Blockchain is a system for data storage that makes it difficult or impossible to change, hack, or cheat the data. It is a digital ledger of duplicated transactions distributed across the computer systems that make up the blockchain. Furthermore, each block in the chain contains several transactions. Whenever a new transaction takes place on the blockchain, a record of it is added to each participant's ledger.
Let's consider a world in which you can send money directly to someone without using a bank in seconds rather than days and without paying exorbitant bank fees.
Or one in which you store money in an online wallet that is not linked to a bank, implying that you are your own bank with complete control over your money. You don't need permission from a bank to access or move it. With Blockchain, you don't have to worry about a third party taking it away or manipulating a government's economic policy.
This is not a future world; it is a world where a small but growing number of early adopters live right now. These are just a few significant blockchain technology applications that change the way we trust and exchange value.
Nonetheless, blockchain technology remains a mysterious or even intimidating topic for many people. Some people are even skeptical that we will ever use this technology. This skepticism is understandable given that blockchain technology is still in its early stages of development and widespread adoption.
2021 will be the late 1990s for blockchain, as the late 1990s were for the internet. And, like the internet, blockchain technology isn't a fad; it's here to stay, and if you're reading this, you're ahead of the game.
The Different Types of Blockchains
Below is the list of the different types of Blockchain.
1. Blockchains that are open to the public
This type of Blockchain uses a proof-of-work mechanism. The Ethereum (ETH) and Bitcoin are the two popular examples of the public blockchain. The Public Blockchain does bring rewards for those who validate transactions (miners).
2. Private Blockchains
This is a type of Blockchain with restricted access. The system administrator must permit anyone who wants to join. They usually centralize and govern them by a single entity. An example of such a private blockchain is Hyperledger.
3. Consortiums or Hybrid Blockchains
Consortiums are hybrid blockchains, public and private, with centralized and decentralized functions. A few examples are the Energy Web Fund, Dragonchain, and R3. Keep in mind that there isn't universal agreement on whether these terms have any relationship. Some people differentiate between them, while the other set of people believe they work hand in hand.
4. Use of sidechains
A sidechain is a type of Blockchain that runs opposite the main chain. This improves efficiency and scalability by allowing users to transfer their digital assets between different blockchains. The Liquid Network is an example of a sidechain.
How Does Blockchain Work?
To keep track of transactions, most bookkeepers use double-entry accounting. Although it improves single-entry accounting, which lacks transparency and accountability, double-entry accounting is not without flaws. Because it records entries separately, it is difficult for one counterparty to verify the records of the other.
In addition, traditional ledger records are easy to tamper with, allowing you to edit, remove, or add records easily. As a result, you're less likely to believe the data is correct.
Furthermore, the traditional bookkeeping model evolves to triple-entry bookkeeping, in which a third entry cryptographically seals transactions on a blockchain. This ensures that they save the transactions in blocks. It also ensures they are manipulated and tested by a decentralized, shared ledger.
There are the additions of new blocks to any blockchain using these consensus mechanisms. Proof-of-work (PoW), also known as "mining," is an example of a consensus mechanism.
Mining is not available for all blockchains, and it's just a type of mechanism used by Ethereum and Bitcoin. Ethereum, though, plans to switch to another by the year 2022. They called it proof-of-stake (PoS).
This is how the Bitcoin process works. When you send Bitcoin, you pay a small fee (in bitcoin) to have your transaction confirmed by a network of computers. Your transaction will combine with other pending transactions in a queue to form a new block.
The computers (nodes) then work together to validate the block's list of transactions by solving a difficult mathematical problem to generate a hash, which is a 64-digit hexadecimal number.
The system adds the block to the network, and the miner's reward is the sum of your fee and all other transaction fees in that block. That's all there is to it.
Is Blockchain Technology completely secure?
An electronic ledger that stores data in hash functions and timestamps, ensuring that nothing can alter the information, is known as a blockchain. In practice, data manipulation is impractical because it is impossible to overwrite and secure the data and eliminate centralized points that cybercriminals frequently target.
Furthermore, according to private analysts, the Pentagon believes one could use Blockchain Technology as a cyber-security shield. According to a Washington Times, analysts believe that using blockchain, bitcoin's technological backbone could dramatically improve security across the US military, preventing tampering, mega hacks, vehicle cyber-hijackings, and others.
According to Dan Boylan of The Washington Times, the key to blockchain's security is that the users receive any change made to the database immediately, resulting in a secure, established record. Even if some users get hack, the overall database remains safe because copies of the data are in everyone's hands.
More so, beyond its original function of supporting bitcoin digital transactions, blockchain's tamper-proof, the decentralized feature has made it increasingly popular. For example, many cutting-edge finance firms have used Blockchain to speed up processes and reduce costs without compromising security.
Although blockchain has several advantages over other systems, it still faces compliance, regulations, and enforcement challenges.
Regulatory issues, for example, necessitate clarity regarding jurisdictions and how to comply with KYC (Know Your Customer) and AML (Anti-Money Laundering) laws. However, increasing corporate demand and acceptance would help overcome these obstacles sooner rather than later. Cryptocurrencies, bitcoin, and blockchain are here to stay and it’s up to all users to take advantage of this great technology through cryptocurrency exchange platforms and new applications that are being released every month.