Introduction:
The word Blockchain is the combination of two words. Block and Chain. As the name suggest, blockchain is a chain of blocks. But this is not where the definition of blockchain ends. The concept behind blockchain is wider and people believing in blockchain say that it is the future. It is said that Blockchain will do to financial system what internet did to media, what email did to physical post and what smartphones did to landline telephones etc. There can be many examples given.
Let us take a look at an example. Suppose you want to send money to your relative who is settled in Canada. You are sitting here in India. Now when you transfer money from your Indian account to his/her Canadian account, it does not process immediately. It takes considerable amount of time. Also bank charges lots of fees to settle this transaction. Bank plays the role of middleman here. Unless and until bank verifies the transaction, it remains in pending status. This is called centralized system where banks control the transaction.
Problem solved:
Blockchain is the technology which removes the need of middleman here and creates a decentralized system which is public and open to all. Blockchain works in peer to peer network. In the above example, let us consider that the transaction is done with the help of blockchain. As soon as the transaction is made, it is stored on the blockchain. Then everyone on the peer to peer network has to verify the transaction and provide their own consensus. This is called as node consensus. This process is also known as proof of work. Once all the nodes verify the transaction, block is added to the blockchain and transaction gets completed within no time.
Here if someone changes the data on the block or tampers with the block data, everyone on the network gets notified about it and they reject the block. So it is highly impossible to play with the block data hence blockchain is highly secured. Proof of work is something which makes blockchain more reliable and secured.
As in the traditional transaction using the bank, it takes considerable amount of time e.g. 2-3 days in case of international transfer, banks charge huge remittance charges as it provides this service. But in case of blockchain the transaction gets completed within 10 minutes even if it is international, very nominal fee is charged by peer to peer network and the network secures the transaction.
So blockchain provides below features:
More about blockchain:
Blockchain is the distributed ledger which is completely open to everyone. It is a chain of blocks which stores the data in it. The concept of blockchain was introduced first in 1991 by Stuart Haber and W. Scott Stornetta. But the first blockchain was developed and implemented by a person or group of persons named Satoshi Nakamoto. No one knows who Satoshi Nakamoto is. The identity is hidden and yet to be disclosed. Many people came forward and claimed to be Satoshi Nakamoto but failed to prove it. Satoshi Nakamoto created first digital currency which is called as Bitcoin with the help of blockchain and helped the world to enter in the world of crypto currency and decentralization.
Each block in the blockchain contains
i. Data
ii. Hash of the block
iii. Hash of the previous block
Now let us understand what Hash stands for. You can compare Hash with your fingerprint. Every person has unique fingerprint and that cannot be altered. Same is the case with Hash. Hash is unique per block and it contains the information about the transaction such as amount, date etc. As each block contains the hash of the previous block, this effectively creates the chain of the blocks and hence its blockchain.
Basically, blockchain works under one mechanism which is known as proof of work. When a transaction is recorded on block, everyone in the network has the copy of the block. Once all the nodes provide the acceptance that block gets added to the blockchain. In other words, all the nodes provide the proof about their acceptance. This is how proof of work mechanism is carried out.
Where blockchain can be used?
Now a days, blockchain is being used as a decentralized and distributed ledger for cryptocurrencies. Bitcoin is one of the top cryptocurrencies which uses blockchain to make transactions. But there are many other ways where blockchain can be implemented. Here are few of them:
Land registration:
Suppose you have bought a piece of land and the registration is done manually. Manual registrations can be easily altered and this gives rise to fraud and corruption. Now let's understand the use of blockchain here. Suppose the registration is done and data is stored on blockchain. As we know the data on the blockchain is irreversible and if any node in the network tries to alter it, it requires a consensus of more than 50% which is impossible. So data is stored securely and unchanged. This is how frauds and corruption can be minimized.
Smart contracts:
As we are living in the world of smart technologies, we also have something called smart contracts. Smart contracts are blockchain based and can be implemented without any intervention of human. Ethereum blockchain is the best example smart contract.
Food and supply chain:
Recently government of Kerala(India), has announced that they will be implementing blockchain in food and supply chain business.
Ecommerce:
Japan is the first country which has officially legalized use of bitcoins. You can buy anything by transacting using bitcoins there. Many e commerce websites and businesses in Japan accept payments in bitcoins which is faster than the traditional mode of payments.
Public elections:
Voting method can be decentralized by use of blockchain. Blockchain can store the votes and it is highly impossible to tamper with it.
Types of Blockchain:
Public blockchain:
As the name indicates, access to this type of blockchain is public. There are absolutely no access restrictions. Anyone can send transactions, validate it, receive it over the internet. Anyone can become part of the network by mining the coins. Best example of this type of blockchain is Bitcoin and Ethereum.
Private blockchain:
This type of blockchain has access restrictions. If anyone wants to access the blockchain, it needs an approval from the company using it. This is also known as permissioned blockchain. Companies use this blockchain to ensure data integrity and confidentiality. Ripple is an example of private blockchain.
Consortium blockchain:
This is also known as semi decentralized or partiallly decentralized blockchain. This type of blockchain is not controlled by single organization but by multiple entities and anyone who needs access to this blockchain needs approvals from all the companies controlling it.
Source: https://en.wikipedia.org/wiki/Blockchain
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