What is Blockchain? Everything You Need To Know About Blockchain Technology
A blockchain is a sequential chain of data blocks created by a unique algorithm. It can be compared to the eternal digital general ledger laid out in the public domain. You can record information about financial transactions with cryptocurrency and almost everything that is of value. However, such a definition of Blockchain technology makes it impossible to understand its meaning. Therefore, we will take a closer look at the network itself and how it works.
Blockchain technology in a nutshell
Blockchain is a database that is distributed over thousands of computers in different parts of the world. These devices are not connected to a shared server. The information storage is continuously updated with new ordered records called “blocks.” Each of them contains the time of addition and a link to the previous block.
Earlier we gave an example of a nominal ledger. However, the Blockchain system has also been compared to a familiar diary or card catalog. Why is that? The blockchain also records everything that has been done.
No one can change the data because it is encrypted using a high-quality algorithm. In doing so, the information itself is divided into many copies that are stored on different devices. When new information is recorded in the diary, it is automatically updated in all versions.
A decentralized server and peer-to-peer connections guarantee blockchain security. It creates an independent database without a single control center. Therefore, blockchains can be easily used for new event logging, data manipulation, and authentication.
How the blockchain system works
Some analysts refer to blockchain technology as the “Internet of Value,” and rightly so. Anyone can post information that can be accessed from any country. Blockchains allow specific values to be delivered wherever the blockchain file is available. You can get access to “own” blocks using a unique cryptographic key.
Furthermore, the Blockchain system implements another vital thing called personal identification. If a user does not have keys, he cannot make changes to the blockchain. And it is impossible to steal these keys because protecting a couple of code lines is very simple and cheap.
That’s why the blockchain performs faster and more accurate transactions that are typical for banks.
What is a distributed ledger?
Suppose there is a table with tens of thousands of copies within a specific network of computers. At the same time, the system itself continually verifies and updates the data in the table. Here is a general summary of a distributed ledger.
Interesting fact! The data itself within the blockchain is relatively easy to verify. The point is that the blocks’ information is distributed across devices, and anyone can find it in the public domain. It is decentralization that makes blockchain a truly reliable way of storing data. And since there is no centralized version of the blockchain, no one can hack it.
Private and Public Blockchain: how they differ
Any services and apps can be created on the Blockchain platform. Therefore, there are two types of distributed ledgers.
These blockchains are suitable for starting a private business. They have a private nature and centralized management since they are controlled by their creators and serve their interests. If the user meets specific criteria, he/she can join a private blockchain. In this case, the generation of new blocks is available only to a particular circle of users.
Its open management style distinguishes him. The community runs the platform so that anyone can become a miner.
What is the reliability and durability of the blockchain?
Its resistance to errors and failures distinguishes blockchain technology. When the system saves new blocks, it cannot:
- Be controlled by a specific user;
- Have a single point of failure.
Since the launch of Bitcoin in 2008, this network’s blockchain has been working without significant problems. And all the challenges that have arisen recently were not related to the architecture of the protocol.
Also, the World Wide Web has proven its high reliability over nearly three decades of performance. It’s a good sign for blockchain algorithms that continue to evolve. They are mechanisms with the highest degree of accounting and verification that minimize the human factor.
Scope of blockchain application
The general availability, distribution, and complete integrity of the database make blockchain attractive for business.
There are many environments for building blockchain products that provide:
- secure network management without the risk of MITM attacks;
- storage of digital keys, which offers fast access to web pages;
- timestamping when placing documents;
- product verification using digital certificates;
- confirmation of intellectual and property rights;
- creation of publicly updated electronic business cards;
- DNS is not subject to DDOS attacks.
Implementation of blockchain technology in Russia and Ukraine
The official legalization and implementation of the blockchain in the Russian Federation are scheduled for 2020. But for this, it needs to enact the required laws. Jointly with the Central Bank, the largest banks of the country have created the Masterchain system. Moreover, enterprises in the field of logistics, energy, and mining are successfully using blockchain platforms.
Also, there is an Active Citizen Blockchain project in Moscow. Various votes are held on it for essential ideas that would improve life in the city.
Ukraine has partially transferred the State Land Registry to Blockchain. For now, this organization uses a distributed ledger for checking extracts. The next step is the transition of the existing database of land plots and hashing of all operations. The Ukrainian government also plans to transfer the State Registry of Real-Estate Property Rights to a blockchain-based system.
Pros and cons of Blockchain technology
Here we figured out the necessary information about what a blockchain is. This adaptable technology can be applied in various spheres of human life. The distributed ledger will also help get rid of:
- time-consuming financial transactions;
- high costs for server maintenance and data protection;
- monopolization of markets;
- corruption schemes and accounting fraud.
However, opponents of blockchain technology point to the following issues:
- there is no legal regulation of projects based on a distributed ledger;
- 51% attack will shut down the network;
- the problem with scalability;
- if the token holder lost his/her cryptographic key, all savings would disappear;
- high electricity costs for blockchain networks that operate on the PoW algorithm;
- excessive growth of registries can reduce the number of blockchain nodes.
About the 51% attack possibility, it actually exists. However, it needs to spend tons of money to concentrate more than half of the capacity of an extensive network like Ethereum in one place. And it’s not for sure that the system will shut down.
As far as scalability is concerned, this problem is relatively easy to solve. The Bitcoin blockchain takes up a couple of hundred gigabytes, and anyone can buy a hard drive for a terabyte! More massive and more compact data warehouses are coming soon.
An innovative distributed ledger technology in 2011 gave the name to one of the most popular bitcoin wallets. Blockchain allows storing assets and tracing each coin’s history right up to the moment of its generation. Therefore, if the BTC token was used for illegal purposes, this will quickly come out.
This wallet has long been known as a safe and convenient place for storing assets. However, the drawback is high fees for transferring funds. It is worth noting here that the users themselves confirm transactions. Therefore, it is not profitable to validate the transfer with a low commission set by the user.
But the service is used by tens of thousands of users. And even you can create your crypto wallet on the official website.
Blockchain wallet registration
If you decide to check how the blockchain works, why not create a bitcoin wallet? Four simple steps are enough.
- go to the official website and select the “Wallet” section;
- click on the “Register” button in the upper right corner of the screen;
- enter your e-mail address, create a password, confirm it and accept the terms of the user agreement;
- verify your e-mail to restore access to your account.
If you want to login to the website, select the “Log in” item in the “Wallet” section, and enter the specified data you used during registration.
Then set up a suitable level of protection.
Attention! Request the mnemonic code quickly and keep it in a safe place. It will allow you to resume access to the wallet.
The distributed ledger is the only source of correct data. The blockchain records the entire transaction history as blocks of information, and all confirmed ones are added to the chain. Hence the name of blockchain technology.
Instead of reaching third parties, the blockchain network nodes use consensus protocol, cryptography, and digital signatures as an intermediary.
The consensus mechanism (PoS, PoW, etc.) confirms the validity of the data. Cryptographic algorithms (for example, SHA256) ensure that information is protected from possible changes. The electronic signature confirms the sender of tokens’ identity: an individual, government agency, company, etc.
The blockchain platform records transactions verified by a particular node in sequential order. The result is an irrevocable and community-agreed transaction.
Blockchain: Present and The Future
So, the technology can become a reliable base for services that are often criticized for problems of fraud and data security:
- microtransactions in games;
- banking applications;
- logistics systems;
- legal business;
- health care.
In only a few years, Blockchain has evolved from innovative technology to a must-have thing for financial structures and even entire states!
Field of application
The rise of new players on the market shows that not only banks are interested in using Blockchain. There are many industries where distributed ledger plays an important role:
- сopyright. Ascribe enables creative people to retain ownership of their creations by issuing digital certificates;
- trade. The Real Asset Company has launched a blockchain platform for trading gold and silver bars. And the launch of the Goldblock digital currency increased control over investments in precious metals;
- data management. The Factom project offers solutions for analyzing and organizing data. The product is used by private entrepreneurs, public organizations, and politicians.
- energy. Energy Blockchain Labs is working on blockchain-based energy projects;
- public administration. The Advocate service helps ordinary citizens better interact with officials.
- healthcare. Distributed ledgers are already being used to create medical records, manage drug supply, conduct research, and automate medical procedures.
It’s not the complete list of areas that apply blockchain technology.
Blockchain in Russia and Ukraine
Blockchain is a subject of interest not only for Western but also for Eastern European businesspeople.
A blockchain laboratory has been operating in Russia since 2018. Sberbank launched it for:
- research of new technologies;
- launching startups;
- implementation of solutions based on a distributed ledger for Sberbank.
The laboratory cooperates with many participants in the cryptocurrency market and is also engaged in the Blockchain’s promotion.
Also, S7 Airlines, in partnership with Alfa-Bank, sells tickets through the Ethereum system.
The Cabinet of Ministers of Ukraine launched the OpenMarket open trading platform in 2017. Now the turnover of this Blockchain-based auction is estimated at hundreds of thousands of dollars.
Examples of the most popular blockchain projects
The use of distributed ledger technology helps solve many problems: sending currency, paperwork, file storage, and trade. At the same time, anyone can invest in such startups. For now, blockchain technology in its early stages of development. Therefore, the potential profit may be even greater than from the Bitcoin price growth over the past 7 years. Let’s take a look at the most promising blockchain platforms that could change our reality in the coming years.
Ethereum is a public cryptocurrency and distributed ledger system. The main feature of this project is the use of smart contracts. It’s the name of records that contain the conditions for performing some actions: the transfer of goods, the shipment of 100 boxes of ice cream, etc.
The creator of a smart contract does not need to think over his vision of the blockchain. It is enough to build on the desired solution over the existing blockchain. Thanks to the flexible conditions for the development of smart contracts, Ethereum has become one of the most successful blockchain startups.
But the drawback is the lack of algorithms for interaction with actual processes.
This project aims to fix the Ethereum flaw. It performs the concept of independent organizations that operate without useless paperwork. An alpha version of the software is available now, which allows you to solve the following tasks:
- management of shareholdings;
- voting based on smart contracts;
- fundraising for business development;
- distribution of duties of employees.
Small IT businesses will be the first users of the program. And in the coming months, developers will expand the list of features and introduce a unique dispute resolution system that will tie smart contracts to the business’s realities. It will reduce the costs for office work.
The Japanese NEM project has much in common with Ethereum. However, this blockchain system is more focused on increasing the speed of processing operations. So, validation takes place in a few moments. It allows the company to calmly compete with Bitcoin, which now has trouble with fees and transaction speed.
However, NEM is even different from Bitcoin. If digital gold is aimed at the private exchange of assets, the Japanese team offers an ecosystem for processing billions of transactions in the interbank market. Developers continue to innovate, which will lower translation costs and increase blockchain throughput. It, in turn, should attract the attention of banking structures.
This startup is the main competitor of NEM. Using the Ripple system also allows you to reduce transaction costs and decrease the time for transferring funds.
The blockchain is currently being tested in several financial conglomerates. It is worth noting the National Bank of Abu Dhabi’s participation, the Italian UniCredit Group, and the Japanese Mitsubishi UFG corporation.
The only drawback of Ripple is the opaque distribution of XRP tokens. More than half of the assets are stored on developers’ addresses.
Attention! When gathering an investment portfolio, you can equally invest in NEM and Ripple.
This company is creating independent cloud storage. Instead of using its storage servers (like OneDrive or Google Drive), Sia proposes distributing encrypted files across multiple devices.
The principle of operation looks like this:
- owners of computers and servers lease part of the free disk space. In this case, the income depends on the stability of the device;
- the user buys a subscription and uploads the file to the decentralized cloud. Data become encrypted, split into separate blocks, duplicated, and downloaded to computers within the network;
- owners are automatically rewarded in the form of an internal token called Siacoin.
Sia differs from the same Google Drive in the subscription fee; it’s the service’s main benefit. The subscription costs 10-15 times lesser.
DASH is a highly confidential digital currency. It provides anonymity of operations at the network protocol level, which allows you to hide information about the sender and recipient. This fact is not liked by many world governments, who did not especially like BTC.
The system has impressive functionality that looks relevant in current conditions of non-anonymity. DASH also offers instant validation of transactions and a unique self-funding model.
This blockchain startup is called a third-generation project. Its internal BTS token can be used to verify ownership. And it doesn’t matter what kind of object we are talking about: real or virtual.
Also, Bitshares offers to exchange items through a decentralized marketplace. You can fix the current value of the property in USD or XAU.
The developers declare that such trades can be held anywhere in the world. Therefore, Bitshares can be viewed as one of the leading platforms for e-commerce.
How to choose a blockchain startup to invest
The use of digital currencies and other technologies without centralized control is the subject of heated debate. Therefore, it is impossible to predict which projects will take leading positions. It is also worth it because the creators of financial pyramids who want to make money on the hype around the technology are also interested in blockchain.
Before investing in a specific company, you need to study the subject of investment thoroughly:
- read the Whitepaper (concept description);
- highlight the unique features of the project;
- take a closer look at the technical component;
- check if the developers are writing about the project in social networks or the official website;
- learn about the startup team;
- take a look at the blockchain age, capitalization, and the exchange rate of an internal or public token.
So we finished our acquaintance with how the blockchain works. Finally, we would like to note that officials and ordinary people are not taken seriously by this technology. It’s true because all innovations are often criticized. It is much more important to explain the importance and necessity of performing distributed ledgers in everyday life. Only then the Blockchain technology can be successful.
If you look at the Internet, it is also a decentralized platform. However, there are many go-betweens here who help to transfer money using the World Wide Web. Further, many e-wallets are linked to a bank account. On the other hand, Blockchain allows you to quickly and securely exchange assets without the risk of fraud.