Thursday, May 19, 2022

What is blockchain?

The Takeaway:

A Blockchain initially blocks chains a growing list of records, called blocks, which are connected using cryptography. Every block contains a cryptographic hash of the previous block, a timestamp, and transaction information.

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1) What is Blockchain?

A blockchain is a public ledger of information collected through a network that sits on top of the internet. It is how this information is recorded that gives blockchain its groundbreaking potential.

Blockchain technology is not a company, nor is it an app, but rather an entirely new way of documenting data on the internet.

The technology can be used to develop blockchain applications, such as social networks, messengers, games, exchanges, storage platforms, voting systems, prediction markets, online shops and much more. In this sense, it is similar to the internet, which is why some have dubbed it “The Internet 3.0”.

The information recorded on a blockchain can take on any form, whether it be denoting a transfer of money, ownership, a transaction, someone’s identity, an agreement between two parties, or even how much electricity a lightbulb has used.

However, to do so requires a confirmation from several devices, such as computers, on the network. Once an agreement, otherwise known as a consensus, is reached between these devices to store something on a blockchain it is unquestionably there, and it cannot be disputed, removed or altered, without the knowledge and permission of those who made that record, as well as the wider community.

Rather than keeping information in one central point, as is done by traditional recording methods, multiple copies of the same data are stored in different locations and on different devices on the network, such as computers or printers. This is known as a peer to peer (P2P) network. This means that even if one point of storage is damaged or lost, multiple copies remain safe and secure elsewhere. Similarly, if one piece of information is changed without the agreement of the rightful owners, there are countless other examples in existence, where the information is correct, making the false record obsolete.


2) Why is it Called “Blockchain”?

Blockchain owes its name to how it works and the manner in which it stores data, namely that the information is packaged into blocks, which link to form a chain with other blocks of similar data.

It is this act of linking blocks into a chain that makes the information stored on a blockchain so trustworthy. Once the data is recorded in a block it cannot be altered without having to change every block that came after it, making it impossible to do so without it being seen by the other participants on the network.

Typically, each block contains the data it is recording, for example, a transaction like 1 Lisk token being sent from Alice to Bob, as well as timestamps of when that information was recorded. It will also include a digital signature linked to the account that made the recording and a unique identifying link, in the form of a hash (think of it as a digital fingerprint), to the previous block in the chain.

It is this link that makes it impossible for any of the information to be altered or for a block to be inserted between two existing blocks. To do so, all following blocks would need to be edited too. As a result, each block strengthens the previous block and the security of the entire blockchain because it means more blocks would need to be changed to tamper with any information.

When combined, all of these create unquestionable storage of information, one that cannot be disputed or declared to be untrue.

Let’s take an example of Google spreadsheet or MS Excel (Windows). This spreadsheet is shared among different networks of computer, where everyone has a copy of it. The spreadsheet contains information about the transactions committed by real people.

Anyone can access that spreadsheet, but no one can edit it.

It works with Blocks, whereas spreadsheet works with “rows” and “columns”.

A block in a blockchain is a collection of data. The data is added to the block in a blockchain, by connecting it with other blocks in chronological others, creating a chain of blocks linked together. The first block in the Blockchain is called Genesis Block.

Blockchain is a distributed ledger, which means that accounting is spread across the network among all peers in the system, and each peer holds a copy of the complete ledger.

3) How Does It Work?

3.1 A node starts a transaction by first creating and then digitally signing it with its private key (created via cryptography). A transaction can represent various actions in a blockchain. Most commonly, this is a data structure that represents the transfer of value between users on the blockchain network. Transaction data structure usually consists of some logic of transfer of value, relevant rules, source and destination addresses, and other validation information.

3.2 A transaction is propagated (flooded) by using a flooding protocol, called Gossip protocol, to peers that validate the transaction based on preset criteria. Usually, more than one node is required to verify the transaction.

3.3 Once the transaction is validated, it is included in a block, which is then propagated onto the network. At this point, the sale is considered confirmed.

3.4 The newly-created block now becomes part of the ledger, and the next block links itself cryptographically back to this block. This link is a hash pointer. At this stage, the transaction gets its second confirmation, and the block gets its first confirmation.

3.5 Transactions are then reconfirmed every time a new block is created. Usually, six confirmations in the network are required to consider the transaction final.

Transactions are then reconfirmed every time a new block is created. Usually, six confirmations in the Bitcoin network are required to consider the transaction final.

4) The different types of blockchains.

There are three primary types of blockchains, which do not include traditional databases or distributed ledger technology (DLT) that are often confused with blockchains.

  • Public blockchains like Bitcoin and Ethereum
  • Private blockchains like Hyperledger and R3 Corda
  • Hybrid blockchains like Dragonchain

5) What is a public blockchain?

Let’s explore the different types of chains. And start with public blockchains, which are open source. They allow anyone to participate as users, miners, developers, or community members. All transactions that take place on public blockchains are fully transparent, meaning that anyone can examine the transaction details.

5.1 Public blockchains are designed to be fully decentralized, with no one individual or entity controlling which transactions are recorded in the blockchain or the order in which they are processed.

5.2 Public blockchains can be highly censorship-resistant, since anyone is open to join the network, regardless of location, nationality, etc. This makes it extremely hard for authorities to shut them down.

5.3 Lastly, public blockchains all have a token associated with them that are typically designed to incentivize and reward participants in the network.

6) What is a private blockchain?

Another type of chains are private blockchains, also known as permissioned blockchains, possess several notable differences from public blockchains.

6.1 Participants need consent to join the networks

6.2 Transactions are private and are only available to ecosystem participants that have been permitted to join the network

6.3 Private blockchains are more centralized than public blockchains

6.4 Private blockchains are valuable for enterprises who want to collaborate and share data but don’t want their sensitive business data visible on a public blockchain.

These chains, by their nature, are more centralized; the entities running the chain have significant control over participants and governance structures. Private blockchains may or may not have a token involved with the chain.

7) What is a consortium blockchain?

Consortium blockchains are sometimes considered a separate designation from private blockchains. The main difference between them is that consortium blockchains are governed by a group rather than a single entity. This approach has all the same benefits of a private blockchain and could be considered a sub-category of private blockchains, as opposed to a separate type of chain.

7.1 This collaborative model offers some of the best use cases for the benefits of blockchain, bringing together a group of “frenemies”- businesses who work together but also compete against each other.

7.2 They can be more efficient, both individually and collectively, by collaborating on some aspects of their business.

7.3 Participants in consortium blockchains could include anyone from central banks to governments, to supply chains.

8) What is a hybrid blockchain?

Dragonchain occupies a unique place within the blockchain ecosystem in that it’s a hybrid blockchain. This means that it combines the privacy benefits of a permissioned and private blockchain with the security and transparency benefits of a public blockchain. That gives businesses significant flexibility to choose what data they want to make open and transparent and what data they want to keep private.

8.1 The hybrid nature of Dragonchain blockchain platform is made possible by our patented Interchain™ capability, which allows us to connect with other blockchain protocols easily. Allowing for a multi-chain network of blockchains

8.2 This functionality makes it simple for businesses to operate with the transparency they are looking for, without having to sacrifice security and privacy.

8.3 Also, being able to post to multiple public blockchains at once increases the security of transactions, as they benefit from the combined hashpower being applied to the public chains.

9) How Bitcoin and Blockchain are different?

9.1 What is Bitcoin?

Bitcoin is a cryptocurrency, a type of digital cash. It’s a decentralized currency with no a central bank or single administrator that can be sent from user-to-user on top of the peer-to-peer bitcoin network without the need for intermediaries.

9.2 What is Blockchain?

A Blockchain initially blocks chains a growing list of records, called blocks, which are connected using cryptography. Every block contains a cryptographic hash of the previous block, a timestamp, and transaction information.

10) Difference between bitcoin and Blockchain:

  • Blockchain technology allows finances to be transferred wherever in the world securely, inexpensively, and in a substance of minutes.
  • The Blockchain technology is though very flexible and advanced, with the ability to correct into any business models and providing resolutions to accessible problems.
  • The Blockchain applies Proof-of-Work algorithm to validate the process. All user has to develop a POW.
  • Bitcoin transactions are stored and transferred via a distributed ledger on a peer-to-peer network that is open, public and unidentified.
  • Bitcoin hub on lowering the cost of influencers and reduces the time of transactions but is fewer flexible.
  • When Bitcoin users want to turn their Bitcoin’s into fiat money, they can use cryptocurrency exchanges to deal them for fiat currency or other Cryptocurrencies.

These industries are employing Blockchain today and in future:

1) Banking

2) Messaging Apps

3) Hedge Funds

4) Voting

5) Internet identity and DNS

6) Critical

7) Ride Sharin

8) Internet Advertising

9) Crypto Exchanges

10) Education and Academia

11) Car leasing and Sales

12) Industrial IoT and Mesh Networking

13) Cloud Storage

14) Cloud Computing

15) Forecasting

16) Music/Entertainment Rights And IP

17) Stock Trading

18) Real Estate

19) Insurance

20) Healthcare and many others.

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Disclaimer: The article reflects the opinions of the author and is not representative of Chaintimes’ views.
The article does not offer any investment advice. User discretion is advised when investing in or trading with cryptocurrency. Extensive and diligent research should be carried out by the reader before making a decision.

Ramon AnderSon
Ramon AnderSon
Ramon is a senior market research analyst who is very passionate about bitcoin. He has a degree in Applied Science from Assumption College, Worcester.

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