Brief Introduction to Blockchain Technology

01- Introduction

A blockchain is literally a chain of blocks. A block in this context is information about a series of transactions recorded in a distributed ledger. It is a simple block of digital information which is highly secured and shareable but immutable. This technology is assumed to cut out the middleman or intermediaries from any sort of transaction or transfer of digital assets. It is a much more secure and decentralized medium.

02- Features of Blockchain

• Immutable: Blockchain technology functions through a collection of nodes, every node in the network has a copy of the digital ledger. To add a transaction, every node checks the validity of the transaction and if the majority of the nodes think that it is a valid transaction, then it is added. Any validated records are irreversible and cannot be changed.

• Distributed Ledgers: All network participants have a copy of the ledger for complete transparency. A public ledger will provide complete information about all the participants on the network and transactions. Any ledger will be updated in seconds or minutes and due to no involvement of intermediaries in the blockchain, the validation for the change will be done quickly.

• Decentralized Technology: There is no central governing authority that is responsible for all the decisions in the blockchain network. Here, users have control over their properties and they don’t have to rely on third party to maintain and manage their assets.

• Enhanced Security: All the records in the blockchain are individually encrypted. Every information on the blockchain is hashed cryptographically which means that every piece of data has a unique identity on the network. All the blocks contain a unique hash of their own and the hash of the previous block. Due to this, the blocks are cryptographically linked with each other and any attempt to modify the data means to change all the hash IDs which is practically impossible.

• Consensus: Consensus is a decision-making algorithm for the group of nodes active on the network to reach an agreement quickly and faster, and for smooth functioning of the system. There are many consensus algorithms with its pros and cons, and every blockchain must have a consensus algorithm otherwise it will lose its value.

• Faster Settlement: Blockchain offers a faster settlement compared to traditional banking systems. This way, a user can transfer money relatively fast which saves a lot of time.

03- Types of Blockchain

• Public Blockchain: The public blockchain is a non-restrictive, permission-less distributed ledger. Anyone can send a transaction to this network and anyone can become a transaction validator . The public blockchain network offers a reward for the people who secure them and utilizes some sort of proof of stake or proof of work algorithm to general people. This is known as cryptocurrency mining. Examples of public blockchain includes Bitcoin and Ethereum.

• private Blockchain: Private blockchain networks are permissioned, meaning no one can join the network until they are invited by the network administrator. Examples of Private blockchain includes Multichain and hyperledger projects.

• Federated or Consortium Blockchain: Here, the mining process is closely controlled by preselected set of nodes or by a preselected number of stakeholders. Examples includes Web foundation and R3 etc.

04- Importance of Blockchain

The importance of blockchain relies primarily on its features which are trust, transparency, high level of security, integrity of content, smart contract and bypassing of intermediary. Experts say that the future of monetary transactions and secure information exchange rest on the shoulders of blockchain.