Given the disruptive emergence of blockchain technology in the digital payment sector and its potential applicability to anything from cybersecurity to healthcare, it is important to re-examine what blockchain technology constitutes, how it works, and how it can be applied to businesses.
Although blockchain popularized the rise of cryptocurrencies such as Bitcoin and Ethereum among others, the technology is applicable to any businesses involving public users. This underscores the importance of the digital phenomenon and why many banks and corporations are considering incorporating the technology into their operations today.
What is Blockchain Technology?
Blockchain technology is a decentralized and distributed ledger system that records the origin of any financial transaction or digital assets. The system creates and maintains an ever-growing list of encrypted data blocks that contain batches of transactions that cannot be revised, modified, reversed, or tampered with in any way across a network of participants. And to promote trust and prevent fraud, every transaction is updated in real-time and all users on the system can see it.
How Does Blockchain Work?
Blockchain technology rests on three major elements – blocks, nodes, and miners. Blocks within a chain contain the transactional data that is being created to be traded or exchanged for value. When the block is created through mining, it is added to the chain and verified as true and usable by other parties. To boost the encryption process for each block, it is implemented by a 32-bit nonce to a 256-bit hash.
To create new blocks on the blockchain network, the blocks must be mined by dedicated miners utilizing a tremendous amount of internet and computer power to solve an extremely difficult mathematical equation. When you consider that the blocks are created using 32-bits nonce and 256-bits hash, there is about one in four billion chances of getting the answer to the mathematical problem correct.
When a miner gets it correctly, he is rewarded and his answer is used to create a block that is added to the chain. The nodes on the other hand are the hundreds or thousands of computers linked together in the network to create a decentralized system where blocks are created and added to a chain. Once a block is added, all users connected to the chain confirm its accuracy as the system is automatically updated across all participants.
How can Blockchain Technology be Applied?
Blockchain can be applied to almost everything in today’s world – from healthcare to cybersecurity to entertainment. But the most popular area in which the technology has been applied is in cryptocurrencies. Cryptocurrency is a digital payment system that is popularized by tokens such as Bitcoin, Ethereum, and Litecoin among others. With cryptocurrencies, you can pay for goods and services across international boundaries and in real-time.
The most popular cryptocurrency is Bitcoin since it is the first to emerge – created by Nakamoto Satoshi in 2008. While Nakamoto is the pseudonym of its creator, Bitcoin is valued at about $20,000 today, making it the most valuable cryptocurrency in the world. It is not midwifed by conventional banks and not limited to the currency of any one country; it can be used to facilitate trade in any country around the world.
Blockchain technology is the backbone of cryptocurrencies, but it is also being applied to insurance, cybersecurity, healthcare, AI and IoT, oil and gas, finance clearance, and debt settlement among others. Technology companies, financial houses, and market investors as well as national governments are taking cognizance of cryptocurrencies as they relate to blockchain technology for economic and national development.
Types of Blockchain Networks
Largely speaking, blockchain networks are divided into four types and these are examined below:
Public Blockchain Network
A public blockchain can be likened to the one upon which the Bitcoin cryptocurrency is built. It is free for anyone to participate in and operates on a public ledger that everyone is working on at the same time.
Private Blockchain Network
This is similar to a public network but it is administered by one organization and possibly behind a company firewall. The company operates the ledger even though everyone permitted to the network can work on the ledger, and it is limited to the participants allowed by the organization.
Permissioned Blockchain Network
A permissioned network is one in which users must be invited before they are permitted to use the network. It is similar to a public network but there are greater restrictions on who is permitted to the network and on what transactions they can participate in.
A consortium is a group of organizations working on a project, and a consortium blockchain is one in which several organizations manage the network. The organizations determine who can be allowed and in what capacity into the blockchain and places restrictions on what can be accessed or traded.