In Today’s article we are gonna learn about Blockchain like – what is Blockchain Technology, how it works, types of blockchain, its uses, Advantages and disadvantages of blockchain and the future of blockchain technology.
For the past few years Cryptocurrency’s industry received a massive public attention. As the rising price of Bitcoin is attracting everyone to know about it. The reason behind the success of bitcoin is blockchain technology which makes investing in Bitcoin a safe journey.
In the budget 2022-23, India’s F. Minister Nirmala Sitharaman announced that the RBI is soon going to launch its own digital rupee. She further informed that it will be based on Blockchain Technology. The success of Bitcoin or announcement over digital rupee indicates that the future is going to be Blockchain Technology. As blockchain technology is the future of the world we must have the proper knowledge of – What is blockchain technology, how it works and what are the uses of this technology. So, without wasting time let’s dig into the Topic.
What is Blockchain?
Blockchain is a type of database. Now you must be thinking, what is a database?. A database is a collection of information stored in a computer system. In Database, the data is stored in a table format so that it can easily be searchable or filterable.
The purpose of blockchain is to give permission to view or record transactions but it doesn’t give permission to alter it.
Let’s understand in simple words, like in a shop there are many transactions related to – which product is sent, which product is received, to whom the product was sent and from whom the product was received. We called it a ledger. Similarly, Blockchain is a digital ledger of those transactions. And in Blockchain every single record is a block. This block includes information such as Data, Previous hash and Current Hash. As it is a ‘Chain’ of ‘Blocks’ it is known as Blockchain.
Blockchain is also known for its decentralised nature. It means it isn’t monitored or governed by the Government Because these transactions are spread globally across a network of computers.
How does a Blockchain work?
The blockchain is a chain of blocks which includes information of the transactions. Every block has its own unique cryptographic hash. This hash generates on every transaction and it links all blocks together. Hash is a connection which converts the input of Numbers and letters in the fixed length encrypted code. It not only just depends on the current transaction but it also depends on the previous transaction in the chain.
The first block of the blockchain contains a blank previous hash and this is what we call the Genesis Block from where Chain starts. When the first block is filled, a new block gets created whose previous hash column contains the current hash of block No. 1 and this process continues further. That’s why it’s called blockchain – A chain of blocks. If someone tries to change the transaction of any block then a new hash is created and the entire chain after this block mismatched. Through which it becomes easy to track which block has an error. That’s why it is called a secure option.
This chain is stored in many computers. Every computer has a copy of blockchain. These computers are called nodes. These nodes check if there has been any change or error in transactions. Nodes store, spread and preserve the information in blockchain and these nodes update in every 10 minutes.
Types of Blockchain
Following are the four types of blockchain:
1. Public Blockchain
Public Blockchain anyone can become a validator or can send the transactions. It is accessible to everyone who wants to join the blockchain or who wants to view the transactions until they are in the Consensus Process.
- Open for everyone
- Anyone can be part of it
- Fully decentralised
- Uncontrollability of the blockchain
- Ex- Bitcoin, Ethereum, Litecoin
2. Private Blockchain
Private Blockchain aren’t open like Public Blockchain. It is issued by the companies who don’t want anyone to access their data or to contribute. Here no one can join the process without permission of the administrators and it’s typically run by one entity.
- Specially for one company
- Invitation is required
- Centralised (governed by one entity)
- Ex- Hyperledger Fabric
3. Hybrid or Consortiums Blockchain
Hybrid Blockchain is a combination of public and private. It has two types of Computers(nodes) one has all control over the blockchain and they decide the security of a node and other nodes can just access the process as per their functions in the Blockchain. They can be both centralised and Decentralised.
- Some nodes are private some are public
- Can be both Centralised and Decentralised
- Ex- Ripple, Dragonchain
It is a type of blockchain which runs parallel Primary Blockchain.
- Improve Scalability
- Improve Efficiency
- Ex- Liquid Network
Advantages of blockchain technology
Below I have listed some advantages of blockchain technology:
A blockchain is fully decentralised as it’s not monitored by any single entity or the government. The transactions in blockchain are spread across a network of computers which are called nodes. The decentralised nature of blockchain makes it impossible for anyone to change or alter the transactions in the Blockchain.
As all transactions are visible to everyone, it creates more faith in people. It helps people to believe that their money or investment is secured.
You can send coins or money to anyone without including any agent or middle man in the transaction. It saves money which a middleman or agent like a Bank charges.
All blocks are connected through a unique hash code so if someone tries to alter any transaction in a block the whole chain from next mismatched. It makes it easy to track errors in any block. So, No one can manipulate it.
5. Easy to track
Linking every block with each other helps in tracking any transaction from any block.
Like the traditional finance system, you don’t have to include an agent like a bank to send or receive money. Hence, Blockchain reduces cost.
Disadvantages of blockchain technology
If Blockchain has many advantages then it has some disadvantages too which I have listed below:
It has been one of the biggest disadvantages of blockchain. Once we Have entered a transaction it can’t be changed. Many people don’t want their details to be saved in anything although it is saved in code form but it is viewable to everyone.
2. Transaction Speed
One more drawback of blockchain is transaction speed. Due to its speed it is capable of doing limited transactions because it takes time to approve transactions and store them in the database.
3. Private key
Having your own private key is great but it can become the biggest disadvantage if you lose it. Because if someone lost his/her private key there is no option to recover it and you will lose all your money.
4. High Energy cost
The operation of blockchain requires a lot of computing power which consumes heavy electricity.
How to invest in Blockchain
There are many ways through which you can invest in blockchain. Some of those I’m mentioning below.
1. Purchase Cryptocurrencies – You can purchase Cryptocurrencies such bitcoin, ethereum, manero, etc.
2. Exchange Traded Funds – ETF holds shares or stocks of the companies. You can invest in those Exchange Traded Funds (ETF) which emphasize the use of blockchain technology to make innovation.
3. Initial Coin Offerings – Initial Coin Offerings (ICO) is a way to raise funds for issuing the new coins. You can invest in this with the aim that the price of coins may increase in future if the company grows.
4. Companies invest in Crypto – Invest in companies which use blockchain technology, show interest, or who invest in Cryptocurrency. Ex- Tesla
Difference between Bitcoin and Blockchain
You must have thought that Bitcoin and Blockchain technology are the same thing? Answer is No. As many people heard about Blockchain through Bitcoin. Bitcoin and Blockchain are totally different from each other. Bitcoin is an unregulated digital currency which was founded by Satoshi Nakamoto in 2008 who made bitcoin using blockchain technology. Bitcoin is not only Cryptocurrency. Bitcoin is one of the Cryptocurrencies that blockchain powers there are others like Ethereum, Manero, Litecoin, etc which are also popular.
New Uses of Blockchain technology
The blockchain is being used in many domains in which Cryptocurrency is most popular. But there are also some more industries in which blockchain technology is being used or can be used. Lets go through it:
1. Real estate
Real estate is where notary works are happening through Blockchain. All the transactions such buy of property or sell of any property stored in Blockchain which helps to track information about any particular property.
2. Hospital or Medical information
Here records of patients can be stored in Blockchain. It will make relevant data accessible to doctors and data of patients will be securely stored.
3. Voting System
It can be used in the voting system to reduce fraudulent activities and make it more secure.
Future of blockchain
After learning about its Importance or advantages such as Decentralised nature, transparency, security, etc and many domains where it can be used like Voting, etc it tells that it can be used widely in future.