#Blockchain
#Crypto 360
Blockchain is a shared, immutable ledger that facilitates recording transactions and tracking assets in a business network. It is a decentralised, distributed, and often public digital ledger consisting of records called blocks that record transactions across many computers.
➔ The term “blockchain” is simply made up of two terms: block and chain.
➔ In simple words, a blockchain is a chain of blocks that contain a set of verified transactions.
➔ Blockchain technology is being deployed in sectors as diverse as finance, healthcare, education, and data management.
Blockchain, digital priest, and a wedding—these are not the words you would typically expect to come together in a sentence. Yet, this is exactly what happened when a couple in India decided to get married on a blockchain network last year.
The lovely couple from Pune, a metropolis in western India, first got their marriage registered in a court in November 2021. Next, they officiated their union via an Ethereum smart contract in February 2022. The marriage contract was consecrated in the form of an NFT minted on OpenSea. A ‘digital priest’ officiated the whole ceremony. Though it’s not everyday people are getting married on the blockchain, things are slowly getting there. Blockchain technology is getting accessible with time and several entities have latched it up for a better future.
But ask around, and you will find out that nobody really understands the technology behind blockchain networks. Today, we will take a deep dive into the blockchain technology and explain its fundamentals to you in a simple language.
Blockchain is a shared, immutable ledger that facilitates recording transactions and tracking assets in a business network. It is a decentralised, distributed, and often public digital ledger consisting of records called blocks that record transactions across many computers.
“Blockchain technology allows a network of computers to agree at regular intervals on the true state of a distributed ledger,” says MIT Sloan assistant professor Christian Catalini.
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We don’t want to be this guy.
Blockchain is quite complex and it’s best to explain it in lay terms. Let's first break down the term “blockchain” itself: block and chain.
A block is like a sack containing a certain number of cookies. When a new block is added next to an already existing one, it becomes a chain of blocks which cannot be altered—it becomes a blockchain. To draw an analogy, a blockchain is like a book with a large number of chapters that are added only after a set of subject matter experts check, approve and update the information given in each chapter.
Or... imagine a devoted book club where a new book is added to the TBR list only after every member of the club agrees with the choice of the book. All the members have an equal say in all the matters related to the club, with no hierarchy. Next, all of them read the book together and keep track of all the discussions in their personal journals.
Once one book is finished, the next book is added to the TBR list following the same process. Here, the book club is the blockchain, the books are the blocks, the members are the nodes, and the journals together make up the distributed ledger technology (DLT).
Now you might be wondering what a blockchain looks like. It entirely depends on what the data being fed on the blockchain is. Is it a set of transactions, a set of photographs, a set of computer programmes, or the text of a Victorian-era novel? Below’s image shows what a blockchain looks like on your computer screen. As you can see, blocks are being added with their distinct hashes.
Image: Recorded blocks on a blockchain
Suppose we are looking at a blockchain which forms the backbone of a cryptocurrency. Yes, the two have become almost synonymous although there is a massive difference between the two. While blockchain is a technology, a cryptocurrency is one of the several use cases of that technology. So, what’s the technology that lies behind blockchain?
► A block of a cryptocurrency-focused blockchain consists of a certain number of transactions. For each block containing transactions, there is a corresponding hash.
► A hash is an encrypted cryptographic function that contains information about transactions. In short, a hash is a medium of making information private and secure.
► A block is mined (like a fiat currency is minted) by a community of “miners” spread across the world.
► The mining community is a set of individuals who compete one another to generate a hash that nearly matches the hash of the block which contains the sender’s transactions. Unless a miner doesn't generate a matching hash, a new block cannot be added to the blockchain.
Recommended Read: Is Bitcoin Mining Worth It?
► The first block in the chain (when it hasn’t become a chain yet) is called the Genesis Block and the next ones keep getting added, thus forming the blockchain. The man at the far left in the image above is the Genesis Block.
► Miners create blocks using one of the several methods or consensus mechanisms as the tech world says.
► In essence, a blockchain is where all the participating members agree or form a consensus on a set of information. Now, how everyone forms a consensus is determined by a mechanism.
► It can be proof-of-work (PoW), proof-of-stake (PoS), or proof-of-history (PoH):
• PoW: Miners use computing power to solve complex cryptographic puzzles to build a blockchain. In return, the miners are rewarded with cryptocurrency. Bitcoin uses PoW for validating transactions.
• PoS: Validators stake their cryptocurrency to become eligible to validate their blocks. Ethereum uses PoS for validating transactions.
• PoH: Nodes on a blockchain already know the recorded passage of time without having to rely on other nodes. This way, transactions get verified with a verifiable clock. Solana uses a combination of PoH and PoS for validating transactions.
► There is another set of tech wizards involved in the process who are called “nodes.”
► A node is a wizard operating a large and dynamic computing system running software for the blockchain.
► Each node validates the transactions and keeps a copy on their own databases. This is why, a blockchain is said to be running on a distributed ledger technology (DLT).
► As the ledger or the database containing all the information is distributed across different systems, it is called distributed ledger technology (DLT).
► Since no central authority such as a country’s central bank or a monetary affairs council holds control over these financial transactions, the process becomes completely decentralised.
Image: How blockchain works
A blockchain can be classified into four types:
• Public Blockchain: It is a blockchain that anyone can join and contribute to. All the details are open to scrutiny to everyone accessing the blockchain. Bitcoin is the most popular public blockchain.
• Private Blockchain: It is a blockchain that is restricted to a select network or a select group of users. Hyperledger is a popular private blockchain.
• Hybrid Blockchain: It is a blockchain that brings together the best of both public and private blockchains. Some details on the blockchain are private, resting on a permission-based system. On the other hand, some details are public, resting on a permissionless system. It is typically used by a large healthcare or financial network.
• Consortium Blockchain: Similar to the previous kind, a consortium blockchain combines the features of public and private blockchains. However, it is used by a group of institutions working together on a project, rather than a single group. A popular consortium blockchain is CargoSmart’s Global Shipping Business Network Collaboration which is targeted at the shipping and maritime industry.
You can get married on a blockchain network, if both of you are certified nerds. There are hundreds of cryptocurrencies, such as Bitcoin (BTC), Ethereum (ETH), and Dogecoin (DOGE), that run on blockchains. There are other kinds of digital assets too, such as NFTs, Bitcoin Ordinals, stablecoins etc., which run on blockchains.
But the blockchain technology can be used for a wide range of purposes. Being a decentralised technology, blockchain is primarily used to build decentralised applications (dApps). The dApps are not built or governed by a powerful group of developers having complete control over the apps. Instead, each stakeholder has an equal say in the governance and operations of the application.
A decentralised finance (DeFi) platform is a prominent example of such an app. It is not run or controlled by a central authority where you are in complete control of your money. The most popular DeFi protocols are Maker, UniSwap, and Curve. Finance is not alone in adopting the blockchain technology. Healthcare, education, data management and a range of different sectors are employing the technology for their purposes.
In fact, the leading American multinational technology firm International Business Machines (IBM) using the blockchain technology for managing the COVID-19 response and recovery. Today, there are more than 1,000 blockchain networks that platform different projects.
• Decentralised with no apparent hierarchies
• No third-party involvement
• Alternative to Big Tech applications
• High-cost maintenance
• Less efficient
• Often used for illicit uses such as drug trafficking
You don’t have to be a tech genius to become a BitDelta trader. We welcome everyone who is willing to take the step towards financial independence. Nonetheless, we recommend BitDelta traders, particularly those trading cryptocurrencies, to keep track of major developments in the blockchain technology.
Cryptocurrency has emerged as the primary use case of the blockchain technology. Other industries and sectors are also not far behind as several are adopting the technology to different effects. If we look at the current trends, the infrastructure of the blockchain apps that will be built in the future is going to be increasingly centralised.
A new development in blockchain technology has a significant impact on the price action of cryptocurrencies and other related financial products. Visit our BitDelta Blog to get the latest updates happening in blockchain technology so that you can take well-informed trading decisions.
In simple words, a blockchain is a chain of blocks that contain a set of verified transactions.
The main purpose of a blockchain is to create a decentralised, distributed ledger so that a record book can be created that is not controlled by a centralised authority.
There are four types of blockchain:
• Public Blockchain
• Private Blockchain
• Hybrid Blockchain
• Consortium Blockchain
A node is a participant in a blockchain network who operates a large and dynamic computing system running software for the blockchain. A node’s job is to validates the transactions and keeps a copy on their own databases.
Mining is the process of minting and adding blocks to a blockchain by a mining community that competes to complete this process and win mining rewards in exchange.
Blockchain is used to build decentralised ledgers in sectors such as finance, healthcare, education, and data management.
The main use cases of blockchain are building DeFi and dApp platforms.
The benefits of blockchain are:
• No centralised authority,
• No third-party involvement, and
• Alternative to Big Tech.
The limitations of blockchain are:
• High-cost maintenance,
• Less efficient applications, and
• Vulnerable to usage by bad actors for illicit acts such as drug trafficking.
Cryptocurrency has emerged as the primary use case of the blockchain technology, with other sectors also catching up. But the infrastructure of the blockchain applications built in the future is going to be increasingly centralised.
This article is for informational purposes only and not intended as investment or financial advice. It contains opinions and speculations that are subject to change without notice.
The author and publisher disclaim any liability for decisions made based on the content of this article. Readers are advised to conduct their own research and consult a financial advisor before making investment decisions.
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