What is Blockchain? All You Need To Know About This Revolutionary Technology

28 Dec, 2021

Over the past ten years, the word “blockchain” has spread like wildfire, and today there are over 63 million recorded blockchain wallet users worldwide. This revolutionary technology is constantly in evolution and, while it is mostly used by companies operating in the consumer products and manufacturing industries, new uses for blockchains are discovered every day.

Initially outlined in 1992 by Stuart Haber and W. Scott Stornetta, the blockchain technology started to gain popularity in 2008, when Satoshi Nakamoto used it as the public ledger to secure bitcoin transactions. Since then, blockchain technologies have been implemented across a variety of industries and found always-more innovative uses.

But there still seems to be a degree of confusion around this technology. In the sections below, we’ll explore what a blockchain network is, its level of security, and its modern uses. Let’s get started.

Definitions and basic concepts

The blockchain protocol, as conceptualised by Satoshi Nakamoto, is intended as a system to timestamp documents and ensure that transactions are not tampered with. Initially called “block and chains”, the blockchain network was created as a protocol to securely structure and share data. Today, blockchain has been defined as the “fifth disruptive computing paradigm” – and new ways to apply this technology appear every day.

In the video below, you can find a comprehensive overview of what blockchain is and how it works – or keep reading to better understand the ins and outs of this new technology.

What is Blockchain in simple terms?

In the simplest terms, blockchain is a system used to record information, store data, and facilitate transactions. The revolutionary aspect of this technology is that, thanks to its structure, it is extremely difficult or impossible to tamper with, hack, change, or modify the records.

When looking at the structure of a blockchain network, you will find the following elements:

  • The blocks – these are the “ledgers” where the information is stored
  • The block’s hash – this is a cipher (a string of numbers and letters) that acts as the block’s unique fingerprint
  • The previous block’s hash – this is the cipher that works at the previous block’s unique fingerprint.

The hashes are unique and extremely difficult to tamper with. And, if any of the information contained in the block is altered, hacked, or changed, the block’s hash will change too. However, since the next block in the chain will also report what the previous block’s hash is meant to be if a block’s hash is tampered with, the entire blockchain will be invalid. The hashes can be considered as the chain between the blocks.

At its core, this technology is not much more complicated than this. However, there are several added layers of protection that are added to make the whole blockchain far more difficult to alter.

But let’s look at what a blockchain network looks like today.

Essentially, a blockchain is a digital ledger that contains data, transactions, documents, and information. The blockchain ledger is duplicated and distributed and can be accessed by the whole network of computers on the blockchain system.

Every time one of the members of the decentralized blockchain network (a “node”) completes an additional transaction, this transaction is timestamped, recorded, and added to that user’s digital ledger (block). All transactions are distributed among the nodes of the network.

What is Blockchain used for?

Since blockchain technology can work as a secure but decentralised database, today it is primarily used to record Bitcoin transactions. Indeed, Bitcoin, unlike previous attempts to create and circulate digital currency, presents itself as a solution to security and trust issues.

Unlike most normal databases that can be controlled (and altered) by one entry, the blockchain database is decentralised. This means that there is no single entity in charge and the whole database is run by the people in the network. Because of this, blockchain is mainly used to eliminate the need for a “middle man” that governs user transactions. In turn, this technology today provides a secure, streamlined, and decentralised system for users to connect and transact.

How does Blockchain work?

As we have seen above, at its core, the blockchain database is composed of blocks (ledgers containing data) connected and secured by chains (hashes that point back to the previous block).

A blockchain structure is only accessible by the people in the network and governed by them. The ultimate goal of this technology is to store digital assets and information that are time-stamped and impossible to tamper with. The immutable ledgers that are created by a blockchain’s participants are distributed across the network and cannot be edited. This specific technology is also known as Distributed Ledger Technology (DLT), which is today also used in many fields and for many purposes, including:

  • Decentralized finance (DeFi)
  • Non-fungible tokens (NFTs)
  • Smart contracts.

Bitcoin vs. Blockchain – are they different?

Bitcoin and blockchain are equally popular terms that seem to be everywhere today – and they often appear together. However, the two terms don’t have the same definition and point to two different concepts. Let’s review them.

  • Blockchainconceptualised in 1992, blockchain technology is a secure, decentralised, and distributed database used to record time-stamped transactions.
  • Bitcoin – launched in January 2009, Bitcoin is the first successful attempt to create and distribute a digital currency and bitcoin blockchain represents the first real-world application of blockchain technology.

As defined by its creator, Satoshi Nakamoto, Bitcoin is “a new electronic cash system that’s fully peer-to-peer, with no trusted third party.” The bitcoin protocol is created to use a blockchain to safely record Bitcoin transactions among users.

Types of Blockchains

Today, there are thousands of blockchains in operation, and many more projects plan to soon introduce their own blockchain innovation. Each of these blockchains is unique – but three main types can be used to categorise most of them:

  • Public Blockchains – public blockchain networks are often run through a native token. These networks are large and distributed, and they can be accessed by anyone at any level. They are based on a high number of nodes and therefore they grant the highest level of security and information immutability. Bitcoin’s protocol is run on a public blockchain. They usually use open-source code.
  • Permissioned Blockchains – these blockchain networks are large and distributed systems that use native tokens, but the level of access of each user is controlled. They don’t always run on open-source code. The most famous type of permissioned blockchain is Ripple.
  • Private Blockchains – private blockchain networks are a type of technology used within a company, business, or organisation. They are usually smaller, don’t utilise a token, and access to the database is strictly controlled. Being private by definition, their number of nodes is reduced and the possibility to alter the information stored in each of them by the owners is high. Thus, the level of tamperproofing private blockchain networks is at least arguable.

Types of Blockchains

Blockchain security

One of the aspects that make blockchain technology unique and revolutionary is the level of security it provides its users. The video below is a great introduction to the multiple security layers integrated into blockchains – keep reading on for more details.

 

Is Blockchain Secure?

Blockchain today has multiple applications – all of which need a bulletproof security system. For example, bitcoin blockchain is used for transactions of Bitcoins, a cryptocurrency that has just achieved its all-time high at $68,000. Additionally, being used in sensitive industries such as healthcare or by financial services companies, blockchain networks need to offer high levels of trust and security.

The decentralised database achieved this by implementing several security layers:

  • Immutable hashes – as we have seen above, each block on the chain contains its unique fingerprint and the previous’ block unique fingerprint. So, even if one transaction is tampered with and the hash is changed, the following blocks won’t be able to point back at previous ones, rendering the whole chain invalid.
  • Structured addition of blocks – new blocks are added to the chain linearly and chronologically at the end of the existing blockchain.
  • Changes require consensus – each user of the blockchain receives a copy of the added block or alterations. A consensus from all participants is required for a change to happen.
  • Smart contracts – these are digital contracts stored on a blockchain that is used to automate a workflow or execute an agreement. They only run when all conditions are met.
  • Proof of work – a system that prevents a hacker from changing the hashes of the entire network when one is altered.

Because of these multiple layers of security, a hypothetical hacker who wants to steal cryptocurrency would need to:

  • Change the whole blockchain’s hashes by bypassing the proof of work and ensuring that the blocks don’t render invalid results
  • Control at least 51% of the participants to obtain consensus on edits
  • A large amount of funds and resources to run the attack

Since most of today’s blockchains are large, open-source, public blockchain networks, it would be impossible to bypass all of these security levels.

As technology progresses, blockchain technology may present new vulnerabilities. As these appear, new security layers are added to keep the system’s security levels high.

How is Blockchain used today?

As we know, Bitcoin protocols represent the best-known use of blockchain technology. However, this secure database lends itself to many other applications – even beyond the thousands of cryptocurrencies out there.

Main companies, including pharmaceutical giants Pfizer and retail corporations such as Walmart, use blockchain technology to streamline their supply chain, implement better quality control systems, and safely record transactions.

Smaller companies can also implement their private blockchains to create a secure network for their organisations. However, when they do it, most times it is for marketing reasons. As a matter of fact, as we have already explained, high levels of security are reached only by public blockchain.

Using Blockchain Technology

Today, over 10,000 cryptocurrencies work on blockchains, and the number of decentralised databases created for other uses is much higher. Nonetheless, according to a 2018 Gartner study, only 1% of Chief Information Officers reported having implemented a blockchain strategy in their companies, while 5% of them believed blockchain technology to be a priority for their organisations.

At the same time, new uses for blockchain technologies are discovered every day, and most industries are today benefitting from them to some extent. Here is a breakdown of how blockchain technology is used.

How do we use Blockchain technology?

Thanks to the unparalleled versatility of blockchains, each industry can find specific uses for this technology. Here are some examples:

  • Currency and cryptocurrency – while some cryptocurrencies are operating without blockchains, most of them do. Indeed, no other technology provides the same ease and security of monetary transactions, which is essential when the need for a central authority system to overlook each transaction is eliminated. Since cryptocurrencies on the blockchain technology don’t need this middle agent, they can streamline transactions and offer a more stable alternative to fluctuating currencies.
  • Finance and banking industries – banking and financial services are the main companies to benefit from the blockchain revolution today. Thanks to this distributed ledger technology, financial transactions are secured without the “middle man”, which means that finance businesses can safely operate (and earn) beyond business hours. Since adding a block to the blockchain does not take longer than 10 minutes, users’ banking transactions can be completed in no time and at any point. This does not only offer a more efficient service to users but also reduces costs and time for banks.
  • Property records, eNotary, and real estate – blockchain records might be overtaking current physical property deeds, ensuring that these are immediately accessible and authentic.
  • Legal contracts and smart contracts – blockchain technologies may be used to stipulate and negotiate contract agreements and prevent any further action to take place if agreed-upon conditions are not met.

How do we use Blockchain technology?

  • Votingblockchain might be used to modernise the current voting system, improve voter turnout, and prevent fraud. It also has the potential to entirely disrupt election procedures as we know them today.
  • Healthcare – in the healthcare industry, blockchain technology is used to safely store and transfer medical records and patient information.
  • Supply chains, product tracing and authentication – the blockchain technology can be used to record transactions in the supply chain, verify the authenticity of a product, and guarantee safety. Additionally, blockchain technology is finding innovative uses in the field of product authentication and brand protection. Thanks to this technology, combined with IoT devices, blockchain companies can prevent counterfeiting and track transactions and product conditions and integrity.

Don’t Miss Out On The Latest Developments

As we have seen above, blockchain technologies are finding always-more applications in a variety of industries. This technology is also solving problems such as electoral fraud and unstable currencies. However, it is important to keep in mind that blockchain is a new technology, younger than 30 years old!

Additionally, blockchain often appears alongside other emerging technologies, including NFTs, cryptocurrencies, smart contracts and decentralized finance. The potential that comes with these new technologies is almost entirely unexplored, which makes it essential to keep up to date with the latest developments.

What is Blockchain? All You Need To Know About This Revolutionary Platform