Blockchain is a decentralized ledger system (also known as distributed ledger technology) that stores records. A bank, for example, can store data (such as payment transactions) on its internal computers, but blockchain technology allows for the construction of an immutable public ledger that is open to all users. Because blockchain ledgers cannot be edited retrospectively and may be used anonymously to safeguard users' privacy, they are an extremely secure way of storing data.
It's
important to note that blockchain and cryptocurrency are not the same thing.
Blockchain is the technology that underpins cryptocurrencies, although it has a
wide range of uses that are unrelated to Bitcoin (CRYPTO: BTC) or other digital
currencies.
Consider
bitcoins to be a car, and blockchain to be the engine. A motor is required to
power a car, but it can also be used for a variety of other purposes.
Blockchain has ramifications in the following areas, to name a few:
·
Digital
identifiers
·
Loyalty
and reward schemes
·
Copyright
protection is important.
·
Voting
using the internet
·
Transfers
of real estate
·
Wills
and medical records
Blockchain
technology could be adopted and used in a variety of other fields, including
healthcare, insurance, supply chain, IoT, and so on. It was meant to work as a
distributed ledger (on decentralized systems), but it can also be used on centralized
systems to ensure data integrity or save operational costs.
How does blockchain work?
1.
Each
transaction is logged as a "block" of data as it occurs.
These
transactions depict the movement of a tangible (a product) or intangible asset
(intellectual). The data block can store any information you want, including
who, what, when, where, how much, and even the state of a shipment, such as a
temperature.
2.
Each
block is linked to the ones that came before it and those that came after it.
As asset transfers from one location to another or ownership changes hands, these
blocks form a data chain. The blocks validate the exact timing and sequence of
transactions, and they are securely linked together to prevent any block from
being changed or inserted between two other blocks.
3.
In
an irreversible chain, transactions are blocked together: a distributed ledger
technology
Each
successive block reinforces the prior block's verification, and hence the
entire blockchain. The blockchain becomes tamper-evident as a result, giving
the key strength of immutability. This eliminates the risk of tampering by a
hostile actor and creates a trusted record of transactions for you and other
network users.
Types of blockchain networks
There are four types of blockchain
structures:
1.
Public Blockchains
Public
blockchains are permissionless and entirely decentralized, allowing anybody to
participate. All nodes of the blockchain have equal rights to access the
network, create new blocks of data, and validate blocks of data in public
blockchains.
2.
Private (or Managed) Blockchains
Private
blockchains, also known as managed blockchains, are permissioned blockchains
that are administered by a single entity. The central authority in a private
blockchain decides who can be a node. In addition, the central authority does
not always grant each node identical rights to execute functions. Because
public access to private blockchains is restricted, they are only partially decentralized.
Ripple, a business-to-business virtual currency exchange network, and
Hyperledger, an umbrella project for open-source blockchain applications, are
two instances of private blockchains.
3.
Consortium Blockchains
Consortium
blockchains, unlike private blockchains, are permissioned blockchains
administered by a consortium of organizations rather than a single institution.
As a result, consortium blockchains have more decentralization than private
blockchains, resulting in increased security. However, forming consortiums can
be a difficult process because it necessitates collaboration among a number of
firms, which poses logistical obstacles as well as the risk of antitrust
violations (which we will examine in an upcoming article). Furthermore, some
supply chain members may lack the necessary technology or infrastructure to
adopt blockchain technologies, and those who do may decide that the upfront
costs of digitizing their data and connecting to other supply chain members are
too high a price to pay.
4.
Hybrid blockchains
Hybrid
blockchains are those that are managed by a single entity but have some
oversight from the public blockchain, which is necessary to conduct certain
transaction validations. IBM Food Trust is an example of a hybrid blockchain,
which was created to improve efficiency across the whole food supply chain. In
a subsequent piece in this series, we'll go through IBM Food Trust in further
depth.
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