What is Blockchain?
The term blockchain has attracted serious attention during the last few years, especially after the surging popularity of cryptocurrencies such as Bitcoin and Ethereum. While the term is quite loosely tossed around, understanding the concept of blockchain has merit.
Definition
In layman's terms, a blockchain is a set of records or data that are shared and linked together in a decentralized manner. A question that often creeps up at this stage is how a blockchain is different from any other database. Understanding the structure of a blockchain can answer this. Each block is a collection of information that is grouped and stored in nodes. There is a pre-defined data storage limit for any given block. As the capacity of a block is reached, it becomes a closed set complete in itself. Now when a new piece of information comes, it gets recorded in subsequent new blocks irreversibly connected to each previously completed block. That’s why the name — it is a chain of blocks of data. This is fundamentally different from a conventional database that uses tables on some central server to store its information.
Types
By definition, a blockchain is a shared network. Now, depending on the network type, it can be grouped under the following types.
Public blockchains
As the name suggests, this is the single largest possible blockchain as it is open to everyone. Anyone who has an internet connection can be part of a public blockchain. They can validate the authenticity of the data via a computer program as well as participate in transactional exchanges. Usually, a public blockchain offers an economic incentive to its users participating in its functionality. Bitcoin and Ethereum blockchains are prime examples. The principal shortcoming of a public blockchain is the time it takes to complete each validation.
Private blockchains
A permissionless public blockchain can only work so far. This has led to the rise of certain blockchain networks that thrive on permissioned protocols. Diametrically different from the public counterpart, a private blockchain defines a set of restrictions on the access of its participants. Popular examples of such blockchains include Ripple and Hyperledger. A private blockchain is, however, not immune to fraud and manipulation.
As both public and private blockchains come with downsides that cannot be weeded out, it necessitated the development of consortium and hybrid blockchains as a possible solution to the puzzle.
Hybrid blockchains
A hybrid blockchain integrates public and private blockchain in unique functionality. In laymen’s terms, it works under the control of a single organization as in a private blockchain while the public blockchain part of it ensures that the consensus is maintained. It thus has both centralized and decentralized features, and how they are combined dictates the nature of the hybrid model. An example of a typical hybrid blockchain is the IBM Food Trust which operates its model to enhance the current scope of the food supply chain business.
Consortium blockchains
The establishment of a single authority at the heart of a private blockchain’s decentralization is replaced by a consortium blockchain where governance is handled by a group of organizations. This has two immediate benefits — higher levels of security and greater scope for implementing decentralization. A good example of a successful consortium blockchain is R3 which, as an enterprise software firm, offers digital economy solutions. While such collaborative performances increase blockchain efficacy manifold, the challenge remains in sustaining long-term cooperation among the individual organizations in the consortium.
Characteristics
The key characteristic of a blockchain that has found the widest use is transferring of digital value. Cryptocurrencies are the preferred mode of doing this. They have economic value as they are used as incentives to validate the blocks and add them to the chain. Currently, no fewer than 2000 cryptocurrencies are in circulation worldwide with Bitcoin being its most famous proponent.
Another important feature of blockchain is its smart contracts functionality. Used to partially or fully automate escrow in a decentralized manner, the immensity of its scope and applicability cannot be overstated. Ethereum is the single most popular example that not only allows customization of smart contracts using its ecosystem but also helps build other applications based on its protocols.
Uses
There are myriads of applications of blockchain technology, some of which are already widely in use.
● As blockchain seeks to revolutionize digital security, lightning-fast transactions in a cost-efficient manner, and immutability, the financial service sector has been its biggest beneficiary. In other words, decentralized finance is the future of all matters related to money.
● The scope of integration of blockchain functionalities in games is gaining ground in recent years. They were the first to introduce the concept of non-fungible tokens or NFTs for digital item collectibles which are now used in other blockchain-inspired applications as well.
● The emergence of the metaverse has been another huge development in blockchain applicability. It has brought together augmented reality, virtual reality, decentralized finance, and video gaming under one umbrella.
● One of the most transformative uses of blockchain technology has been digital identity which allows storage and management of data using infrastructure that is built with enhanced tamper-proof security.
● Several billion-dollar industries, especially healthcare, energy, food supply, precious commodities trading, travel & accommodation, and insurance are also finding next-gen solutions with the help of the latest blockchain developments. Other uses of blockchain that are fast becoming a reality include the fields of artificial intelligence, the internet of things or IoT, big data, cloud computing, and 5G technology.
Conclusion
Blockchain is here to stay and grow by quantum leaps in the coming years. It is thus no surprise that so much time and effort are being committed to understanding and exploring the nature, scope, and interoperability of this technology as it continues to take the world by storm with its innovations and applications.
Also Read:
Understanding the architecture of a Blockchain । What is Sidechain?
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