The blockchain technology
Blockchain is an online decentralized ledger. Every transaction that takes place involving cryptocurrency, gets registered and stored on the blockchain. Blockchain technology functions on the principles of cryptography.
Anyone can access the blockchain to view the transactions that have taken place but only the authorized individuals can view information of the parties to the transaction. These authorized individuals are those that possess the keys to the cryptocurrency transaction.
Transactions involving cryptocurrencies are considered to be successful only when they are uploaded on the blockchain. There is a process that takes place between the initiation of a transaction and its storage on the blockchain, this is known as cryptocurrency mining.
In the year 1982, a concept similar to the blockchain was proposed by David Chaum in a dissertation. In the year 1991, Stuart Haber and W. Scott Stornetta further worked on the cryptographic storage of data.
What is a ledger?
Blockchain is a digital ledger, but what does it mean? A ledger is a database. The database is an organized collection and storage of data. This data is usually stored in a structured manner in electronic form in a computer system.
Databases can as basic as a spreadsheet that is commonly used to manage data and can also be as complex as the information that is stored by a large number of computers over a server.
The difference between the blockchain and a normal database is the manner in which data is stored. Databases store data individually but in a structured manner. Blockchain on the other hand stores data in blocks, just as the name indicates.
The information that is stored on the blockchain is basically the information of the transactions that take place. In blockchain technology, transactions are grouped to form blocks and are then stored on the blockchain.
Each block stored on the blockchain isn’t independent of one another, but is interlinked or chained together, hence the name of the technology, Blockchain.
Centralized vs Decentralized
The data that is typically stored by institutions like banks often store it on some private servers to which only they have access. Only they are able to fetch data from servers and analyze and make use of it. This is known as centralized storage of data.
The blockchain on the other hand is a distributed and decentralized storage of information. It is decentralized as one particular institution or authority has complete and sole access to the information.
Distributed data storage means that information is not stored at one location but rather is stored on a server that runs on the computational powers of the various computers connected to the network. These are spread all around the globe and each one of them is known as nodes.
Pros and cons of blockchain
The blockchain isn’t situated at any particular central location under the influence or control of a single entity. It is spread across the globe on the computational network.
The advantage of being distributed is that even if one node fails, falls out of the network, it will not hamper the process as another node on the network will cover up for it. This is unlike the traditional systems where everything is stored in a central location, and if that fails, will affect everything.
The blockchain as we know it is a decentralized system. All that it requires is a sender and a receiver. No third-party involvement is present.
This can also be viewed as a trustless system, where individuals that seek to participate in it do not have to put their trust into an intermediary to facilitate their transactions.
The information stored on the blockchain is secure, information about transactions can only be viewed by authorized individuals that possess the keys to the transactions.
The blockchain works on a consensus model. The information that is stored on the blockchain can be changed only if the majority of the members that have a say in the affairs agree to bring about the change.
To this, an argument prevails of the 51% attack. The argument was that if a single individual or entity managed to get hold of the majority says, they could alter it to their benefit.
In order to accomplish this feat, the individual will have to dedicate a massive computational power and capital.
And for instance, if a person is successful in doing so, the cryptocurrency will no more be an independent asset and will lose its value due to a selloff. Hence, no person will take such a risk.
It is even argued that an individual can hack the network and carry out their activities. All computers or nodes are connected on the network, as and when the network identifies that one particular node has a different identity on the network and is a bit suspicious, it can be kicked out from the network as it is not functioning as per the blockchain system.
We know that the blockchain is a growing ledger with blocks being added to it from time to time. As it grows its security is also ramped up. Hence, bypassing this security will not be worth it and individuals will be better off participating in it rather than trying to break the system.
4. Not limited to cryptocurrencies
Blockchain’s involvement in cryptocurrency is not its only use in the financial system, many banks have integrated blockchain in their existing structure to make things more efficient.
Supply chain organizations and entities are incorporating blockchain into their activities to better streamline their operations and management. Any industry where databases are used in order to keep records or information can make complete use of the blockchain to their advantage.
1. Too power consuming
The computational power that is required to run the blockchain and to keep the system going without failure is huge. The network runs on computers with powerful hardware which in turn consumes a lot of electricity.
The blockchain not only consumes power but also requires a large storage capacity to store all the information. It is said that the blockchain ledger’s store requirements are over 250 gigabytes.
Once information is stored on the blockchain, it can be accessed only if the individuals possess the keys to the transactions. If these keys are lost, there is no way to override the system and gain access.
This can be seen as an advantage as well as a disadvantage. Hence, individuals that have been involved in cryptocurrency transactions must ensure that their transaction keys are secure.
Blockchain is a relatively new system and has no authority to regulate the same. Not all blockchain technologies are governed by proper regulations on the network. This in turn discourages people from trusting the technology and utilizing it.
What you should know about blockchain
The blockchain is a digital ledger that stores information and is a type of database. The name blockchain comes from the manner in which information is stored i.e. in blocks of information that are chained or interlinked with each block.
In cryptocurrency transactions, once the information has been uploaded on the blockchain only then it is said to be completed.
Individuals that are new to this domain often substitute blockchain and cryptocurrency for each other. But cryptocurrency is a digital currency or an asset that runs on blockchain technology.
There are certain advantages and disadvantages of the technology, like any other technology out there. Individuals that intend to make use of this must evaluate before getting started.
So, the blockchain is basically a technology that can be used in almost every industry and for various uses and is not just limited to cryptocurrencies. Any business that requires the storage of data and has large information to store can make complete use of this technology.
Businesses are incorporating blockchain in their systems and lately, governments too have joined the party. The blockchain space certainly is exciting and it also adds loads of value that will ultimately shape the world in a positive way.
What do you think about blockchain?
Do you acknowledge the value that the blockchain adds and are you excited to know what the future holds for this technology? Do let me know.
Advancement in blockchain will not only benefit cryptocurrencies but also all the other businesses that are incorporating it, so I personally can’t wait to see how blockchain transforms everything.
Feel free to reach out for any questions or anything in general and I will be more than willing to get back to all of it.