When I first heard about blockchain, I thought it was another ponzi scheme. It took me a while to wrap my head around it and my research has proven it is another technology that has come to stay. Blockchain has to do with cryptocurrency – Cryptocurrency is simply digital or electronic money. It is a secured medium of exchange among peers and each transaction is confirmed in a digital ledger. The first cryptocurrency ever created was bitcoin, in 2009. We know that we can not talk about bitcoin without mentioning blockchain. So, what is blockchain?
Blockchain is a decentralized form of technology. This means blockchain only works on a peer-to-peer platform – it has no affiliation with the central bank neither does it operate through a centralized server or administrator. I think decentralization is the major feature that has attracted lots of people to blockchain.
Blockchain is a digital and distributed public ledger. In accounting, ledger is used to record credit and debit transactions. This is applicable to the blockchain. Blockchain uses a distributed ledger which is a database that occurs at different nodes to record different transactions and provide secure mode of exchange. Distributed ledger has been known to be important in finances to reduce deficiencies which in turn saves a lot of money. Blockchain has proven that distributed ledger will be successful in business and health sector.
History Of Blockchain
Blockchain was introduced by an anonymous individual or group of people called Satoshi Nakamoto in 2008. It was implemented in 2009 to serve as a digital public ledger to record bitcoin transactions.
Simply, blockchain means blocks that are added to series of transactions called chains with a signature called hash. The hash provides a link between the previous block and the new block. The main function of the block is to record transactions and these blocks are added through a process called CRYPTOGRAPHY. Another function of the block is to make sure every transaction cannot be deleted nor copied.
How Block Operates:
For every transaction, a block is generated. This block stays till the transaction is completed before it enters permanently into the database of the blockchain. As soon as a block-transaction is duly completed, another one is generated to follow the same process. In a database, there are different types of blocks connected together just like a chain. This explains how the blockchain records transactions and keeps a record of different users.
Types Of Blockchain
There are three types of blockchain which include:
- Public Blockchain: Everything about the blockchain is open – transactions are open, access is open. It is important to know that open transaction is a disadvantage of a public blockchain. Many people believe it is not secured due to it’s openness which is totally not true. It is very secured by cryptography – a process that allows users to have access to only information about them on the blockchain. Bitcoin and Ethereum are examples of public blockchain.
- Private Blockchain: It operates on an authentication network where invitation is needed and validated to be a participant. Before you can join, you need an invitation then the existing users can verify before you can be a part of the network. Just as the name depicts, it is run by an individual which means it is centralized. This kicks against the reason blockchain was created. An example is Blockstack.
The difference between public and private blockchain is that public blockchain needs no permission while private needs permission. Also, transactions on private blockchain are faster than on public blockchain.
- Consortium Blockchain: Many people argue it is the same as the private blockchain but it is either part of both public and private blockchain – the low trust of the public block chain and the single highly-trusted entity model of the private blockchain. Consortium blockchain is mostly used by financial institutions – where decisions, access and transactions are controlled by a group of people. An example is Ripple.
It should be noted that public blockchain is the most popular in recent times. Though private and consortium blockchain works differently from decentralization, they are still needed because they are faster than public blockchain.
Advantages Of Blockchain
- Security: Blockchain provides security through cryptography. User can only access information about them on the blockchain database. This process will also allow an attack on a part of data not to affect the total shutdown of the whole network before it is curbed. This will definitely work to reduce cyber crime.
- Easy Transactions: We know the regular issues we face when we try to make transactions in a traditional banks. A traditional bank won’t open during important holidays or during weekends which may limit some transactions. Blockchain technology operates every day and every time including weekends and holidays. This technology enables easy and fast transaction.
- Less Transaction Cost: With peer-to-peer transaction and removal of middle man due to blockchain, there has been reduction in transaction costs.
- Transparency: Decentralization has made it open for everyone to notice change in data on the network. There is no central administrator that can influence access or transactions. Everything is there in the open.
Limitations To Blockchain
- No Privacy: Everything is open on Blockchain network. Your earnings and worth can be viewed by everyone on the network.
- Limited Number Of Transactions: Blockchain is built on a consensus mechanism which allow verification of transactions on every node. This actually reduces the number of transactions that can be processed at a time.
- Illegal Data: Since the network is decentralized, any addition of illegal data on the network makes everything and everyone on the network illegal.
In conclusion, blockchain technology has come to stay in this modern world. The distributed ledger will go a long way in other sectors apart from the financial sector or technology sector. It can help to track goods in the shipping sector or monitor the health of patients in the medical sector. It is advisable that we all join hands together to make this technology stay for the benefits of mankind.