Blockchain Technology is nothing new, in fact, the first cryptographically secured chain of blocks was described for the first time by Stuart Haber and W Scott Stornetta in 1991, and in 2008, a developer working under the pseudonym Satoshi Nakamoto released a white paper establishing the model for a blockchain. You might be wondering what the recent buzz is about, and that likely has a lot to do with the boom (and crash) that the cryptocurrency market went through earlier this year.
Although there are highly polarizing views on blockchain, and terms like crypto, NFT & web3 are frequently interchanged with one another, we have highlighted some cases of how we can truly utilize this technology beyond just cryptocurrency and the smarter way forward.
What is blockchain?
A blockchain is a shared distributed ledger between computer network nodes. A blockchain serves as an electronic database for storing data in digital form. The most well-known use of blockchain technology is for preserving a secure and decentralized record of transactions in cryptocurrency systems like Bitcoin. The innovation of a blockchain is that it fosters confidence without the necessity for a reliable third party by ensuring the fidelity and security of a record of data.
Some key differences between a blockchain and a standard store of data.
- Data is centrally stored through standard databases. Blockchain makes use of decentralized data storage.
- In a blockchain, data is gathered in groups called blocks that each include data sets. Blocks have specific storage capabilities, and when filled, they are sealed and connected to the block that came before them to create the data chain known as the blockchain. A typical database would structure its data into tables.
- To handle the saved data, a database needs a database admin or administrator. In Blockchain, there is no administration.
- Database administrators must grant permission before changing data. For blockchain, data modification is not subject to authorization - users have a copy of the data, and because Blockchain is resistant to data alteration, changing the copies does not affect the master copy of the data.
- Information that is current at a given time is stored centrally in databases. Blockchain stores both the information that is currently in use and the previously saved information from the past.
How safe is the blockchain?
Decentralized security and trustless systems are made possible by blockchain technology in a number of ways. To start, new blocks are always chronologically and linearly stored. In other words, they are constantly added to the blockchain's "end." Although not impervious to hacking, blockchain has a stronger line of defence due to its decentralized nature. A hacker would need to have access to more than half of all the computers in the same distributed ledger in order to change a chain.
The biggest and most well-known blockchain networks, like Bitcoin Ethereum & Cardano, are open and welcome participation from anybody with a computer and an internet connection. Having more users on a blockchain network tends to boost security rather than cause a security issue. The number of participating nodes increases the number of people who examine one another's work and report hostile behaviour.
Developing trustless systems on the blockchain.
Most of our current systems have a central authority that we "trust" to be accurate. (Eg: Your bank tells you how much money is in your account and you trust that they give you an accurate number) Blockchain technology uses a trustless system where data is validated and kept track of by decentralized, independent bodies.
The beauty of this technology means that the component of "trust" is enhanced when doing business across the blockchain. Let’s take a look at how this is developed:
- The nodes connected to the Blockchain share and update the distributed ledger with each incoming transaction. Since there is no centralized server in charge of the data, everything is done in real-time.
- All transaction data is accessible to all nodes or participants in the Blockchain since each node or participant owns a copy of the Blockchain data. Without the aid of middlemen, they can independently confirm their identities.
- Blockchain cannot be accessed by anybody without authorization thanks to permissions and cryptography.
- Since each node or participant in Blockchain holds a copy of the Blockchain data, every bit of transaction data is accessible to all nodes or participants in Blockchain. They can independently validate their identities without using middlemen.
- A transaction's validity requires the agreement of all relevant network members. Consensus algorithms are used to accomplish this. (This particular function of the blockchain has inspired innovative solutions for voting in democratic systems, we will dig deeper into blockchain ulitity in Part 2 of the article.)
Now let us take a look at some of the benefits and drawbacks of blockchain technology, giving us a better base for understanding its full utility.
Some benefits of blockchain technology.
- Transparent - Transaction histories are now more transparent than ever thanks to blockchain technology. Each node in the network has a copy of the documentation because it is a particular form of a distributed ledger. Viewing the data on a blockchain ledger is done with ease. Everyone in the network can view the modification and the updated record if a transaction history is changed.
- Cost-effective - A blockchain network lowers costs in a number of ways. No requirement for independent verification, direct asset sharing is possible & there are fewer intermediaries. Since each participant has a copy of the shared ledger, transaction efforts are kept to a minimum.
- Traceable - It is challenging to track things back to their sources in supply chains that are complex. However, with blockchain, the trades of items are tracked, giving you an audit trail to find out where a specific object was acquired. Additionally, you learn about every stop the product made along the way. This level of product tracking can assist customers to confirm the product's legitimacy and stop fraud.
Some drawbacks of blockchain technology.
- Environmental Concequences - the effect that Blockchain has on the environment is simply not good. In fact, according to research conducted by the University of Cambridge, the annual electricity consumption by Bitcoin, accounts for an estimated 0.6% of global energy usage.
- High demand for storage - The issue of storage arises because blockchains are kept on all network nodes permanently. There is no possibility that personal computers can hold an infinite amount of data that keeps getting added to as the number of transactions rises. The Ethereum blockchain on its own is growing at a rate of 55 GB/year.
- Security Concern - Although highly unlikely, there is a potential security risk seen here. We call this the 51% Attack. A team of miners who control more than 50% of the network's mining hash rate is said to be conducting a 51% attack when they target a cryptocurrency blockchain. The controlling parties have the ability to change the blockchain because they control 51% of the network's nodes. As highlighted by Satoshi Nakamoto, if 51% of the nodes in a network lie, then that lie will have to be accepted as truth.
At Hyperglade, we are certain that most of these issues will be resolved as time passes and the technology itself matures. Developers and blockchain enthusiasts are tirelessly working to iron out these bumps as the technology scales and grows into its unprecedented utility. In Part 2 of Blockchain Basics, we will touch on the future of Blockchain, and how we see it - looking at some of the top use-cases for blockchain technology. Some you may have thought of, and some may seem out of the ordinary. Keep an eye out!
