What is Blockchain?
Updated: Jul 24
A blockchain, in essence, is a method of verifying trust and transferring assets without the use of a third-party intermediary. Blockchain enables the secure and efficient exchange of data, currency, goods, or assets. At its core, it is a distributed shared ledger that records financial transactions across the network. Blockchain technology generates a decentralized digital transaction ledger. By encrypting transactions and dispersing them across the network, blockchain makes it nearly impossible to hack.
Blockchains are digital ledgers used to record and distribute data between network nodes. The term "blockchain" comes from the idea that transactions are sent to the network in batches known as "blocks." When a transaction is validated, a new block is generated on top of the previous block, resulting in the formation of a chain. They are constantly building on top of one another. Consider it like constructing a house brick by brick. You can't start from the top or skip bricks; you must build it one by one. The older the transactions, the further back you go on the chain.
Blocks link together to form a continuous chain:
To summarize, Blockchains enable the exchange of information, transactions, and agreements without the need for a central authority.
What differentiates Blockchain from Cryptocurrency?
Blockchain and cryptocurrency are frequently used interchangeably. There is, however, a significant difference between the two. Cryptocurrencies are digital currencies that simply store transactional data on blockchains, which act as a distributed ledger. Aside from cryptocurrencies, blockchains can be used to store and access healthcare records, logistics and supply chain data, as well as financial records.
Simply put, blockchains are the technology that cryptocurrencies use to keep track of their records. It enables cryptocurrencies such as Bitcoin to facilitate transactions without the use of a middleman such as a bank or other financial institution.
So, what is it about blockchain that makes it so special?
In the case of a brick house, after one brick is laid down, another is added on top. Because new blocks (bricks) are constantly added to older ones as time passes, this principle applies to blockchains. It is nearly impossible to make changes to older bricks without tearing down the bricks on top of them. The same is true for blockchains, which is why they are immutable and provide users with confidence in a decentralized system.
Most cryptocurrencies, including Bitcoin, Ethereum, and others, are built on blockchain, so the two concepts are often linked. Blockchain's immutability and lack of a central authority is what made it all possible.
The Bitcoin blockchain, as just one example, keeps track of each and every Bitcoin transaction ever made. Blockchains have made it possible to conduct monetary transactions online without the intervention of intermediaries such as banks or credit card companies.
Variations of Blockchain Technology
Blockchains are classified into four categories: public, private, hybrid, and consortium.
A public blockchain is an open and permission-less distributed ledger. Anyone with internet access can view the data and contribute to its accuracy on the network. The Bitcoin blockchain is an example of one; it is open to the public and all data stored on it can be viewed by anyone.
There is also no centralized authority preventing users from becoming a miner. Furthermore, there is no centralized authority preventing users from becoming miners.
In contrast to public blockchains, which are accessible to anyone online, private blockchains are only accessible to those who have been granted access. Organizations that want to limit access to their blockchain network to a select group of employees or customers often opt for private blockchains.
How safe a blockchain is, who can use it, and what kinds of permissions they'll have, are all things that are decided by the blockchain's overarching authority. Since this is the case, private blockchains function in the same way that public blockchains do, but employ a more restricted and limited network.
A consortium blockchain is a semi-decentralized blockchain that is managed by multiple organizations and operates using a centralized model.
In contrast to private blockchains, which are controlled by a single entity, this one is more open. Multiple entities can participate as nodes and exchange data in this type of blockchain. Financial institutions, government entities, and other vast organizations frequently use consortium blockchains.
Hybrid blockchains are a special kind of blockchain technology that combine, or at least make an attempt to utilize, features from both public and private blockchains.
Hybrid blockchains allow for encrypted transactions and records that can be verified through smart contracts or other means. Private data is encrypted and protected within the network, but can be checked if necessary.
Even if a private company controls the hybrid blockchain, it cannot alter previous transactions. Using a hybrid blockchain, businesses can control which data is made public and which is kept private by establishing a private, permission-based system alongside a public, permission-less one.
The Future of Blockchain Technology
The blockchain has evolved considerably since its inception. Experts agree that blockchains have matriculated from niche applications and can now be used more broadly. Keeping track of monetary transactions between accounts is the primary function of a blockchain tailored for a particular use case, such as Bitcoin.
Blockchain technology used by Ethereum, on the other hand, is an example of a general-purpose blockchain because it can be used to create smart contract-based applications. DApps (Decentralized Applications) can now exist independently of any centralized entity thanks to this development. Moreover, it gave rise to a new concept called "web3," which gave users back control of their online identities. For more information on web3, please visit this link: https://www.cryptomadeez.net/post/what-is-web3