Blockchain technology is very popular today. You may also hear about it once in your life. You may ask yourself,” What is blockchain and its applications ?”.So, in this article, we will explore what blockchain is and everything you need to know in simple terms. Let’s begin with the question.
What is Blockchain?
“A blockchain is simply a tamper-proof digital ledger of transactions across multiple computers.” Blockchain technology differs from central database structures because it spreads data records among multiple computer nodes that form the network. An online notebook that everyone can view and add content to provides this function, but after something is recorded, it becomes permanent. The method ensures both the trustworthiness and reliability of the recorded information.
Breaking It Down
Let’s break the word blockchain into two words: block and chain. Each block of a blockchain contains three essential elements: 1st is the hash (which is its code like DNA), the second one is the hash (code) of the previous block, and the third one is the actual data stored. When these blocks are linked together, they form a chain called the blockchain. Just look at the diagram below.
How Does Blockchain Work?
Now, let’s understand how blockchain works.
- Transaction Initiation: When a user initiates a transaction, like transferring cryptocurrency or recording a smart contract. This transaction is broadcast to the network.
- Verification and Validation: Once the new transaction is generated, then it is broadcast to the network. The nodes in networks receive the transaction and validate it by checking if it follows the protocol.
- Block Creation: Once the verification is done, the transaction is linked with other blocks. As we read in the above, one block has three sections. Each blog has its hash, along with the hash of the previous block and actual data.
- Insertion of a new block : Now, the new block is added successfully to the blockchain, creating a permanent, rigid record.
- Ledger Update : After all the process the updated blockchain is sent to all nodes, to ensure everyone has the latest version of the ledger.
Key Features of Blockchain
Blockchain technology has several key features that make it unique and highly secure. Some of these are below.
1. Decentralization
Blockchain technology is highly decentralized. Unlike traditional database systems where a central authority controls the data, blockchain allows multiple participants to validate and store data. This reduces the risk of fraud and makes him more secure.
2. Immutability
Once a transaction is recorded on a blockchain, it is nearly impossible to change. Because each block is linked with the previous block. This feature makes blockchain particularly useful for applications that require permanent and trustworthy data storage.
3. Transparency
By recording all the transactions on a public, tamper-proof ledger Blockchain guarantees transparency. The openness in these industries allows for greater trust, prevents fraud, and increases accountability in such as finance, supply chain, and voting systems.
4. Security
Due to the highly decentralized system and Coding of hashes, it is nearly impossible to change or delete the blocks. For example, the change of one block of bitcoin takes 10 minutes, and unimaginable times require changing the whole blocks in bitcoin alone. Thanks to the role of cryptography in blockchain, which ensures secure and immutable records.
Types of Blockchain
There are several types of blockchain. Some of these are given below
- Public Blockchain: This type of blockchain has an open structure and has no restrictions on participation. It allows any user to join the network, confirm transactions, and retrieve the information. Public blockchain examples are Bitcoin and Ethereum.
- Private Blockchain: These types of blockchains have a closed structure and are restricted to a given set of participants. Because the network has controlled access, only authorized users are permitted to validate transactions and access information. Primarily, these blockchains are used by companies for the purposes of confidentiality and control.
- consortium blockchain: However, a consortium blockchain is neither fully centralized nor fully decentralized as there is control on a consortium of organizations. That is why these blockchains are for industries with multiple stakeholders like in cases of supply chain or banking that require sharing and verification of data involving multiple parties.
- Hybrid blockchain: An example is that hybrid blockchain refers to a combination of public and private because some information contained in the system is public and some is private. It is also optional for viewing when features are needed most, especially in retail and healthcare, for privacy and confidentiality.
Blockchain Use Cases
While blockchain is most commonly associated with cryptocurrencies like Bitcoin, its applications extend far beyond digital currencies. Here are some of the key use cases:
1. Cryptocurrency
Blockchain is one of the most common applications of blockchain. One such example is e-bitcoin, which is the most famous among them. Blockchain technology is primarily used by these digital currencies to store and secure transaction records.
2. Supply Chain Management
Blockchain is also used in managing supply chains. For example, take the supply chain. Take blockchain for example, We use it to track products from the manufacturer to the store shelf. It is possible to record each step of the journey in real-time and make it transparent so there is no risk of fraud. Now, think about the possibility of knowing where every single ingredient you use is coming from or being able to confirm with 100 percent certainty that your luxury watch rs a genuine one. The possibilities are endless.
3. Healthcare
Blockchain is reshaping industries. In healthcare, blockchain can be used to store and secure patient records and give good control over medical data. Blockchain also enables better sharing of information between healthcare providers and improves the overall quality of care.
4. Voting Systems
Now, blockchain is used in elections. With the help of blockchain technology, fair elections are possible. Because blockchain-based voting is more transparent. Countries are now adopting this method as it was used as a voting system in the 2013 elections of the U.S.A.
5. Smart Contracts
Another widely used application of blockchain is smart contracts. Unlike traditional contracts, these contracts are automatically executed when certain conditions are met. Also reduces the need for intermediaries and ensures transparency.
Challenges and Limitations
Despite its many challenges, blockchain is however also a very multipurpose application. In this article, we will analyze some of the main obstacles to utilizing blockchain as well. Additionally, it eliminates the necessity of using brokers and gives clearness.
1. Scalability
The scalability challenge makes blockchain one of challenging technologies. Due to the limitation of transaction processing capacity transaction times. As a matter of fact, it has higher fees across the network. In 2017, developers came up with solutions to the problem which are Lightning Network and Segregated Witness (SegWit). They tackled the scalability concerns but at the cost of bringing down a new challenge – which is to keep decentralization while attaining increased efficiency.
2. Energy Consumption
Bitcoin mining operations received criticism because of increasing energy usage in 2011. Coal-derived electrical energy used by Chinese mining farms creates substantial criticism regarding their power consumption pattern. The environmental challenge in blockchain history led to the creation of the Proof of Stake (PoS) consensus mechanism, which Ethereum 2.0 started deploying in 2022.
The environmental impact of blockchain technology has initiated debates among developers. They are trying to develop more energy-efficient consensus mechanisms. For instance, some newer blockchain platforms use proof of stake (PoS), which requires less energy than proof of work to validate transactions. However, energy consumption remains a challenge, especially for large-scale networks.
3. Regulatory Uncertainty
Because blockchain decentralizes operations effective regulations become challenging. Governments along with legislative institutions continue working on methods to control blockchain-based assets including cryptocurrencies while maintaining their operational framework. Different nations either accept blockchain technology or they have implemented stringent rules or complete prohibitions against it. Blockchain receives distinct treatments across different countries throughout the world.
The United States accepts cryptocurrencies widely, yet China and India implemented regulatory restrictions on the same digital assets. Businesses are reluctant to adopt blockchain technology because of the high level of uncertainty present in the sector. The success of blockchain technology relies on the manner through which investors and countries treat it. The economic growth of blockchain follows their level of endorsement or lacks their support.
4. Lack of Standardization
Standardization develops as an essential challenge among blockchain systems. The absence of standard operating procedures for blockchain technology stands as a challenge because this platform remains new to industry practice. Companies face difficulties in creating blockchain-based solutions because the absence of standardization prevents interoperation with different systems and platforms.
According to my point of view, without clear standards, businesses may face challenges when trying to integrate blockchain into their existing infrastructure. The lack of comparison between different blockchain platforms can limit the potential of it and slow its adoption.
5. Security Concerns
Although blockchain is generally considered secure. For example, 51% require changes in the data in blockchain networks that use proof-of-work consensus mechanisms. In these attacks, a group of miners can control more than 50% of the network’s mining power and can change data.
Smart contracts are written by humans and if there is a bug or flaw in the code entered. It could cause significant financial losses.
6. Adoption Barriers
The widespread adoption of blockchain is still in progress. Many businessmen are still unfamiliar with blockchain technology. They do not know how it can benefit their operations. Blockchain solutions often require significant investment. For organizations that want to adopt blockchain, they need to know it more and more and train the people.
Additionally, some industries are more resistant to change than others. I explain to you, by example, that legacy financial institutions may be hesitant to adopt blockchain due to concerns over disrupting their existing processes or fear of losing control over transactions. Overcoming these adoption barriers will require time and education.
7. Data Privacy Issue
We all know that blockchain is giving us a high level of security, but it can be a little bit insecure regarding data privacy. An instance is provided by most public blockchains where transaction details are visible to all other participants, which causes user privacy issues.
Solutions like private blockchains give more privacy, but uncasing the right tradeoff between transparency and confidentiality is still the challenge.
Conclusion
As you read above about blockchain technology, we can say that blockchain technology is still in an evolutionary process and continues to expand across various industries. Its importance increases day by day. We can not ignore its potential. We should update ourselves with this technology. However, it is exciting for all of us to see the future of blockchain.
Thinkers and Expert Predictions
Many thinkers and experts predict that blockchain use will increase in the future. It will take the place of the traditional banking system and the government will use it as to record and secure its population data. Future voting systems will be purely blockchain base and cryptocurrencies will be the future currencies.