Blockchain Technology
What is Blockchain?
Blockchain is a decentralized and transparent digital ledger that records transactions across a network of computers. Once a transaction is recorded, it can’t be changed without modifying all subsequent blocks and obtaining approval from the entire network. It provides a secure and transparent way to transfer digital assets without the need for intermediaries.
Blockchain is a type of shared database that stores information differently from a typical database. Blockchains store data in blocks linked together via cryptography. Different types of information can be stored on a blockchain, but the most common use has been as a transaction ledger.
The global blockchain market is rapidly expanding, projected to reach a value of $23.55 billion in 2024 and grow further to $152 billion by 2029, with a compound annual growth rate (CAGR) of 45.2%. Additionally, blockchain, along with AI and ML, remains a top investment priority, with $19 billion spent globally in 2024.
Types of Blockchain
Public blockchain architecture: A public blockchain architecture means that the data and access to the system is available to anyone who is willing to participate. Examples: Bitcoin, Ethereum, Litecoin.
Private blockchain architecture: As opposed to public blockchain architecture, the private system is controlled only by users from a specific organization or authorized users who have an invitation for participation.
Consortium blockchain architecture: This blockchain structure can consist of a few organizations. In a consortium, procedures are set up and controlled by the preliminary assigned users.
How Does a Blockchain Work?
Each blockchain block consists of:
- certain data
- the hash of the block
- the hash from the previous block.
The data stored inside each block depends on the type of blockchain. For instance, in the Bitcoin blockchain structure, the block maintains data about the receiver, sender, and the number of coins.
Each new user (node) joining the peer-to-peer network of blockchain receives a full copy of the system. Once a new block is created, it is sent to each node within the blockchain system. Then, each node verifies the block and checks whether the information stated there is correct. If everything is alright, the block is added to the local blockchain in each node.
These are the core blockchain architecture components:
Node — user or computer within the blockchain architecture (each has an independent copy of the whole blockchain ledger)
Transaction — smallest building block of a blockchain system (records, information, etc.) that serves as the purpose of blockchain.
Block — a data structure used for keeping a set of transactions which is distributed to all nodes in the network.
Chain — a sequence of blocks in a specific order.
Miners — specific nodes which perform the block verification process before adding anything to the blockchain structure
Consensus (consensus protocol) — a set of rules and arrangements to carry out blockchain operations.
Benefits of Blockchain
- Immutability:
Once a block is added to the blockchain, it cannot be altered or deleted. This ensures the integrity of the data stored on the blockchain. - Decentralization:
The blockchain is not controlled by a single entity or organization, but rather a network of nodes that collectively maintain the integrity of the blockchain. - Transparency:
Transactions on the blockchain are visible to all participants and can be tracked and audited, ensuring transparency and accountability. - Security:
The decentralized nature of the blockchain, combined with its cryptographic algorithms, makes it highly secure. The use of public and private keys ensures that only the rightful owner can access and transact with their digital assets on the blockchain. - Consensus Mechanisms:
Blockchains use various consensus algorithms (such as Proof of Work, Proof of Stake, and Delegated Proof of Stake) to agree on the validity of transactions and to secure the network. - Smart Contracts:
Blockchain platforms often support smart contracts, which are self-executing contracts with predefined conditions and rules.
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