Cryptocurrency and blockchain are the two most popular words we always hear in the association. For instance, the moment you speak about bitcoin or Litecoin, the word “Bitcoin blockchain” automatically comes up. Similarly, when someone trades in ether, they talk about the “Ethereum blockchain” technology. While blockchain associates with cryptocurrency mostly, this technology has a lot more scope than we perceive. It became popular in 2008 when Satoshi Nakamoto spread words about this state-of-the-art technology capable of bringing a revolution in today’s world.
But what exactly blockchain is, and how it can shape a new future for the technological world?
Most people have heard about blockchain, and they know it forms the base of cryptocurrency. But there is a handful of people who truly know the hidden power of this budding technology that can revolutionize the entire world. In this following article, we have shed light on blockchain and how it has paved the way for a bright future.
What is blockchain technology?
To understand blockchain, let’s divide the word into two parts- block and chain. Blocks are a collection of different transaction records, and chains are different databases. The transaction records get stored in different chains or databases. Each database forms a secured link with each other through peer-to-peer connections. There is no centralized organization that controls the databases and the transactions. Instead, the peers have complete control over the blockchains to modify the existing list of transactions as per requirement.
A walk down blockchain’s historical timeline
- In 1991, W Scott Stornetta and Stuart Haber described how different blocks of transactions could be secured cryptographically.
- After almost a decade, in 2000, Stefan Konst published the idea of cryptographically protected information blocks for the first time and also proposed a way for its implementation.
- But it wasn’t until 2008 that the world accepted blockchain as a part of their life. Satoshi Nakamoto released a complete set of white papers on the blockchain.
- In 2011, the world witnessed the implementation of the Bitcoin blockchain, the first of its kind, as a highly secured transaction ledger.
- After this, in 2014, Blockchain 2.0 was born. This technology proved that blockchain is more than just a system for currency transactions. It can be used for other financial purposes like the bonds of Smart Contracts.
Types of blockchain
There are four different types of blockchain technologies used widely in the present day. In this below section, we have talked about these classifications so that everyone can have the much-needed clarity.
- Public blockchain
A public blockchain acts on the concept of distributed ledger technology, where the blocks of financial transactions are distributed across a popular network of peers. This was the first kind of blockchain that was introduced to the world. It resolved several issues of having a centralized system like lack of proper security, limitations of currencies, and more.
- Private blockchain
The major difference between public and private blockchains is in terms of access. While anyone can access the private blockchain, a private blockchain has several restrictions. It is accessible to a small group of peers instead of everyone while maintaining the true essence of decentralized ledgers with distributed blocks.
- Hybrid blockchain
In a hybrid blockchain, both the private and public concepts are implemented. An access-based protocol is prepared where users will be given unlimited access to private blockchain data, while peers who will handle the public blockchain shall have limited access.
- Consortium blockchain
A consortium blockchain is made public to different groups in an organization. But each group will have limited access to the data stored in the ledger, thereby representing the essence of a private blockchain.
How does blockchain technology operate?
Blockchain technology comprises three parts mainly-
- Cryptographic or security keys
- Computing technology
- Peer-to-peer network
A peer-to-peer network comprises different computers or systems connected to a particular system, in this case, it is a distributed server network. Every user in the blockchain ledger will have two cryptographic keys- a public key and a private key. These are almost like passwords. A public key is visible to all other peers, but a private key is known only to the concerned operator. Both these keys are required for initiating a transaction, completing it, or adding new information to the distributed ledger.
Once a transaction is initiated, it will be verified through mathematical induction and algorithm, the hash program. Only after the authorization a new transaction block will be added to the ledger, stating the completion status. To maintain security and transparency (the two major principles of blockchain technology), the newly added blocks will have information about the sender and receiver, the amount involved in the transaction, status, and more.
However, no private information like the IP address of the computing network, private cryptographic key, and more will be displayed. The peers will ensure that all newly added blocks are maintained properly through computing processes.
What is hash encryption?
Hashing encryption is the main technology that maintains the security of a blockchain and all transactions which will be done through that ledger. It consists of an indefinite input that can have any variable. Once it is encrypted through computation, a particular output will be produced. It will be routed to the concerned input, and hence, hashes make the blockchain transactions more secured.
Every hash program has three major properties that make it unique and feasible to be integrated with blockchain technology. These are:
- Collision-free: It means that no two hash blocks will collide with each other. Therefore, the hash inputs are mapped to unique hash outputs.
- Encapsulation: No one can predict the hash input value based on the output. Therefore, the transactions are completely secure and very difficult to decipher.
- No puzzle: Several pre-defined values will be there in the hash inputs. These values need to be gathered from a vast lake of information.
A hash program is a mathematical algorithm that will map a set of pre-defined inputs to generate a proper set of strings as the output.
What are the benefits of using blockchain technology?
Whether private, public, or both, Blockchain technology has several undeniable advantages. Even though most organizations are yet to harbour the perks of this new cutting-edge technology, it is crucial to know the core significance, at least in brief. Bearing this in mind, you can easily decide whether your organization needs blockchain or not.
- Blockchain technology is highly transparent
One of the cornerstones of blockchain technology is its transparent operations. Every peer connected to the concerned network will be able to view all transaction blocks. They can view who was involved in a transaction, its date, funds transferred, status, etc. This builds trust and reliable relationships between different peers.
- It maintains optimal security
When it comes to security and privacy, blockchain technology tops the list. It comes with several security features or controls that ensure no scam, fraudulent activity, or phishing can happen. For instance, the private cryptographic keys will prevent peers from accessing the transaction details that concern a particular individual.
- Traceability is at the highest level
One of the main features of blockchain is its high level of traceability. Thanks to the auditing process, one can easily track the details and identify the transaction status, the peers involved in a past-dated transaction, and more. Due to this traceability feature, different organizations can use the concept of proof-of-work so that they can easily display their honesty and genuineness.
- It does not follow the limitations of centralized systems
Blockchain technology does not follow the patterns of a centralized system. No centralized or regulatory body manages all the transactions or sets rules. No limitation exists in transfer amounts, processes, and more. Hence, all peers can easily initiate transactions on the blockchain without fearing all these limitations or legal issues.
- Blockchains are fast and highly efficient
Thanks to the upgraded version of the blockchain, you won’t get any opportunity to complain about the speed and efficiency of the distributed ledger system. The transactions are carried out at a blazing speed so that everything can get completed within seconds. After that, pending transaction status or failures are much less. Due to the minimalization of errors, blockchain is considered one of the most efficient technologies.
- One can automate the blockchain processes
Another major benefit of using the blockchain ledger as a means of financial transactions is its ability to automate different processes. You just have to maintain a set of proper inputs or pre-defined conditions. Based on that, a particular financial can be automated, and the new transaction block or record will be added to the distributed ledger.
How do different companies use blockchain technology for financial transactions?
In the recent years, several companies have adopted blockchain technology to streamline the entire financial process. Here are some real-life cases where the blockchain has proven to be extremely beneficial.
Using blockchain technology, Paystack has managed to speed up online transactions and secure every detail. It helps to create robust transfer infrastructures that connect both payers and payees.
- AZA Finance
The AZA Finance end payments and collect them from different companies and businesses in the African continent. Through the use of blockchain ledger, it has become possible for the company to make the transactions quicker, stabler, and secured.
- Pyyl and Ripple
Ripple and Phyl have collaborated to ensure that the new blockchain can be implemented for facilitating online payments. They ensure that the real-time global transactions are secured, and the transparency is maintained at an optimal level.
Introduction of blockchain in the legal field
One of the major aspects of blockchain technology is the popularity of Smart Contracts. These are nothing but a set of cods having some pre-defined conditions and attributes. When the transactions meet any condition and the initial inputs, they will be allowed to be executed easily.
Working on Smart Contracts
The working of Smart Contracts can be defined with the help of “if x meets y, then z will be the output”. The set codes will be executed if the transaction input matches the preset conditions. These codes can be related to releasing funds, adding new employee profiles, processing claims, and more. A new block will be added to the ledger as the transaction is completed. No one will have the right to change the transaction details. Apart from this, only those users will have access to the information who are directly involved with the transactions.
Top futuristic trends and predictions of blockchain
Seeing how popular blockchain technology has become, its future scopes are bright and can easily transform the entire world. Here are some major trends that can take this new technology to a new height.
- Many national or federal governments have decided to transform paper-based systems into the distributed ledger network for carrying out different transactions.
- There are high chances that industries and businesses will use a single or common blockchain rather than different ledgers. This will increase transparency and ensure that trust and reliability can be created.
- Cryptocurrencies controlled using Blockchain technology will soon replace centralized fiat currencies like AUD, USD, INR, and more.
- Blockchain technology can create a single database where the identities of members and asset information will be logged in for future use.
The blockchain technology is paving a wonderful way into a future world that speaks about innovations, state-of-the-art technologies, and creativities. It can be used to automate several processes that require storing the information in a database. Since blockchain can eliminate the challenges of centralized systems, there are high chances that organizations and businesses from across the world will adopt this new technology sooner than later.