Published: Sep 09, 2022

blockchain technology

Blockchain technology is a novel and innovative approach to making cryptocurrency accessible and secure to any party. As a type of open-source software, blockchain technologies have become the backbone of cryptocurrency, such as Bitcoin.

Given its association with the different digital currencies, most people consider blockchain a cryptocurrency and vice versa. The way these technologies function is what makes them different from each other. We can look at it this way: a blockchain may exist without Bitcoin, but Bitcoin will not be if blockchain never happened.

This notion offers an insight into the complex role that blockchain technology plays in the scheme of things where digital currency is concerned. But what is blockchain technology, and what purpose does it serve to cryptocurrency? What are the types of blockchain, and how are they different from one another? How do blockchain networks operate with each other?

If you're eager to know more about blockchain technology, this article will help shed light on this matter. Read on and learn about blockchain technology and its role in the innovative yet controversial world of the cryptocurrency markets.

As a type of distributed ledger technology (DLT), blockchain safeguards and keeps track of all assets stored in it. These digital assets may constitute stakes in a project or digital currency. The data contained within may also take the form of an individual's personal contact information or a contract between two parties.

All financial transactions conducted online using blockchains are recorded and would remain transparent to the public. As such, blockchain technology makes tracking and locating digital assets convenient and accessible among users since every block contains records of all the transactions conducted.

Despite its accessibility, every digital asset and recorded transaction in a block are immutable, which means they cannot be modified or deleted.

Why is it Called "Blockchain?"

Blockchain got its name from the way it is structured. Unlike distributed ledgers, which organise data in the form of a table, the data in a blockchain are assembled in blocks. These blocks are strung together by a decentralised network of computer systems and managed by multiple participants, hence the name.

Blockchain vs DLT

Although all blockchains are a form of distributed ledger technology, not all DLTs are considered blockchains. That is because blockchain is one type of distributed ledger.

While both software systems use decentralised networks and allow the storage of data, DLT and blockchain differ in terms of accessibility and control. Here are three elements that differentiate a blockchain from a DLT:

• Peer-to-Peer and Centralised Process

• Degree of Transparency and Accessibility

• Recording Transactions

• Centralised and Peer-to-Peer Network

In blockchain technology, every participant has access to all the stored data, but none among these network members can alter or delete anything. This feature is possible thanks to the immutable cryptographic signature in a blockchain called the hash.

Similar to blockchain technology, DLT has a peer-to-peer network, and a central authority has access and control over the whole system. While the degree of control applies only to a certain extent, a blockchain does not have this type of feature.

DEGREE OF TRANSPARENCY AND ACCESSIBILITY

Every node has access to every recorded transaction and may review every detail that led to that transaction in a blockchain. In this sense, cryptocurrency users can determine the number of times a digital asset was transferred from one party to another.

Even though the level of transparency is similar to that of the distributed ledger technology, not everyone can access and evaluate the data or the online transactions that led to its formation. Only an individual with a particular credential can examine every transaction in the database.

RECORDING TRANSACTIONS

Blockchain and DLT both provide an acceptable means of storing and recording transactions. As a form of data structure, the digital information in a blockchain is arranged in a progressive order. That means if a block has reached its capacity, the following transactions will spill over into the succeeding block connected to the previous block, thus creating a chain.

On the other hand, a distributed ledger organises the data in the same manner as a traditional database stores details or information. It does not have the same chain-like structure as that of blockchain technology.

Blockchain technology creates digital information of recorded online data or transactions and disseminates it through a network of nodes or computers without the need of an intermediary or third party. Most of us have become acquainted with blockchain thanks to the rise of cryptocurrencies, such as Bitcoin.

However, not all of us are knowledgeable about how a blockchain works. Like most distributed ledgers, every data in a blockchain is immutable, so the stored data cannot be altered, deleted or tampered with by any means.

For blockchain to be effective, it requires applications that approve, validate, and secure every transaction and continue operating even if malfunctions appear in the system. At the same time, a blockchain should have decentralised features which allow several users access to a common data or digital asset. These qualities are attainable through smart contracts and a single source of truth. 

Smart Contracts

Aside from the distributed ledger technology and the immutable properties of all the data and transactions stored in a block, smart contracts are crucial elements of a blockchain. This seven-line computer code is an automated contract that facilitates the terms and agreements between participants, which typically consists of a buyer and a seller.

WHAT ARE THE BENEFITS OF SMART CONTRACTS?

Aside from the distributed ledger technology and the immutable properties of all the data and transactions stored in a block, smart contracts are crucial elements of a blockchain. This seven-line computer code is an automated contract that facilitates the terms and agreements between participants, typically consisting of a buyer and a seller.

Smart contracts have provided various entities, such as financial institutions and other online systems that facilitate monetary transactions, with faster, more efficient automated business processes. This feature has benefited participants who wish to remain anonymous while conducting their daily transactions online, whether they are dealing with cryptocurrency or the like. The other advantages smart contracts provide to users are:

1. Speedy transactions

2. With the smart contract, participants experience faster transactions because it removes the need for a third-party intermediary. Apart from this, neither the parties involved will not have to worry about manually filling out paperwork because this approach does not require such methods.

3. Data Transparency and Security

4. Even though all participants have access to the information contained in a contract, every approved transaction is irreversible and immutable. This method assures participants that not one piece of data has been altered, hacked, or deleted. In return, this creates a sense of trust among all the users in a blockchain network.

5. Cost Reduction

6. Smart contacts eliminate the need for third-party intermediaries during every transaction. Apart from that, this system uses a paperless approach when recording these transactions, which helps save money and space.

Single Source of Truth

Otherwise known as SSOT, a single source of truth is the practice of gathering and combining all data, codes, or digital assets so every participant can access them in a common location within the system. The single source of truth is a common concept in version control, which involves tracking and managing any coding modifications in the software.

An SSOT establishes the accessibility of any data or digital asset so every participant can locate them at any time. This method also removes the likelihood of duplicates, errors, and inconsistencies within the blockchain network.

Blockchain Interoperability

Blockchain interoperability enables a specific blockchain to communicate to a different blockchain, thus creating a network. As a result, the blockchain network can communicate with each other through this mechanism. 

In effect, this allows users to access and share information from one particular blockchain network to another.

Benefits of Blockchain Interoperability in cryptocurrency (And Other Industries)

With different cryptocurrencies in the market, users should be able to transfer assets from one blockchain to another with the same ease and transparency present in every digital currency. This principle makes interoperability an important aspect of the cryptocurrency industry because this open-source software operates on blockchain technology.

Some benefits of blockchain interoperability are:

1. Establish Collaboration Between Different Networks

   Blockchain networks benefit from the concept of interoperability because this method enables the fast and effective transfer of data or information to multiple blockchain networks. In this regard, a user can move assets from one blockchain platform to an entirely different blockchain network without experiencing any inconveniences, which is the case in every cryptocurrency available today.

   Several industries apart from the cryptocurrency industry would also find blockchain interoperability advantageous to their business operations because of the applications and protocols that automate and speed up the entire process. Interoperability would also permit organisations to collaborate or share data and information swiftly, efficiently, and effortlessly.

2. More Decentralised Blockchain Networks

   Decentralisation is a central characteristic of a singular blockchain network. With decentralisation, communication becomes a key factor that would enable different blockchain platforms to communicate with one another and allow the exchange of data and information.

Blockchain Interoperability Solutions for Cryptocurrency Networks

Currently, the implementation of blockchain interoperability has yet to be realised. Once interoperability has taken over cryptocurrencies, it will become an integral part of digital trading and blockchain mining.

Nevertheless, some cryptocurrencies have started using solutions to integrate blockchain interoperability in their operations, such as Cosmos for Ethereum. These interoperability solutions are as follows: 

1. Polkadot

2. Harmony

3. Cosmos

4. Chainlink

5. Hybrix

6. Loom network

7. Wanchain

Consensus Protocol

Blockchains and other distributed ledgers use consensus protocols that help approve and validate transactions. This automated mechanism ensures that there is only a single copy of that particular recorded data among the network of computer systems. At the same time, this algorithm has a fault-tolerant system which ensures that the solution continues to operate despite any malfunctions in the system.

Types of Consensus Protocol in a Blockchain

There are different types of consensus protocols, and each algorithm validates transactions differently than their counterparts. Despite the diversity in solutions, most cryptocurrencies use the most common and popular among the lot, and these are the following:

1. Proof of Work

2. Proof of Stake

3. Byzantine Fault Tolerance

4. Delegated Proof of Stake

Bitcoin uses Proof of Work and the Byzantine Fault Tolerance mechanisms in its blockchain, while Ethereum employs Proof of Work instead. On the other hand, cryptocurrencies like EOS, Steemit, and BitShares use the Delegated Proof of Stake algorithm.

1991

Stuart Haber and W. Scott Stornetta first came up with the blockchain concept in 1991. This idea led them to publish a paper that proposed the notion of encrypting data in a series of linked blocks so no one could perform any unauthorised alterations or modifications on the documents' timestamps. 

1992

The blockchain developers soon incorporated the concept of Merkle trees in their blockchain to increase the capacity and efficiency of storing cryptographically secure information in a single block. Ralph Merkle, a computer scientist, patented the Merkle tree, which became one of the stepping stones for blockchain technology. 

Before the turn of the decade, several applications were developed which would, in turn, help develop blockchain technology to become what it is today. One is the concept of peer-to-peer networks, while another is the Proof of Work protocol, which plays a crucial role in mining bitcoins.

2008

A group of individuals known to be called Satoshi Nakamoto published a paper on Bitcoin, the world's first digital currency. In that paper, Satoshi used the concept of a blockchain that Haber and Stornetta worked on in 1991 and discussed how the platform could establish a decentralised digital currency. 

To this day, no one has proven the real identity of Satoshi Nakamoto despite several attempts both by journalists and cryptocurrency enthusiasts. For this reason, many believe Nakamoto was an assumed name of a group of people behind the founding and development of Bitcoin. 

2009

Bitcoin started to gain track during this year as Satoshi first released Bitcoin v0.1 as a form of open-source software. He also sent ten bitcoins to Hal Finney, a developer who founded a form of Process of Work mechanism, thus marking the first digital currency transaction. 

Near the end of that year, people were able to exchange real money for bitcoin through Bitcoin Market. During that time, bitcoin was worth no more than a cent. Despite price fluctuations, one bitcoin is worth around $35,000 (USD) as of 2021.

2010-2012

Bitcoin reached several milestones, thanks to the personalities and developers that contributed to its rise. One of them was Laszlo Hanyecz, who paid 10,000 bitcoins for a couple of pizzas, which cost around $25 then. Another was American programmer Jed McCaleb used bitcoin for Mt. Gox, which was his trading platform for the fantasy-based card game Magic: The Gathering Online eXchange. This proved that even though bitcoin was valued as less than a dollar during that time, it had the same purchasing power as real money. 

Bitcoin's value rose steadily and became equal to the American dollar by February 2011. It did not take long before the digital currency had the same value as the British Pound and the Euro. Before the year ended, bitcoin earned itself a rival through Litecoin, which was one of the first offshoots in the digital currency industry after bitcoin. 

Renowned programmer Vitalik Buterin released Bitcoin Magazine in 2012, the same year when cryptocurrencies were starting to gain a foothold in the public consciousness. A few months after that, Bitcoin Foundation was founded to restore the public's faith after the Mt.Gox crypto-hacking in 2011, which affected the cryptocurrency's reputation.

Digital currency exchange platforms, CoinBase and OpenCoin, were founded and began operation that same year. This move paved the way for the utilisation of cryptocurrencies for both national and international transactions in the finance sector and global trading industries.

2013-2014

In 2013, bitcoin continued to set more milestones as more than 10 million bitcoin were in circulation in the first quarter. It alleged that the overall value of bitcoin had gone over US$ 1 billion. Despite the different hurdles and setbacks that bitcoin experienced due to cybercrime investigations and government bans on cryptocurrencies, nothing could stop bitcoin from rising even further. 

Then in 2013, Vitalik Buterin established the Ethereum Foundation after releasing a whitepaper that mentioned an application platform for blockchain developers. 

A year after that, he founded the Ethereum blockchain, which is a cryptocurrency that also served as a way to enhance the decentralisation applications. This approach became a pivotal moment for bitcoin as Ethereum earned the highest number of transaction processes.

2015-2019

The innovative milestones of the Ethereum and Bitcoin blockchains began to spread to other countries during this period. NEO, a Chinese blockchain platform, started to gain popularity after Alibaba mogul Jack Ma backed the technology. However, cryptocurrencies of any type remained banned in the country. 

In 2015, the Linux Foundation released Hyperledger. This blockchain-based open-source distributed ledger provided users with tools for file sharing and project collaboration. Block.one released the EOS operating system two years later, and the EOS cryptocurrency followed a year later.

While some international governments have polarised views on cryptocurrency as a legal currency, most perceived its underlying technology, blockchain, as the way of the future. For that matter, countries like South Korea, which banned the acceptance of anonymous cryptocurrencies, began investing in this solution.  

Blockchain technology began to spread in multinational businesses, particularly those in the retail industry, such as Walmart and Amazon. At the same time, blockchain research and development and its applications also began to catch up in several organisations. 

This breakthrough was prompted as the rise of use cases about the use of the technology gradually increased, such as in healthcare, trade finance, and real estate, among others.

2020 and Beyond: The Future of Blockchain Technology

The trend in blockchain technology continues to rise as industries, including the government, begin to see its potential. Experts view blockchain as an essential tool to incorporate with artificial intelligence. 

According to a survey conducted by Deloitte blockchain, a considerable number of organisations have integrated this technology to improve company productivity. All of these point to the fact that blockchain has a bright future ahead of it, not just in web technology or information technology.

As a form of digital ledger, blockchain also comes in different types. These blockchain networks are distinguishable from one another through a change in configuration, among others. 

The four types of blockchain networks are:

Public Blockchain

Just as its name suggests, public blockchain networks are accessible to anyone. Since a public blockchain utilises peer-to-peer networks and high hash encryption rates, all network members can participate in storing data and record keeping. This type of blockchain eliminates centralisation and security inadequacies. Examples of public blockchains are Bitcoin, Ethereum, and other cryptocurrency blockchains.

Private Blockchain

Similar to public blockchains, private blockchain networks have a peer-to-peer network. However, the latter has a closed network, and this serves as a differentiating factor between the two blockchains. Therefore, only a private organisation or enterprise has access to its database, security, and protocols. In this sense, the accessibility in a private blockchain network is exclusive only to network members since it has a central authority that manages the entire system.

Permissioned Blockchain

Permissioned blockchain networks require an invitation or permission before a participant can gain access to a blockchain group. Public blockchains can become permissioned if participants have an invitation or authorisation to access the database. A private blockchain network probably would have set up a permissioned blockchain to restrict access to a few selected members.

Consortium Blockchain

A consortium blockchain network consists of qualities seen in private and public blockchains. However, multiple organisations utilise the blockchain solution instead of one. Also known as federated blockchains, this open-source software has a partially decentralised network. Industries that deal with logistics, healthcare, insurance, banking and finance usually use this blockchain platform.

Blockchain is a safe technological solution for storing and managing data. Generally, any software is deemed safe until something proves otherwise. In the case of blockchain technology, every block contains a cryptographic algorithm known as a one-way hash function, which acts as a fingerprint security system. The hash function helps safeguard a blockchain from hackers who wish to tamper with the information stored in the block. 

Use Case Example of Blockchain Technology

Distributed digital identity solution is a perfect example of a use case of blockchain technology. This software allows users to manage and control their digital identities without an intermediary service provider. The information may range from date of birth, social security, password, and username.

Unlike a technology that operates in a centralised network, a decentralised identity (DID) solution remains secure from privacy violations or cyberattacks. With the use of digital wallets, users still control their digital identities, so no one can simply delete or alter the information stored in them.

Apart from that, this technology also features the qualities that anyone would expect from a blockchain solution, such as tamper-proof, interoperability, immutability and unified access to different types of management systems.

Blockchain technology has several uses, particularly in key institutions and businesses that require a secure, peer-to-peer structure and more convenient transactions. The following examples are some of the industries that should use blockchain technology:

1. International Transactions

2. Healthcare

3. Record Management

International Transactions

When it comes to bank payments, using third-party intermediaries has become standard procedure. Through blockchain applications and decentralised structure, conducting payments and other financial transactions would not require intermediaries. For this reason, the entire affair becomes faster, more convenient, and more cost-effective.

Healthcare

Healthcare is one of the major industries worldwide that gather large amounts of data or information daily. This information ranges from a patient's personal information to their medical history. The use of blockchain technology will provide institutions with direct and quick access to the digital data of a patient. Since the information stored is immutable, hospitals would not have to worry about tampered data.    

Record Management

Governments and private institutions can turn to blockchain technology to eliminate human errors when conducting data entry and record-keeping. Since most blockchains are decentralised, users can access public digital identities anytime. Since the data in a blockchain has a cryptographic fingerprint, the entire database remains secure from cyberattacks.

Blockchain technology offers several benefits not just in the realm of cryptocurrencies but also in organisations, as previously mentioned. For this matter, several industries have finally turned to blockchain platforms to streamline their business processes, which results in better productivity. The five benefits that blockchain technology can provide for organisations are:

Decentralised Structure

Decentralised databases prevent delays because the information is accessible to all users. Transparency is also crucial in record management as it helps determine the audit readiness of an institution. This solution also improves business processes and streamlines tasks, which is ideal for private- and government-based industries.

Security and Privacy

Blockchain records contain cryptographic algorithms that help secure the information stored inside. Not only do these cryptographic tools provide data security, but they also uphold privacy by keeping the identity of the users anonymous. An entire blockchain platform uses consensus mechanisms to validate transactions and reject false records. This blockchain protocol, in effect, helps develop trust between the user and the blockchain platform.

Reduced Costs

Blockchain eliminates the need for intermediaries when two parties need to validate transactions. Also, blockchains speed up the entire process with mechanisms that aid in authenticating transactions. In this regard, blockchain technology helps save time and money.

Tokenisation

Turning digital assets into tokens minimises the risk of data breaches. This method is better than encryption because instead of giving the user a private key, they use tokens instead, and this approach breeds trust. Tokenisation also prevents delays, which results in cost-efficiency.

Transparency and Visibility

Transparency in food production helps guarantee the public that the food or medicine they have purchased is safe and processed using quality production procedures. Supply chain management plays a vital role in ensuring product quality. 

Using blockchain technology to record all the transactions and histories of food production, such as that of the IBM Food Trust, helps ascertain the quality of food and other consumer products.

Since its public inception in 2009 by Satoshi Nakamoto, bitcoin has come a long way, thanks to its underpinning technology, blockchain technology. 

As a type of digital ledger, blockchain stores encryption-protected data with a decentralised network, granting participants access to every validated transaction and its history. Every validated transaction in a blockchain platform is approved using a consensus mechanism, and every data stored is secured using a cryptographic algorithm, all of which adds to the technology's sophistication. 

These elements made the blockchain an ideal digital ledger not just for digital currencies, like the Ethereum or Bitcoin blockchains, but also for several industries that perform copious amounts of record-keeping. For this reason, organisations have begun upgrading their business process infrastructure using blockchain technology. 

NCS is a technology service provider that upgrades existing business platforms into intelligent blockchain infrastructures to streamline tasks and other work processes. With digital asset management as its key focus, NCS provides customised applications that optimise data storage, leading to faster and more efficient work productivity.

Learn more about blockchain technology by visiting websites that provide insights about its benefits to business processes. Blockchain is gradually changing how organisations and institutions work, and your corporation might be next.