BLOCKCHAINWhat it is, how to use it and its advantages
Nowadays, we live in a world that is constantly accelerating, where innovation shows no signs of stopping. Looking ahead in the digital realm, it is impossible to avoid encountering references to blockchain technology. More and more sectors and market leaders are approaching this technology and leveraging it in various ways, thanks to its potential applications.
Blockchain technology is gaining high levels of trust due to its key features, such as:
- Transparency and security measures
Furthermore, it can be utilized in various solutions such as supply chains, cryptocurrencies, decentralized financial exchanges, smart contracts, and much more.
At the same time, a new technology brings forth numerous questions and changes:
- What is blockchain and how does it work?
- What can this technology do and what are its advantages?
- How many networks exist and their relationship with cryptocurrencies.
What is Blockchain in Simple Terms
The literal translation is “chain of blocks”, but it is not enough to understand what the technology is about.
To provide a simple explanation, blockchain consists of a shared digital ledger where entered data is stored, not as a traditional database but in groups called blocks, which are linked together in chronological order through the use of a particular encryption. This encryption is an irreversible and unique algorithm known as a hash in mathematical and computer science jargon.
Another fundamental aspect that distinguishes the technology of a blockchain network is that it is based on a decentralized system, meaning it operates without a central authority or any entity having permission to modify the entered data. This provides greater security and traceability through the use of this immutable chain of blocks.
How does blockchain work?
The primary use of blockchain allows for the registration and distribution of transactions or digital information without the possibility of altering, deleting, or destroying them.
To achieve this purpose, three fundamental elements need to be analyzed: blocks, miners, and nodes.
All blockchain platforms consist of multiple blocks that contain data, and each block is composed of multiple elements:
- The inserted data that make up the block;
- A randomly generated code assigned to the respective block, called a nonce, which will generate a hash header;
- The hash header is linked to that block and will serve as the starting point for the automatically executed cryptographic function.
As soon as the first block is created, a nonce will automatically generate a hash, and the data in that block will be forever associated with those codes.
The miners are responsible for creating new blocks in a process called mining. Since each block has specific codes, miners use complex algorithms to generate a new block that is accepted by all nodes and added to the chain.
You can understand that the process is not straightforward given the multitude of possible combinations. Therefore, adding or modifying a block gives this infrastructure a high level of security considering the time and computational resources required to intervene.
The last concept to clarify is the nodes. A node refers to any electronic device, usually a computer, that acts as a server in running network software to validate or reject new blocks and record the entire history of operations on the network.
In the case of the blockchain system, there is not just one central server but many small interconnected servers with a copy of the ledger to ensure greater security. Any change or update must be accepted and validated by all members who have access to and participate in the network.
In these few points, the entire functioning process is summarized:
- A new data or transaction is inserted;
- The transaction is transmitted to a peer-to-peer network of computers scattered around the world;
- The computers, functioning as servers, solve the equation to ensure its validity;
- Once the validity is confirmed, the data is grouped into blocks;
- These interconnected blocks create a permanent history;
- Finally, the registration is executed.
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What can you do with blockchain?
There are many applications of blockchain. Below are some examples that can give you an idea of the enormous potential of blockchain.
In the financial technology field, for example, a bank transfer service can take days, especially if it is international, and be quite costly. However, with a blockchain platform, it can be reduced to just a few minutes. Many banking companies in recent years have been offering cryptocurrency exchange services, reducing costs, time, and eliminating the need for investors to deposit their assets with a centralized authority in order to have more control and security.
Another example of an existing blockchain application is found in the insurance or real estate field, where paperwork is abundant. Thanks to smart contracts, payment, verification, and secure information registration times are reduced, even for personal or healthcare-related data.
For example, an up-to-date medical record of a patient with all their past treatments can be maintained, or other identification information in sectors such as tourism, education, or finance.
Other sectors that benefit from its characteristics are those related to art. The blockchain network is ideal for protecting artists’ royalties and tracking any type of music or video file, ensuring that the rightful owners are paid and reducing piracy.
Similarly, when it comes to non-fungible tokens (NFTs), since the blockchain structure prevents the existence of the same data in two different places, it confirms the authenticity of a single copy of digital art by its very existence.
Lastly, but certainly not least, there are blockchain applications that facilitate tracking of goods in logistics and the supply chain, which firstly improves communication between parties through the shared ledger, and secondly, ensures great data security and integrity since the records are immutable and unalterable. Finally, considering that all the applications mentioned so far involve effectively storing data, the importance of security and integrity of the blockchain as a data storage solution is fundamental.
As seen, more and more industry leaders are optimizing their business assets and achieving high levels of efficiency through blockchain technology and its applications. Therefore, making an effort to understand what blockchain is can be useful before you even realize it.
What types of blockchains exist?
At the moment, there are thousands of networks with at least three important types of networks to analyze. Although the idea is based on a single way of transferring data, there are multiple blockchain platforms that can be used, provided by the industry according to specific needs.
The main networks fall into two types: public and private. A third type emerges from the fusion of the two and is called hybrid. Before delving into the differences between blockchain networks, let’s briefly mention the characteristics they share:
- Any blockchain is composed of groups of nodes that operate on a peer-to-peer network system;
- All nodes in a network possess a constantly updated copy of the shared ledger;
- Each node can verify, initiate, or receive transactions and create blocks.
Public blockchain networks are primarily used in the exchange or mining of cryptocurrencies like Bitcoin or Ethereum. On one hand, a public network has the advantage of transparency, credibility, and independence, but it lacks scalability, performance, and security.
Private blockchains, on the other hand, allow a single organization to control who has access to the data and which data, determine who can act as nodes, and manage their rights and functions. In this case, the network is considered partially decentralized.
Some examples of private networks are Ripple or Hyperledger. Unlike public networks, private networks offer higher performance and access control, but less credibility and verifiability.
Hybrid blockchain networks aim to combine the components of both public and private networks or utilize their most beneficial aspects. They are controlled by a single authority, granting permission to participate to anyone, but only a few are allowed to manage the validation processes.
Hybrid networks incorporate characteristics from both types, offering good performance and control but sacrificing transparency.
The Advantages of Blockchain
After a brief overview of blockchain, it’s natural to wonder about the advantages it can offer. Since its launch in 2009, Bitcoin has demonstrated how the concept of a shared digital ledger functions and how various organizations have worked to make it work with different solutions according to their preferences.
Recently lots of industries, have embraced the adoption of blockchain technology to enhance existing processes and empower the creation of innovative business model.
The value of this technology lies in swiftly and securely sharing data without involving any third party, bypassing many steps that consume time and resources for businesses. With its characteristics and applications, blockchain can bring multiple advantages to any type of business.
In a centralized system, organizations need to have a separate database. However, in the case of using a shared ledger like in a blockchain network, data and transactions are recorded in multiple places in the same way.
All participants in the network who have permission to access see the same information at the same time, ensuring increased trust and maximum transparency.
All data is recorded and immutable with a timestamp. Participants can track their history and virtually eliminate any possibility of fraud.
Blockchain enables the tracking of the origin and every single step in the recorded digital asset’s path, providing proof of product authentication to consumers.
It is possible to directly share the origin of the product with customers, thus increasing trust, or to monitor any slowdown in the supply chain or provide additional information.
Traditional contractual processes and business transactions are often time-consuming, prone to human errors, and frequently require third-party intervention.
A blockchain network allows for faster digital operations and accelerated transactions with greater efficiency by eliminating intermediaries and paper-based processes, recording documentation along with transaction details.
Furthermore, transactions can be automated through a “smart contract”, increasing process efficiency and speed even further.
Smart contracts are digital contracts stored on the blockchain that are automatically executed once the terms and conditions are accepted by both parties involved, reducing the need for human or third-party intervention to verify contract terms.
Blockchain and Cryptocurrencies
The discussion about cryptocurrencies can now be introduced. Through its inherent trust and transparency, which sets this technology apart from traditional systems, the blockchain network is utilized in various fields, even though it was initially created to support Bitcoin.
This technology has enabled the creation of cryptocurrencies, and it is precisely through their inception that the concept of a “chain of blocks” emerged. In fact, Bitcoin, the most well-known cryptocurrency, is the reason why the blockchain was invented.
However, there are at least 10 most important cryptocurrencies besides Bitcoin.
Cryptocurrencies function as a medium of exchange like the dollar but in a completely digital form. They employ cryptographic techniques to control the creation of new monetary units and verify fund transfers. Here are some other important characteristics of cryptocurrencies to consider:
- They lack intrinsic value.
- They do not exist in physical form.
- They are not issued by a central bank due to the decentralized nature of the blockchain network.
As seen above, the applications of cryptocurrencies go far beyond Bitcoin and cryptocurrency itself. From a business standpoint, blockchain technology can be considered as cutting-edge software solution that empowers organizations to optimize their operations, streamline processes, and unlock unprecedented levels of efficiency and transparency.
Conclusions and Future Developments
The world of blockchain, with its decentralized shared ledger, enables secure, transparent, and highly tamper-proof transactions. Moreover, it has the potential to revolutionize the way business is conducted.
The future of blockchain appears to be bright. Considering its promising applications in almost every sector, it is likely that the best is yet to come. It will be interesting to see what the future holds for this technology in the coming years and how it will impact everyday life, particularly in economic and communication realms. Therefore, now is the right time to enroll in the Blockchain Marketing Course, a practical and operational educational program that will allow you to learn all the secrets of this new technology and give a fresh boost to your professional outlook.