A blockchain functions as a continually expanding list of records called blocks, linked together using cryptography. These blocks hold a cryptographic hash of the previous block, a timestamp, and transaction data.
A blockchain is a decentralized and public ledger used for recording transactions across various computers, ensuring that these records cannot be modified retroactively unless the entire chain is altered, with the consensus of the network.
Satoshi Nakamoto, the pseudonymous figure, created blockchain in 2008 to act as the public ledger for Bitcoin, the first cryptocurrency, which solved the double-spending issue without relying on a central authority.
Decentralized ledgers ensure a secure and tamper-proof transaction history (Photo: Twitter)
Even though blockchain’s use is mainly tied to recording cryptocurrency transactions, especially Bitcoin, various potential applications are being explored, such as:
Blockchain for financial transactions. With blockchain, transactions can be settled quickly, taking only seconds, while reducing or eliminating banking fees.
Blockchain for supply chain monitoring. It helps businesses quickly spot inefficiencies in their supply chains, track items in real-time, and evaluate product quality as they move from manufacturers to retailers.
Blockchain for digital identities. Microsoft is looking into blockchain to enable individuals to control their digital identities, giving them control over who can access that information.
Blockchain for data sharing. It could function as a secure medium for moving enterprise data across various industries.
Blockchain for copyright protection. It can ensure that artists maintain their rights to their music and guarantee transparent royalty distribution in real time. The same can be applied to open-source developers.
Blockchain for managing the Internet of Things (IoT). Blockchain can regulate IoT networks by identifying connected devices, monitoring their activities, and assessing their trustworthiness.
Blockchain for healthcare. Healthcare providers and payers use blockchain to handle data from clinical trials and electronic medical records, while ensuring compliance with regulations.
Business Advantages of Blockchain
Blockchain primarily serves as a database for transaction recording, but its advantages extend far beyond what a conventional database offers. The technology helps eliminate the risk of tampering by malicious entities, and it provides business benefits, including:
Reduced Time: Blockchain drastically shortens transaction times, bringing settlement periods from days to minutes by eliminating the need for a central authority’s verification.
Lower Costs: Blockchain reduces the need for constant oversight, allowing participants to directly exchange assets and eliminating unnecessary repetition, as all users share a single ledger.
Enhanced Security: The security protocols of blockchain protect against tampering, fraud, and cyberattacks.
A Look at Blockchain
In the book Blockchain for Dummies, the technology is described as storing transaction data in blocks linked to form a chain. The blockchain grows as transactions increase, with each block confirming the time and order of transactions.
These transactions are logged into the blockchain within a network that operates under agreed-upon rules. Each block contains a hash (a unique identifier), timestamped batches of valid transactions, and the hash of the previous block, which ensures that no block can be altered or inserted between others, maintaining its integrity.
Blockchain has four key principles:
1. Shared Ledger: A shared ledger is a system where records are added but never erased, making it more efficient than traditional networks where data is duplicated.
2. Permissions: Permissions ensure that transactions are secure, verified, and authenticated. Organizations can restrict network participation, helping them comply with privacy regulations like HIPAA and GDPR.
3. Smart Contracts: These are self-executing agreements with the terms directly written into code, stored on the blockchain, and executed automatically during a transaction.
4. Consensus: Consensus mechanisms help all participants agree on the accuracy of the transaction, ensuring that it’s verified by the network.
Blockchain networks feature different roles, such as:
Blockchain Users: Participants who are granted access to the blockchain and can conduct transactions.
Regulators: Special users tasked with overseeing transactions within the network.
Network Operators: Those who have the authority to define, create, manage, and supervise the blockchain network.
Certificate Authorities: Entities that issue and manage the necessary certificates to operate a permissioned blockchain.
Blockchain and Hyperledger
Hyperledger, an open-source umbrella project, was launched in December 2015 by the Linux Foundation, with support from major corporations like IBM, Intel, and SAP. It aims to facilitate the development of blockchain-based distributed ledgers by promoting collaborative, open-source software development.
Satoshi Nakamoto’s vision gave birth to blockchain technology in 2008 (Photo: Getty Images)
Participants in Hyperledger believe that such an approach ensures transparency, sustainability, and interoperability, critical for mainstream commercial blockchain adoption.
The project’s goal is to foster collaboration across industries, improving blockchain systems’ performance and reliability. Hyperledger’s focus is on developing solutions that support global business transactions, particularly in sectors like technology, finance, and supply chains.
Blockchain Security
While blockchain is often regarded as an unhackable technology, it is still vulnerable to 51% attacks, where attackers gain control of more than half of the computing power of a blockchain network.
This allows them to manipulate the ledger, potentially committing double-spending or creating a new chain that benefits them. Although this attack method is expensive and difficult to pull off, it still emphasizes the need for caution in treating blockchain as an infallible technology.
Public and private blockchains offer different security levels. Public blockchains use internet-connected computers to validate transactions, while private blockchains typically limit access to trusted organizations.
Public blockchains may not be suitable for businesses that prioritize confidentiality, while private blockchains provide a more controlled environment, allowing only authorized participants to verify transactions. However, this model isn’t without its risks, such as insider threats, although they can be mitigated with secure infrastructure.
The rise of blockchain technologies is leading to new applications, from storage to social networks. Developers of blockchain applications need to prioritize security, implementing practices such as risk assessments, threat modeling, and code analysis. By integrating security measures at the outset, blockchain applications can ensure they remain safe and reliable in the long term.
