Content
What is Blockchain?
How does Bckchain work?
How is information added to the blockchain?
Who invented blockchain?
What can Blockchain do?
What uses does Blockchain have?
Conclude
What is Blockchain?
Blockchain is a special type of database where you can only add data (and cannot delete or change data). As its name suggests, a blockchain represents a chain of blocks – these blocks are blocks of information added to a database. Each block holds a pointer to the previous block and typically contains a combination of transaction information, timestamps, and other metadata to confirm its validity.
Since they are linked in this way, the entries cannot be edited, deleted, or modified in any way, as this would invalidate all blocks that follow them.
How does Blockchain work?
At this point blockchain may not seem like an impressive alternative – you might be wondering what advantages this system has over a regular spreadsheet. The biggest advantage of blockchain is that it allows users to interact around a shared source of truth without necessarily trusting each other. With a distributed network, no single party can attack a well-built blockchain.
To independently run and verify the state of the blockchain, users must download a software. Once installed and running on the user's machine, the software interacts with instances on other machines, to upload/download information (e.g. transactions or blocks). A new user downloads a block and checks that the block was created within the system's rules and passes this information on to peers.
What we have now is an ecosystem that can be made up of hundreds, thousands, or tens of thousands of entities all running and synchronizing an identical copy of the database (we call them are nodes). This makes the network very large capacity and always available.
How is information added to the blockchain?
The integrity of the blockchain will be damaged if incorrect financial information is recorded. At the same time, there is no admin or administrator in the distributed system to maintain the ledger – so how to ensure that participants act honestly?
Satoshi proposed a Proof-of-Work system, which would allow anyone to propose a block to join the network. To propose a block, they must sacrifice computing power to guess the solution proposed by the protocol (to do this they need to hash the data multiple times to produce a number smaller than a specific value) .
This process is called mining. If the miner guesses the solution correctly, the block they built (including unconfirmed transactions that peers sent them) is added to the chain. Thanks to this, they will receive a bonus in the form of a native token of the blockchain.
Hashing with a one-way function means that whoever gets the output data cannot guess the input data either. But if there is input data, verifying the output data is easy. This way, any participant can verify whether a miner has produced a ‘valid’ block and reject invalid blocks. If the block is invalid, the miner will receive no reward and lose capital for attempting to forge an invalid block.
In cryptocurrency systems, reliance on public/private key cryptography also ensures that parties cannot spend funds they do not own. The coins are tied to private keys (only the owner knows these keys), and they can only be spent with a valid signature confirming the transaction of the coins.
The Proof-of-Work mechanism is the most tested mechanism for achieving consensus among users, but it is not the only one. Alternatives such as Proof-of-Stake are growing in adoption, although they have yet to be properly implemented in their true form (despite hybrid consensus mechanisms created a long time ago).
Who invented blockchain?
The basic idea behind an immutable data series can be traced back to the early 90s. Researchers W. Scott Stornetta and Stuart Haber published a paper titled How to Time Stamp a digital document that discusses effective ways to time-stamp files so that they cannot be edited or tampered with.
However, Stornetta and Haber's approach is not perfect, and still requires trust in third parties to implement. Blockchain technology incorporates innovations from other computer scientists, and Satoshi Nakamoto is credited as the father of the system we described in the previous paragraphs.
Are you interested in learning more about blockchain history? Read our article on the History of Blockchain.
What can Blockchain do?
Cryptocurrencies are the tip of the iceberg. Many people saw the potential of decentralized computing following the advent of decentralized money. If first-generation blockchains like Bitcoin brought a shared transaction database, second-generation products like Ethereum brought about smart contracts. These are programs that run on top of the blockchain, to manage the conditional movements of tokens.
With smart contracts, there is no central server running the code, meaning failure at a central point at the storage level is distributed. Users can inspect the software (thanks to its public nature) and developers can design contracts in such a way that no one else can disable or modify them.
Some applications for blockchain could include:
Cryptocurrency – digital currency is an extremely powerful means of value exchange without single point of corruption, without the need for gatekeepers and middlemen. Users can send and receive money to other users globally in a fraction of the time (and often a fraction of the cost) it would take them to transfer through their banks. Coins cannot be confiscated and transactions cannot be reversed or frozen.
Conditional payment - Alice and Bob do not trust each other, but they want to bet on the outcome of a sports match. They both send 10 ETH to a smart contract, which is fed data through an oracle. At the end of the match, the contract will evaluate which team won and pay 20 ETH to the winner.
Distributed data – blockchains face some scalability issues, but they can integrate with distributed storage facilities for file management. Access control can be managed through smart contracts, while data is stored in an off-chain container.
Securities – although they involve some risk that counterparties may not fulfill their obligations, blockchain-based security tokens are said to be a much-needed innovation for the financial sector. They inject funds that add liquidity and mobility to today's securities space and enable the tokenization of assets (like real estate or equity).
What uses does Blockchain have?
Blockchain technology offers many use cases. Below are articles on blockchain use cases on Binance Academy:
Supply chain: effective supply chains are at the core of many successful businesses and involve the handling of goods from supplier to consumer. However, coordinating multiple stakeholders within a given industry has proven difficult. Using blockchain technology, an interoperable ecosystem built on an immutable database can bring new levels of transparency to countless industries.
Video games: gamers are completely under the control of the companies that manage the servers. The end user has no real ownership and in-game assets exist only within the games. Instead, by choosing a blockchain-based approach, users will own their assets (in the form of exchangeable/non-exchangeable tokens) and can exchange them between games or marketplaces. school.
Healthcare: the transparency and security of blockchain technology make it an ideal platform for storing medical records. The healthcare industry landscape (including hospitals, clinics, and other medical service providers) is incredibly fragmented, and reliance on centralized servers puts sensitive information in easy reach. hurt. By securely encrypting their records on the blockchain, patients maintain their privacy, while being able to share their information with any organization that can access the global database. .
Money transfer: sending money internationally is a hassle when using traditional banks. Money transfer fees and settlement times make it expensive and unreliable for making urgent transactions, mainly due to a complex network of intermediaries. Cryptocurrencies and blockchain eliminate this ecosystem of middlemen, and a variety of projects are now harnessing the technology to enable fast, cheap money transfers.
Digital identity: the world is in dire need of an identity solution for the digital age. Physical identities are easily falsified and are not available to many individuals. The so-called 'self-sovereign identity' would be anchored to a blockchain ledger and tied to its owner, who could selectively disclose information about themselves to third parties without sacrificing their right to privacy.
Internet of Things: some speculate that the number of physical devices connected to the internet could increase with blockchain technology, both in home and industrial contexts. It is thought that the proliferation of these devices will require a new economy of 'machine to machine' (or M2M) payments, requiring a system capable of high throughput for small payments .
Governance: since distributed networks implement their own regulations, it is not surprising that they can have applications in dispersing governance processes at local, national or even international. Blockchain governance ensures that all participants can participate in decision-making and provides a transparent overview of what policies are being implemented.
Charity: charities are often hampered by restrictions on how they can accept money. ‘Crypto-philanthropy’ involves using blockchain technology to avoid these limitations. Drawing on technology's inherent properties to ensure greater transparency, global engagement and reduced costs, the sector can maximize the impact of charities.
Conclude
Public blockchains are permissionless, meaning there is no authentication process to go through before you can become a participant. With Bitcoin and other cryptocurrencies, users simply download open source software to join the network.
Given the accessibility of these ledgers, blackouts are extremely difficult and nearly impossible to take the entire network offline. Such accessibility makes them an attractive tool for all users.
While their most common applications lie in financial transactions, there are many other areas where they can be deployed to become useful tools in the future.
