26 November 2020
Blockchain, Bitcoin, crypto, and nonces. It can feel as though this is a new language you can’t seem to understand! That’s why we’ve broken it down for you in simple and clear terms so you can master the language of blockchain in no time.
Aptly named, a blockchain is a series (or a chain) of blocks that contain information. The “block” has digital pieces of data like the date, time, and value of a given transaction stored within it. The “chain” is made up of a series of blocks linked together in a chronological fashion.
Each block also has a “hash” which can be thought of as a fingerprint, a digital signature that is unique to it. You can think of this hash as a unique marker that is present in each block, and each block also contains the hash of the previous block thus creating the chain — so the block contains unique data, a hash, and the hash of the previous block. The first block in a chain is called the “genesis block,” and it does not point to any previous blocks.
Unlike classic ledgers of record-keeping like books or computer programs, blockchain was specifically designed to be decentralized which greatly reduces the possibility of data tampering. Each block is also extensively verified by a network of computers, thus creating reliable data within the chain.
Blockchain is the record-keeping technology that powers Bitcoin, but it is capable of so much more.
Types of Blockchain Networks:
Currently, there are three types of blockchain networks:
- Public Blockchain
- Private Blockchain
- Consortium Blockchain
They are easy to differentiate and each have their own set of properties.
1. Public Blockchain
As the name suggests, this network is accessible to anyone. Users, miners, community members, and developers can all participate in this network that is completely decentralized. Two well-known examples of public blockchain networks are Bitcoin and Ethereum, both of which have cryptographically secured public ledgers.
2. Private Blockchain
These blockchain networks are only accessible to specific people who have the requisite permissions. It is an “invitation-only” network, and unlike its public counterparts, the private networks are more centralized. Also unlike public networks, private blockchain networks do not allow for anonymity. An example of a private blockchain network is the digital payment network Ripple.
3. Consortium Blockchain
Consortium blockchain networks are similar to private ones, but instead of just one entity governing the entire network, a group is in control. In a consortium blockchain network, some aspects of the organization can be made public, while others remain private. An example of a consortium blockchain network is J.P. Morgan’s blockchain tool, Quorum.
Greatest Advantages/Benefits of Blockchain:
Like any new technology, blockchain was developed to have specific advantages over classic models of record keeping. Some of the biggest advantages blockchain has are:
By having all information stored across multiple locations, it is difficult for anyone to tamper with any information privately. All participants on a blockchain network have to verify a transaction before it is added to the chain, making blockchain a transparent, secure, and trustworthy network for record-keeping.
Blockchain is considered to be hacking resistant due to both its decentralized nature (meaning that nothing can be done without the full participation of the members), and what is seen to be military-grade encryption.
Optimized speed and efficiency:
With human errors and delays eliminated, blockchain networks allow for efficient and timely transactions.
They are cost-effective:
Intermediaries (namely human resources) create high operation costs and problematic efficacy. Blockchain allows for cutting costs by eliminating the need for intermediaries. The technology makes it possible for people to transact directly, making services cheaper and faster.