The word “Blockchain” is made up of two simple words, block, and chain. Block denotes a definite amount of information or data about anything. It is a single unit of information. The word chain means a system where similar objects or things connect each other to make a strong system that performs a specific function.
The second term in our topic is technology. In simple words, technology is any new scientific invention or innovation which we can use for our benefit.
Here in this blog post, you will find the answers to the questions like, What is blockchain technology? How does blockchain technology work? What are the types of blockchain and their uses?
What is Blockchain Technology?
Just imagine a world, where you are allowed to make transactions or share your valuable information with anyone across the globe regardless of their physical location. You do it all without any intermediary and in a glimpse of time rather than spending hours or days. You do not have to pay much as transaction fees, and it's secure and error-free.
Awesome, it is not your dream, it became reality now with the help of blockchain technology. Yes, blockchain technology has made your life so simple and easy.
Blockchain is a fully decentralized, shared, and secured system that you can trust to perform any type of transaction in minutes even in seconds. There is no single authority to operate it. It is based on a consensus mechanism system operated by peers (Nodes).
Back in 2008, Satoshi Nakamoto (A person or group of persons) laid the foundation of blockchain technology. He is also the founder of Bitcoin (BTC), the first digital currency and application that is based on blockchain technology.
Thus, Blockchain technology is a very new and emerging technology, which becomes the foundation for a digital cryptocurrency. It enables us to share, send or make any transaction that is open, secure, and less costly.
How Does Blockchain Technology Works :
In a traditional marketplace, have you heard about the term Ledger? If not, No worries, I am here to tell you. The term ledger is simply a document. It may be electronically or in physical shape. It contains all the records of a particular person or entity in chronological order.
In the digital marketplace, the blockchain works just like a ledger. It is an electronic store of the ledger. What makes difference is that the traditional ledger is handled by a single authority, and the data can be changed, edited, or lost. On the other hand, a blockchain is an electronic ledger system that is decentralized, shared, and eternal. The blockchain ledger system has no option to change, delete or update the data once recorded.
Whenever any transaction is initiated in the blockchain, a new block is created by the system and added to the existing blockchain. Before entering the block, the blockchain system makes a consensus among peers (nodes) to approve the transaction. Each block is linked to the other block by a Hash which makes the whole system immutable. When any transaction is done, the copies of this transaction are distributed all across the nodes of the system which makes it secure and immutable.
For recording a new transaction the consensus of all the nodes or peers is necessary. If someone tries to hack or do any fraudulent transaction within one node, the other nodes will reject them, making the transaction invalidated, so in that way, it becomes secure and trusted.
Four Types Of Blockchain;
There are four main types of blockchain.
1- Public Blockchain
A public blockchain is a fully decentralized, shared, and distributed network. There is no single governing authority and it is open to everyone. Anyone can join and become a part of this ecosystem by using the internet.
The most commonly used public blockchain nowadays are Bitcoin Blockchain, Litecoin Blockchain, and Ethereum Blockchain. These blockchains are mostly used for the exchange of cryptocurrencies, like Bitcoin (BTC), Ether (ETH), Dogecoin (GOGE), etc.
2- Private Blockchain
Private blockchains are operated in the same manner as public blockchains. But the only difference is that private blockchain operates in a closed network. This is not decentralized and there is a single authority that has the power to control the network. The level of security is very high in private blockchains. Binance, Coinbase, and Ripple are the best examples of a private blockchain.
3- Hybrid Blockchains
The name itself indicates that it is a combination of public and private blockchain. It is public and private as well at the same time. Some selected data is public and the rest is private to some selected participants. Ripple (XRP) network is the best real-world example of a hybrid blockchain.
4- Consortium Blockchain
A variation of hybrid blockchain is consortium blockchain. It is run and controlled by multiple organizations. Every organization in this type of blockchain acts as a peer or node. This is semi-decentralized - A selected number of organizations in the network are authorized to participate in the consensus system (Proof-of-work) to validate a transaction.
Uses and Limitations of Blockchain
Generally, there is a misconception that blockchain is Bitcoin. Or blockchain is a technology one can use only in cryptocurrencies. It's never like that. Blockchain is a technology platform that paves the way to develop multiple applications. On the other hand, Bitcoin is simply a digital currency and an application running on a blockchain platform.
As blockchain is a new and emerging technology. Therefore, it is too early to say something authentic. Although, there are so many use cases of blockchain technology in many industries, like, DeFi (Decentralised finance) in the financial industry, real estate, health, and many others.
But, blockchain technology has much potential to impact almost every industry or any field of life. Let's see and wait, the coming years will tell it more clearly.
In a nutshell, blockchain technology is a new and emerging technology. By using it we can store, exchange, and share any piece of information across a decentralized, distributed, and secured network of computers. It is a fast, secure, less expensive, trusted, and peer-to-peer transaction system.
After reading this post, what is your opinion about blockchain technology? Leave your comment below.