Blockchain is an emerging technology that has been available for a long period. However, the world has now found its place in more applications. Blockchain technology was initially designed for the digital currency Bitcoin as it lets information be distributed on the ledger and secures it. Blockchain holds all the information records. This ledger system continues to grow day by day.
What is Blockchain?
Blockchain is a distributed ledger system shared among the different nodes of the computer system. It digitally stores information on different blocks. Data on the blockchain is shared and continuously updated. Information on the Blockchain is secure because; it is not held by one centralised system. The data is hosted by millions of computers on the chain thus, it is difficult to hack into the system. It is truly public and can be verified. Since the system is decentralised, there is no need for any third-party intervention.
Versions of Blockchain
The blockchain evolved from Version 1.0 to 3.0 as described below:
Blockchain 1.0: cryptocurrency
This concept was first introduced in 2005 by Hal Finney. Blockchain is a cryptocurrency that stores bitcoin transactions in a public ledger in a secure method. It is a distributed ledger system and allows permissionless financial transactions based on blockchain technology.
Blockchain 2.0: smart contracts
These are small computer programs that live on the blockchain. Smart Contracts are self-executing programs that check the conditions defined earlier, like verification, facilitation, or enforcement, and help reduce the cost of transactions.
Blockchain 3.0: DApps
DApp is short for Decentralised applications. It avoids the centralised infrastructure. A DApp can have frontend code on decentralised storage and user interfaces written in any language that can make calls to its backend. It uses decentralised storage and communication, such as Ethereum Swarm, Filecoin, Storj, etc.
How does it work?
Blockchain stores information and verifies records of cryptocurrency transactions. Here’s how it works.
- The purchase and sale of the cryptocurrency are entered and transmitted to the distributed ledger system. This powerful network of large numbers of computers is known as nodes.
- The network then confirms these transactions using computer algorithms known as mining. When a miner successfully adds a block to the chain, the change is accepted by every node on the network, and the miner is rewarded financially.
- After the purchase is confirmed by the nodes, the sale is added to a block on the ledger. For the purchase to be valid, the majority of the network must confirm it..
- This block is permanently chained to all previous blocks of cryptocurrency transactions. The complete block then is encrypted, and the transaction record is permanent; it can’t be altered.
Benefits of Blockchain
Blockchain has unique characteristics, & those characteristics help resolve problems in the current system. Everyone, including private and government agencies, is using Blockchain to improve the existing system and enable new business models.
Blockchain creates trust between the two peers with the help of smart contracts. As a result, they are willing to share information and engage in business involving transactions that otherwise would have been difficult if the system were centralised. The cryptocurrency exchange is an example of how blockchain builds trust between peers who don’t know each other.
Information on the blockchain is stored across a distributed network, making it nearly impossible to hack. It secures data by end-to-end encryption. All blocks are interconnected, making it difficult to tamper with the records. Each node holds a copy of a transaction performed so no one can make changes. Blockchain networks are abiding data, once written, cannot be reverted.
Blockchain cuts costs for the organisations as there is no third party involved. Given that you trust your peers, there is no need for a central authority to set the rules and regulations. There is no centralised authority, so there is no need to pay vendor costs. It helps to reduce the cost and efforts spent on the documentation since it’s digital.
Since blockchain shares all the information on the different nodes of the network, there is no need for the paperwork process. Everyone has access to the same piece of information, establishing trust between them. Settlements are effortless since there is no involvement of any intermediate.
In the traditional supply chain, it is hard to trace the item that can result in various problems, including loss of goods. But with blockchain, it is possible to trace your items.It enables you to ensure the safe delivery of the product. You get to know about every stop your item makes. This level of traceability helps in authentication and prevents fraud.
With a centralised system, there can never be 100% transparency. Since blockchain is a decentralised system, therefore there is transparency. Information on the blockchain ledger is readily accessible for everyone to see. Everyone on the network can view if any changes or any records are updated.
Future of Blockchain
The idea of a secure, decentralised system with a permanent record-holding has drawn the interest of several industries, including the private and public sectors. Blockchain holds the solution to many problems, including security issues and data ownership, the concern we are facing today.
As an emerging technology, blockchain holds the potential to be the future. “Blockchain will bring a layer of transformation to every sector in the coming years”. Blockchain is here to stay!