Simply put, Blockchain is a digital database that tracks and records transactions. It is called so because it works by adding digital blocks of information to an existing series of transactions, thereby creating a chain of record for such transactions. A blockchain is an online, continuously expanding list of data records.
It is impossible to alter or tamper with this chain; therefore, there is no need for a single authority to keep records. On a blockchain network, practically anything of value may get recorded and traded, lowering risk and increasing efficiency for all parties. Today, Bitcoin and other cryptocurrencies are based on blockchain technology.
Look up the internet for the term blockchain, and you will find that it is often dubbed to be decentralised, distributed, and immutable. These three terms collectively assemble the very construct of blockchain technology.
What do "decentralised", "distributed", and "immutable" mean?
Unlike databases maintained by banks and other financial/fiduciary institutions, blockchains are not controlled by any central authority, governing body, or reserve bank meaning they are decentralised.
Blockchain is inherently distributed by nature. This means that many parties or participants share copies of the ledger. In technical terms, each party containing a document is called a node.
Blockchain is an immutable database, meaning you cannot manipulate the data already in the Blockchain. The record has multiple copies and is next to impossible to tamper with.
How does Blockchain Technology work?
When a new transaction occurs on the network, a new record gets registered in each participant's database as a new block on the chain.
It can efficiently and permanently record data while ensuring that it is completely preserved and protected from any attempts of destruction or corruption.
These databases have a few characteristics. First is the append-only nature of blockchains. It implies that you can only add information; you cannot just click on a cell to delete or modify information that has already been entered, as seen in Google Sheets or Excel.
Secondly, every database entry or record (also known as a block) gets cryptographically connected to the previous entry. Thus, any alteration of the blocks eventually becomes apparent due to the domino effect.
Why do we need Blockchain?
Data drives businesses. We can achieve better results if the data is stored securely and accurately. Blockchain is the best technology for storing this information because it offers real-time, shareable, and entirely transparent data that is kept on an immutable public ledger accessible to all. Furthermore, it establishes trust through widespread collaboration and ingenious code.
A Blockchain network gets deployed for monitoring and safeguarding orders, payments, accounts, production, and other things. It gives us more confidence and opens up new business opportunities and efficiencies. If widely used, Blockchain technology might increase the dependability and accessibility of the infrastructure that keeps the globe operating.
Advantages of a Blockchain
Record keeping is a tedious and time-consuming task. Institutions worldwide frequently waste time and resources on third-party validations and duplicate record-keeping solutions. Systems for preserving records are at risk of fraud and online threats. Over the years, various organisations have tried to devise viable solutions to the problem of record keeping.
The most impressive feature of blockchain technology is its ability to become entirely decentralised, eliminating the need for a centralised authority to ensure system transparency and security.
Blockchain transactions occur within a peer-to-peer network of widely dispersed computers (nodes). Each node contributes to the network's operation. It is far more secure than other record-keeping techniques since every transaction is encrypted and connected to the prior transactions. Furthermore, once a block gets formed on a blockchain, it becomes unalterable. Thus, an audit trail is available to track the records. It aids in fraud prevention and raises the system's data integrity.
A blockchain can be programmed using Smart contracts to perform tasks automatically, thus boosting system efficiency.
Blockchain technology can revolutionise how we store data, establish ownership, and build relationships of verified trust. In addition, consumers might save up to $16 billion annually in banking and insurance premiums due to the technology.
The socioeconomic constraints that prevent so many people from using traditional record-keeping and financial systems may become obsolete with the help of blockchain technology. Moreover, it can help the two billion adults worldwide without bank accounts to participate in the global economy.
Blockchain represents a shared record of the truth, which fosters trust, transparency, and confidence within a network. In addition, it enables sustainable manufacturing of goods.
To connect with the corporate contributors who are ready and able to help, charities, nonprofits, and non-governmental organisations (NGOs) sometimes lack the necessary technology. By increasing knowledge and assisting social groups in developing shared systems of record that satisfy the needs of corporate donors, blockchain technology can enable new paradigms for change.
We use blockchain technology to solve global challenges by enabling transparent social plastic recycling networks and offering financial inclusion for the world's underprivileged.
Disadvantages of Blockchain
Some blockchain networks use time- and energy-intensive sophisticated mathematical puzzles to validate blocks. For example, the electricity used for Bitcoin's proof-of-work consensus is equivalent to Switzerland's annual energy consumption (source).
Like centralised systems, blockchains are not scalable. The network becomes more sluggish as more nodes join it.
The blockchain network has one security hole. Someone can take control of a network if they have access to 51 per cent of its nodes.
Elements of a blockchain
- Distributed ledger technology:
Blockchain resists alteration and fraud using distributed ledger technology (DLT). The distributed ledger's immutable record of transactions is available to all network users and is anonymous. Furthermore, transactions are only recorded once with this shared ledger, preventing the duplication of effort in conventional corporate networks. As a result, the system can enforce the concept of "original" digital documents.
- Unchangeable records:
Blockchain comprises data blocks or transaction records arranged chronologically and protected by cryptographic proofs. Once a transaction record gets added to the shared ledger, no participant can alter it or interfere with it.
- Smart contracts:
The blockchain stores and automatically executes a set of program instructions known as Smart contracts to speed up transactions and other processes. For example, a smart contract can specify parameters for corporate bond transfers.
Since its inception, blockchain technology has advanced significantly. Blockchain technology can transform the way information is stored and make the global economy—and, indeed, the entire global society—more accessible and engaging for those who might not have traditional entrances like banks. It can modernise the global financial system, potentially improving equity for all parties. Blockchain technologies are being applied to a vision of a safer, socially inclusive, sustainable, and more productive world.