Introduction
The financial sector has been disrupted by blockchain technology. However, blockchain technology is not limited to the financial industry. Every business is investing in blockchain to reap its benefits, from automobiles to retail, healthcare, manufacturing, and travel.
Anyone who follows new technology understands that the notion of blockchain is fraught with ambiguity. While many people have heard about blockchain for years, and it is now being used in a variety of industries, many people are still unsure what it is and how it works.
The aim of this article it to clarify and explain in the simplest terms some of the blockchain concepts. We will be discussing about blockchain, it's benefits, and the concepts of blockchain.
What is Blockchain?
The blockchain is an indestructible collection of blocks, each of which includes critical information that is validated by all network nodes rather than a single authority. Each block in the chain includes its own hash value, as well as the hash value of the previous block, which serves as a unique fingerprint to ensure that the data it contains has not been tampered with.
To put it another way, a blockchain is a digital database of transactions that is copied and spread across the blockchain's network of computers. Transactions are recorded using an immutable cryptographic signature known as a hash in this form of DLT (Distributed Ledger Technology).
Common benefits of Blockchain
- Security: By all measures, blockchain outperforms any other record-keeping system in terms of security. A blockchain network's shared transaction documentation can only be updated and/or amended with consensus.
- Efficiency: Completing a transaction via standard paperwork methods is stressful since it requires third-party mediation and is prone to human mistake. These archaic processes can be streamlined and disciplined with blockchain, removing the possibility of errors and making trading more efficient and faster.
- Transparency: Because of blockchain, transaction histories are more transparent than they have ever been. And because it is a distributed ledger, all nodes in the network have a copy of the documentation. Anyone has access to the information on a blockchain ledger.
- Traceability: In complex supply networks, it's difficult to track goods back to their origins. All goods exchanges are documented by blockchain, providing you an audit trail to figure out where a certain item came from.
- Reduced cost: Because blockchain eliminates the need for third-parties and middlemen, organizations may save a lot of money. You don't need anybody else to set the rules and policies of exchange if you trust your trade partner.
The Blockchain also has it's drawbacks such as: Regulations, Privacy, Storage, etc.
Blockchain concepts
- Nodes: Because nodes are the ones who accomplish everything in the blockchain ecosystem, they are essential. Everyone operates as a combination client and server in a decentralized peer-to-peer system. As a result, node responsibilities are protocol-specific rather than software-specific. A blockchain, like many other Internet applications, is a protocol rather than a piece of software. Instead than requiring everyone to execute the same executable in order to utilize a service (such as Skype), the sole need is that nodes communicate according to the service's rules. The node's job is to implement and maintain the blockchain. Each node has the capability of storing a complete copy of the distributed ledger and, if they do, updating it depending on network consensus. As a result, nodes can engage in a number of tasks, including as transaction processing, block generation, and ledger administration.
- Networks: Blockchains employ a network design that differs from that of typical online applications. The server operates as a single source of ground truth, and the clients connect directly to it to post or retrieve application data. The peer-to-peer approach for blockchain networking has one major implication: the underlying network must be capable of supporting it. Because each peer must be able to connect to every other peer, you can't properly deploy a blockchain network over a network with various levels of trust without jeopardizing blockchain or network security. The blockchain's "broadcast" communication method needs a vast quantity of bandwidth to work correctly. The failure to support this might have a severe influence on the security and efficacy of the blockchain. Denial of Service (DoS), Routing attacks, and Sybil attacks are the three types of network-level attacks on the blockchain.
Consensus: The consensus algorithm's duty is to guarantee that the blockchain's control is decentralized, meaning that no single user has power over the network. This is achieved by tying ownership of the blockchain network to control of a rare resource. Whatever consensus technique you choose, the truth remains that on the blockchain, control of a rare resource equals power. Common algorithms that implement consensus:
Proof of Work: The original consensus technique, proof of work, requires participants to undertake work, as the name indicates. In Proof of Work, miners are the ones that attempt to create a new block. The inventor of the block is chosen through a competition in which the winner creates the block (and earns the associated rewards). The main flaw with Proof of Work is that the ability to build a valid block is the sole criterion for block generation. Nothing prevents two miners from finding different versions of the block at the same time. If this happens, different parts of the network may develop on top of different blocks, resulting in a blockchain that diverges. Blockchain resolves issue using the longest block rule, which specifies that if two copies of the blockchain contradict, the longer one must be adopted.
Proof of Stake:Proof of Stake provides a unique approach to blockchain security by utilizing a limited resource. Proof of Stake leverages the blockchain's scarce cryptocurrency instead of limited processing power (like Proof of Work). The ability for a user to construct several copies of the same block is one difficulty with Proof of Stake. Because the sole requirement for a block to be legitimate is that it be signed by the designated block creator, a user can sign numerous copies of the same block. In fact, if given two versions of the blockchain to build on, the block creator's greatest interest is to build on both to guarantee that whichever version finally wins out includes the block that gives them their block reward.
Proof of Elapsed Time (PoET): PoET is one of the finest consensus algorithms for permissioned blockchain networks, where access to the network requires permission. The permissions networks determine mining rights and voting principles. The consensus mechanism enables a safe entry into the system since the network requires miners to be identified. As a result, PoET offers the opportunity to select the winners using only fair methods.
4. Smart Contracts: A smart contract is a piece of decentralized software that executes business logic in response to events. Smart contracts are decentralized corporate automation tools that run on blockchain networks.
Smart contracts are also the foundation for cryptocurrency and digital token transfers (in essence, a digital representation of a physical asset or utility). The ERC-20 and ERC-721 tokens on the Ethereum blockchain, for example, are smart contracts. Because of its security and immutability, blockchain is suitable for storing smart contracts. On a shared ledger, smart contract data is encrypted, making it nearly impossible to lose the information recorded in the blocks.
Conclusion
In this article, we were able to discuss what blockchain is, the benefits that blockchain offers such as (transparency, cost reduction, efficiency, etc.), and lastly the concepts of blockchain. We discussed at length, the important concepts of blockchain (smart contract, consensus, nodes, and network). With this article, you should be able to understand what blockchain concepts is really all about.