An Introduction to Blockchain
“The biggest opportunity set we can think of over the next decade.”
Bob Grifeld, Journalist
Blockchain is the present and it will be the future. It is an interconnected network that uses a plethora of different digital technologies. Blockchain technology is characterized by its core features of decentralization and security which makes it a technology that can be capitalized by several industries and put to optimal use in securing and carrying out business transactions.
In fact, various studies that have been carried out show that there is supposed to be a rise of the total market cap of blockchain technology of over 60 billion by 2024.
The efficient use of blockchain technology will allow validation and performance of even complex business operations and eliminate the middleman, extra hours, and effort, while allowing transactions to be carried on twenty-four seven. The possibilities of blockchain technology applications are unlimited and several are yet to be discovered.
“Online identity and reputation will be decentralized. We will own the data that belongs to us.”
William Mougaya, Founder of Kin Ecosystem VC
Blockchain technology has the main characteristics of security, transparency, decentralization, and accountability. The use of applications built on blockchain architecture will evolve with time. There are several intricacies and concepts that must be known to understand and capitalize on blockchain as a technology of the future.
Blockchain refers to a chain of blocks that contain specific information, which is known as a database. It is genuine and secured as it is grouped together in a network. Essentially, blockchain can be defined as a combination of computers that are interconnected or linked to each other instead of being linked to a central server. The entire network is decentralized.
A blockchain is understood as a chain of blocks that contain digital information about transactions involving cryptocurrency. A blockchain transaction refers to a transfer of crypto money. The information concerning such a transfer is collected in blocks.
Hash refers to a function which converts an input of different letters and numbers into an encrypted output that has a fixed length. It is created by using an algorithm.
Consensus is commonly referred to as consensus protocol. It is an arrangement or a set of rules to carry out different blockchain operations. These mechanisms ensure that all nodes are in sync with each other and agree on which transactions are proper and legitimate and are added to the blockchain. They are crucial for blockchain to function effectively. They make sure that everyone uses the same blockchain. Without a good and effective consensus mechanism, blockchains would be at risk from an array of attacks (Different Blockchain Consensus Mechanisms)
Mining is a type of mechanism in relation to bitcoins which allows the blockchain to be a decentralized security. It essentially secures the system and enables a network which does not have a central authority.
Proof Of Stake (POS) is a consensus mechanism that makes the use of the premise that those who are the owners of the highest number of coins in a network are considered to have a vested interest in maintaining the network and the value of coins.
Delegated Proof Of Stake (DPOS) is an extremely fast, consensus protocol where users can stake the coins that they own to vote for a specific amount of delegates. Their vote and the weight age of their vote would be dependent on their stake.
Other consensus will be addressed in a different post ;) stay tuned!
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Public and Private blockchain
Blockchain allows digital information to be distributed rather than copied. This distributed ledger provides data security, transparency, and trust. Based on the context and the type of blockchain, the system can either be more centralized or decentralized. This is with specific regard to the blockchain architecture design and ultimately, who is in control of the ledger.
Decentralization refers to the state where there is no central location in which blockchain stores any information. It is, instead, spread across a network of different computers. By spreading that information across a network, instead of employing a central database, it becomes more secure and therefore, difficult to tamper with a distributed ledger is used, which refers to a database that is shared only on mutual consent and is synchronized across an array of different institutions, sites, and geographies.
Public blockchains are permission less ledgers which are decentralized and open-ended. This means that it is accessible to anyone who has access to the internet and who can download it. These blockchains generally reward their network participants for maintaining immutability of the edger and performing the mining process. All records would be visible to the public in the case of a blockchain and anyone can therein take part in the agreement process. The Bitcoin Blockchain is an example of public blockchain. They allow communities worldwide to exchange information which is secured.
Private blockchain are shared among only a few trusted participants which has increased privacy and is more centralized. The ultimate control over the network lies in the hands of the trusted owners. The rules concerning the blockchain can be changed according to different numbers of members and different levels of permission and authorization. These can be run independently, or they can also be integrated with other blockchains.
Books and Articles
- M. Iansiti and K.R. Lakhani, “The Truth About Blockchain,” Harvard Business Review 95, no. 1 (January-February 2017): 118–127.
- I. Heap, “Smart Contracts for the Music Industry,” Medium, March 14, 2018.
- D. Harhoff and K.R. Lakhani, eds., “Revolutionizing Innovation: Users, Communities and Open Innovation” (Cambridge, Massachusetts: MIT Press, 2016)
- A. Alexandre, “Walmart Is Ready to Use Blockchain for Its Live Food Business,” Cointelegraph, April 24, 2018.
- Anisa Batyabal, 20 Real-world Blockchain Applications across Industries 2019
- Bernard Marr, 30+ Real Examples Of Blockchain Technology In Practice
- Samantha R., 3 Innovative Ways Blockchain Will Build Trust In The Food Industry