đź’ˇ TL, DR:
- Blockchain is a distributed database shared within a business network to manage information in digital format.
- Blockchain has 3 features worth considering: decentralization, consensus, and immutability.
- Many industries have implemented blockchain technology in data systems like banking, currency, and healthcare.
Blockchain is a famous, widely-concerned term in recent years. More and more businesses use this technology in data management for better data quality control.
However, concretely understanding what blockchain is is a challenging task. Scroll down this article to get an in-depth guide about blockchain.
What is blockchain?
Theoretically, a blockchain is a distributed database shared within a business network to manage information in a digital format.
As its name suggests, blockchain data is classified and organized as blocks. When one block is filled with storage capacities, it is closed and linked to previous other blocks, forming a chain of data groups. New data will be stored in the next blocks until full, then the linking and chaining cycle continues.
Compared to the typical database, which is managed by a central authority, the blockchain system is decentralized. What does it mean? In short, the data is shared and mutually controlled by everyone in the network. There is no central authority anymore.
Check out the section below for further information on blockchain’s decentralization and other characteristics.
3 main characteristics of blockchain technology
Decentralization
Decentralization can be understood as the transition of decision-making and management rights from a centralized group to a dispersed network.
Such transformation provides an independent environment where every owner may receive the same copy of the data. In other words, everyone in the network can access the data without depending on any specific person.
Consensus
Consensus refers to the procedure in which the network participants mutually agree on the present data state. And the consensus algorithm, or consensus mechanism, is the tool to verify these transactions.
Participants in most blockchain data networks cannot record and alter the transaction themselves. There are major rules that only accept new joiners after most network members approve the request and give the further participants consent to attend.
With such features, data is well stored and protected, with the chances of getting disrupted as low as possible.
Immutability
According to Thesaurus, “immutability” refers to the state of being “unchangeable.”
When it comes to blockchain, “immutable” means that data cannot be altered or edited once recorded in a ledger.
In case there is any modification in the transaction, or in other words, the transaction appears “error,” users must add a whole new transaction to reverse the mistake. Both versions will be publicly shared with the network.
How does blockchain work?
Let’s break down the blockchain operation process into 5 stages below to understand it better.
Stage 1: Record data
First, data transactions are recorded as blocks.
Based on each network’s settings, the format will be different, but in most cases, the information included is:
- Who participated in the transaction?
- What happened during the process?
- Where did it take place?
- When did it happen?
- What is the reason for this action?
- What assets are involved in the transaction?
Stage 2: Request for consensus
After being recorded and inputted, blockchain transactions need approval or agreement from most major participants in the network to proceed further. Depending on each network, the rules of giving consensus may vary. In some organizations, the approval process may contain many rounds.
Stage 3: Integrate data blocks
What happens when the transaction is confirmed? They will be classified into blocks, then coded by a unique hash value to distinguish them from each other.
When one block is full, the overwriting data process will be stopped, and another block will be added to the “chain.”
In addition, the hash values are not randomly generated; they are made by scientific formulas. All hash codes are mathematically connected. Therefore, when an alternation attempt happens, and the hash codes are changed, the system will alert as an “error.” The chain is not synchronized anymore.
Stage 4: Distribute data
The data is copied and distributed to other participants from other system nodes. Everyone will be alerted whenever someone tries to modify the information.
How blockchain is applied in real life
Blockchain is gradually showing how effective it is in data management, making it the go-to digital transformation that most companies seek to apply to their system.
Here are some fields that blockchain implementation has influenced remarkably.
Banking and Finance
Blockchain technology has been applied widely in the banking and finance industry. It records the data, add new blocks to the chain, request consensus, and send the information to relevant third-party organizations to proceed with the request.
With the help of blockchain technology, it takes 10 to 30 minutes to conduct a banking transaction successfully. Users can trade whenever and wherever they need to without being concerned about business hours and banking centers.
In short, blockchain helps all transactions proceed quickly, automatically, safely, and reliably.
Currency
Another famous application of blockchain is cryptocurrency.
Under the “typical” banking system, people can never fully control the value of their money due to the authorities.
Meanwhile, cryptocurrencies are decentralized, which means their value won’t be manipulated by any external party except the network itself.
In other words, the value of cryptocurrencies remains quite consistent. That’s why more and more people are now giving it a try to keep the best value of their assets.
Healthcare
Healthcare also benefits from blockchain technology due to its immutability feature. Every modification is recorded and displayed publicly in the blockchain system. Such a feature provides a crystal-clear information system, which is helpful in data tracking, monitoring, and analyzing.
Smart contracts
A smart contract is a computer code attached to a blockchain system to help verify, approve, reject, or negotiate the contract agreement automatically, thereby saving time and effort.
Take an online food order app for instance. The app developers may set a default rule, allowing the system to proceed to bank transactions when the order is completed. Otherwise, the transaction would be canceled.
FAQs
Is blockchain reliable?
Of course!
In blockchain, data is stored in blocks linearly and chronologically. Each data block is identified with its hash value which will be changed when the information is edited. Therefore, whenever there are any alternations, all data access owners can know immediately to take necessary measures.
That being said, blockchain is relatively reliable in protecting your organization’s data security.
Who invented blockchain?
While searching for “who invented blockchain,” most answers are Satoshi Nakamoto. However, this is not correct. Satoshi is the founder of Bitcoin rather than blockchain technology.
The genuine inventors of blockchain are W. Scott Stornetta and Stuart Haber. They first invented blockchain technology in 1991 with the original intention of creating a document management system that operates scientifically and effectively.
Which industry will apply blockchain in the future?
Apart from previously mentioned applications of blockchain, other fields that may adopt this technology in the future may be:
- Law Enforcement And Security
- Supply Chain
- Software Security
- Messaging Apps
- Travel And Mobility
- Higher Education
- Product Development
Final thoughts
We have gone through an in-depth discovery about blockchain as well as learning its applications in real life. Hope this article provides you with insightful knowledge!
