This article explains the history, function, and definition of blockchain technology.
A blockchain may be considered a digital database since it saves data digitally. Due to the immutability of blockchain data, it has the potential to revolutionise fields as varied as finance, security, and medicine.
To begin, let’s define blockchain technology
Using decentralisation and cryptographic hashing techniques, blockchain technology, also known as distributed ledger technology (DLT), ensures that the transaction history of any digital asset cannot be altered and is completely visible.
Simply explained, a blockchain is a distributed database or ledger kept in sync over a network of computers. Blockchains are well recognised for their critical function inside cryptocurrency systems like Bitcoins to keep a secure and decentralised record of transactions. As a novel technology, blockchains eliminate the requirement for a neutral third party to verify data and create trust.
The data structure of a blockchain is fundamentally different from that of a conventional database. Data on a blockchain is organised into blocks, which are collections of records. When a block’s storage capacity is reached, it is sealed and connected to the prior block, creating a chronological chain of data known as the blockchain.
A blockchain stores its information in interconnected blocks, rather than the rows and columns characteristic of a database. When used in a distributed setting, this data structure creates a data chronology that cannot be undone. When a new block is added to the chain, a precise timestamp is appended to it. Once a slot is filled up, that moment in time is permanently recorded here.
Blockchain is currently primarily used for recording and storing transactions for cryptocurrencies like Bitcoin. Proponents of blockchain technology are creating and testing various applications for it, such as the following.
- Finance and transaction processing on the blockchain: Blockchain based transactions could be resolved in seconds, and bank transfer costs drastically reduced or eliminated.
- Supply chain tracking with blockchain technology: Blockchain technology may help companies rapidly identify areas for improvement in their supply chains, track inventory in real-time and monitor product quality from the factory to the store shelf.
- Blockchain for electronic credentials: Microsoft is exploring the use of blockchain technology to give consumers more control over their digital identities and the information associated with them.
- Using blockchain to distribute information: Blockchain has the potential to serve as an intermediary for the safekeeping and transfer of business data between sectors.
- Protection of intellectual property and royalties using blockchain: By using blockchain technology to construct a distributed ledger, we can guarantee that musicians will always own their work and distribute royalties in an open and timely manner. Similar benefits may accrue to the open source community if it uses blockchain technology.
- Healthcare blockchain: Blockchain technology may potentially have significant applications in the healthcare sector. It is being used by healthcare providers to keep track of data received from clinical trials and electronic medical records.
So, how does the Blockchain function?
There are three key components to a blockchain: blocks, nodes, and miners.
Why we use blocks: Multiple blocks make up every chain, and all have the same three essential components:
- In the block, data.
- A ‘number used just once’, or ‘nonce’. In blockchain, a nonce is a random 32-bit whole integer that is used to build a block header hash.
- In blockchain technology, the 256-bit hash that is integrally tied to the nonce must start with a high number of zeros (i.e., be extremely small).
A nonce is used to produce the cryptographic hash of the first block in a chain. Until the block is mined, the data inside it is signed and inextricably linked to the nonce and hash.
In the world of blockchain, what exactly is a miner? ‘Mining’ refers to the method through which new blocks are added to the chain.
Mining a block in a blockchain is difficult, since each block has its nonce and hash, and contains a reference to the hash of the prior block in the chain. This is particularly true for big blockchains.
Miners utilise specialised software to tackle an extremely difficult mathematical problem to determine a nonce that results in a valid hash. A 256-bit hash must be mined with a 32-bit nonce, with about four billion potential nonce-hash combinations. When this occurs, miners have identified the ‘golden nonce’, and their block is added to the blockchain.
When a block is mined successfully, all nodes in the network agree to the new data, and the miner receives payment.
What does decentralisation in blockchain mean? Blockchain technology relies heavily on the idea of decentralisation. Nodes in a blockchain network may be any kind of computer or other electronic device that stores a copy of the blockchain and facilitates the network’s continued operation. As a result, the chain cannot be controlled by any central computer or authority. Instead, it is a decentralised database accessible from any network node.
Every transaction in a blockchain may be readily verified and observed by anybody. Each node stores its own copy of the blockchain, and for the chain to be updated, trusted, and confirmed, the network must algorithmically approve each new block that is mined. Each user is assigned a unique number that may be used to track their financial dealings inside the system.
The blockchain’s integrity is kept intact and trust is built among its users thanks to the combination of public information and a system of checks and balances. Blockchains may be viewed as the scalability of trust via technology.
How safe is blockchain technology?
Multiple features of blockchain technology contribute to the system’s decentralised nature and high level of security and trust. The order in which newly added blocks are kept is always chronological. They are always appended to the ‘last’ part of the blockchain. It is exceedingly difficult to change the contents of a block after it has been appended to the end of the blockchain unless there is widespread agreement to do so. This is because each block stores not only its hash but also the hash of the prior block and the date that was discussed before. Data is converted into a string of alphanumeric characters using a mathematical formula called a hash function. When the data is altered, the corresponding hash code also shifts.
Let’s take an example. A hacker who also controls a node on the blockchain network plans to change the ledger to steal Bitcoins from everyone. If each one of them changed their copy, the results would be inconsistent. All other copies would be compared to this one, and the hacker’s would be immediately disregarded as invalid since it would stand out as different.
For such a hack to be successful, the attacker would need to take over 51% or more of the blockchain nodes simultaneously and change the blockchain such that their version becomes the majority copy and the agreed-upon chain. Because of the new timestamps and hash codes, all the blocks would need to be redone, which would demand a huge investment of time and money.
Considering the massive scale and explosive growth of many cryptocurrency networks, the resources required to accomplish such a task are likely to be beyond the reach of any human being. The cost involved would be prohibitive, and the results uncertain. It would be impossible to conceal such a massive change to the blockchain from other network users. Afterwards, the nodes in the network would fork off to a new, unaffected chain version. This would lead to the value of the token being targeted plummeting, rendering the attack useless since the bad actor would have a worthless asset. The same thing would happen if the malicious actor attacked the fresh Bitcoin split. This design makes contributing to the network more financially beneficial than attempting to disrupt it.
Forms of blockchain technology
A total of four distinct blockchains exist today.
Private blockchain networks: Private blockchains are only accessible inside a restricted network, making them ideal for use within exclusive companies or groups. These blockchains allow businesses to regulate user access, set network settings, and implement other critical security measures. In a single-administrator blockchain network, just one person is in charge.
Public blockchain networks: Public blockchains, the technological basis for Bitcoin and other cryptocurrencies, have also contributed to the widespread use of distributed ledger technology (DLT). For example, the problems of centralisation and security breaches are less of a concern thanks to public blockchains. Instead of keeping information in one central repository, DLT spreads it out over a network of computers. Proof of stake (PoS) and proof of work (PoW) are two popular consensus algorithms used for authenticating data.
Permissioned blockchain networks: Permissioned blockchain networks, also known as private or hybrid blockchains, only allow access to verified users. This hybrid blockchain setup provides organisations with the best of both worlds by allowing for more precise control over who has access to the network and which transactions they can take part in.
Consortium blockchains: Consortium blockchains, like permissioned blockchains, include public and private features. However, unlike permissioned blockchains, a consortium blockchain will be managed by numerous entities. These blockchains may be more difficult to set up initially, but provide enhanced security once operational. To add, consortium blockchains are best for working with several different companies.
The confirmation and authorisation of transactions is a crucial component of blockchain technology. If two people, each with their own private key, want to conduct a transaction, the first person affixes the details of the transaction to the second person’s public key. All of this data is compiled into one big chunk.
The block has crucial data, including a digital signature, a timestamp, and more. It does not record the names of anyone who participated in the transaction. This block is then broadcast to all other nodes in the network, and the transaction is completed after the appropriate user validates it using his/her private key.
The blockchain is not limited to only handling monetary transactions; it may also record sales of real estate, automobiles, and other assets.
The pros and cons of blockchain
Despite its seeming complexity, blockchain has almost limitless use as a decentralised ledger system. Blockchain technology may find utility in a wide variety of contexts, including (but not limited to) the following:
- Improved user privacy and security
- Reduced processing costs and mistakes
- Streamlined operations
On the other hand, there are a few drawbacks to consider.
- Better accuracy since no humans are involved in the checking process
- Reduces expenses by doing away with independent verification
- It is more difficult to tamper with anything that is distributed
- The transactions are safe, confidential and quick
- Uses open source software
- Gives people in nations with shaky or undeveloped governments access to financial services while protecting their privacy
- Bitcoin mining requires a lot of expensive hardware
- Slow rate of sales in a certain period
- A long history of illegal usage, particularly on the ‘dark web’
- There is no universally accepted set of regulations, and regulatory differences exist among jurisdictions
- Data storage capacity constraints
What the future holds
Since blockchain is a relatively new technology, opinions on its future are still divided. According to a survey conducted by TechRepublic Research, 70% of working professionals have yet to use blockchain. However, 64% state they believe blockchain will impact their sector, and most anticipate a favourable outcome.
According to a recent Trend Insight Report from research company Gartner:
- As of 2022, barely 10% of businesses would have undergone any significant transition thanks to blockchain technology.
- At least one ground-breaking blockchain based company will be valued at US$ 10 billion by 2022.
- Blockchain’s value to businesses is estimated to increase to over US$ 3.1 trillion by 2030, from just over US$ 360 billion in 2026.
One of the most exciting potential blockchain technology applications is cybersecurity. Data manipulation is a persistent issue for companies of all sizes. With blockchain technology, you can be certain that your data is safe and that all parties involved can independently confirm the legitimacy of any given file.
How competitive are job openings in the blockchain industry?
The employment market for blockchain experts is only getting started. However, as more and more sectors investigate blockchain’s possibilities, the need for skilled blockchain workers is skyrocketing.
You may be wondering what these occupations entail and whether or not companies are currently hiring. Some examples of such roles are listed below.
Blockchain solution architects: The blockchain solution architect coordinates the efforts of the many specialists (including developers, network administrators, UX designers, and IT operations) that make up a team to plan, create, and implement the various parts of a blockchain solution.
Manager of blockchain projects: This person coordinates the efforts of those working on blockchain projects and the specialists whose job is creating blockchain solutions. Project managers working on the blockchain will require the same abilities as their more conventional (cloud) counterparts. They must also be technically proficient to completely understand the technology. Good communication skills are also crucial; these will be needed when sharing vital updates with employees who aren’t technical and when lobbying for funding from higher-ups.
Blockchain UX designer: As more and more sectors use blockchain, the need for a dedicated blockchain UX designer grows. Building a trustworthy and engaging user interface is a key part of a blockchain designer’s job. In addition to being detail-oriented, creative, and diligent, the ability to spend long periods at a computer is essential for this field.
Engineer of blockchain quality: We always have a quality assurance engineer on hand in a development setting to do tests and ensure everything is up to snuff. A blockchain engineer performs a similar function in the blockchain space by ensuring that all activities in the blockchain development environment are of the highest quality. They carry out the tasks of testing and automating blockchain frameworks. Because even a little error impacts everyone utilising their technology, these people need to have a third eye when paying attention to detail. Maintaining positive connections at work also requires exceptional communication skills.
Consultant in blockchain law: Unavoidably, legal questions emerge when businesses attempt to get their heads around integrating blockchain technology. As businesses begin to use this cutting-edge innovation, they are also seeking the advice of legal professionals about the factors they should take into account. They ponder the potential outcomes of various courses of action, seek advice on managing their finances, and struggle to rein in their own identities. For someone in this position, fluency in English is crucial. Since blockchain is a decentralised network, you need to also be well-versed in international legislation. For the same reason, it’s recommended that students learn as many global languages as possible.
Blockchain is now gaining recognition, in no small part due to Bitcoin and other cryptocurrencies, with numerous real-world uses for the technology already deployed and researched. Blockchain, a term on the lips of every investor in the country, has the potential to improve company and government processes while cutting costs and streamlining the supply chain.