningful or temporal restrictions. These blockchains can be considered “partially decentralized. The limited number of trusted nodes allows the system to be upgraded much more easily than in a public blockchain. But such a network is only possible if the bulk of the nodes works in good faith. Consortium blockchains are most useful for multiple organizations that require a single platform to conduct transactions or exchange information.
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