The word “Blockchain” has dominated the internet for the past two to three years. Everywhere you turn, especially amongst Gen Z and Millennials, someone is talking about this “blockchain” that sounds like part rocket science, part magic.
You’re not too far from the truth if you hear “blockchain” and think about a couple of blocks tied together with a heavy metal chain.
The blockchain is an infinite connection of “blocks.” A block in this context is a public record of transactions (ledger) aggregated into batches.
Think of it as building a multiple storey house like a skyscraper. After stacking cement block after cement block, you get the height of one storey.
When you get the desired height, you then “deck” the floor and set the precedence for the next storey, which you will build on top of the just-completed one.
In the blockchain, that first storey is the block, and the decking which separates and connects the first storey from the second is the chain.
Together, both storeys are the blockchain. As you build more storeys, it keeps expanding and growing to infinity.
You can also imagine it like a page in a physical ledger book. Summing up all the transactions recorded in a ledger for one day makes up the daily transactions.
A block is like the daily pages of the ledger, and the blockchain is the entire ledger book, each page connected to the other.
Once a page is full, it closes up, gets recorded as a block and connects to the long chain of previously filled blocks. A new block automatically opens to continue the process.
The blockchain is a continuously growing list of data records available in small batches, organised in chronological order, held together by computer algorithms, and is publicly available on the internet and managed by a network of individual computers called nodes.
Origin of the blockchain
Computer scientists have been experimenting with building something like the blockchain since the 1990s. Stuart Haber, a computer scientist and W. Scott Stornetta, a physicist, attempted to store data in a “chain of blocks” to prevent them from being tampered with.
The blockchain technique was finally perfected in 2008 with the creation of Bitcoin, the world’s first cryptocurrency.
The computer scientist responsible for the cryptocurrency has decided to remain anonymous under the pseudonym Satoshi Nakamoto.
As of 2019, BitDegree recorded that about 861 blockchain systems exist. This number is expected to have doubled by now.
How is a blockchain created?
The blockchain is a public chain of stored data linked together by complex computer code.
Every blockchain comprises individual connected blocks (batches of data).
Blockchains work differently, and creating a block differs based on the system. The two most popular block creating systems are proof-of-work and proof-of-stake. The result of block creation is usually the production of a cryptocurrency.
Proof-of-work is a special blockchain creation system that requires network members to solve a complex mathematical puzzle before they can create a new block entry.
The technique is widely used in cryptocurrency mining, for validating transactions, mining new tokens, and building new blocks on the blockchain.
It is a randomised system where different complex equations are randomly generated by the system and given to the interested individuals to solve. The process of solving a difficult puzzle is called mining.
If a miner successfully solves the puzzle, they have created a block and mined an amount of the token as a reward.
Bitcoin, the most popular cryptocurrency, was responsible for making proof of work popular. Bitcoin can only be mined by this method.
Proof-of-work at scale requires enormous amounts of energy, which increases as more miners join the network.
It also requires a lot of computational power because of the competitiveness of the technique. The faster and more powerful the computer is, the easier it is to solve complex puzzles.
Proof-of-stake is a blockchain creation system that verifies transactions and creates new blocks through a process called staking.
To carry out staking, individuals who want to create news blocks/ new cryptocurrency pledge, or “stake,” their previously owned coins to a validator.
A validator is a computer that confirms transactions on a blockchain. Instead of competing with other computers to solve complex problems like in proof-of-work, stakers just have to put up their coins for verification.
Think of it like this. You’re in school and trying to become class president. However, you’d only be allowed to contest by buying a nomination form to show commitment.
However, purchasing a nomination form doesn’t give you the power to contest; it just puts you in the pool to be picked as a possible contestant.
The system chooses validators at random to add the following block of transactions on the blockchain and confirm attempts by others to create new blocks.
The method was invented as an alternative to proof-of-work, the original consensus mechanism used to validate a blockchain and add new blocks.
Proof-of-stake is usually more energy-efficient than proof of work; it doesn’t need a lot of hardware and technical expertise to create new blocks.
Types of blockchain
There are four types of blockchain structures:
1. Public blockchains
Public blockchains are open networks that allow anyone to join and are entirely decentralised.
In public blockchains, all the connected computers have equal rights to access it, create new blocks of data, and validate already existing data.
Public blockchains are mainly used for exchanging and mining cryptocurrency. Many crypto tokens like Bitcoin, Ether, and Binance Coin are on public blockchains.
2. Private (managed) blockchains
Private blockchains are restricted blockchains usually controlled by a single organisation. They are also called managed blockchains.
In a private blockchain, the central authority determines who can join the network. Each network member does not necessarily have equal rights to perform functions.
Private blockchains are only partially decentralised because public access to these blockchains is restricted.
3. Consortium blockchains
Consortium blockchains are restricted blockchains governed by a group of organisations, instead of just one, as in the case of the private blockchain.
They are more decentralised than private blockchains; however, setting them up can be quite the task since it involves multiple organisations, and getting them to agree on rules and other decisions is generally challenging.
4. Hybrid blockchains
Hybrid blockchains are controlled by a single organisation but are still open to the general public.
As the name implies, it combines the characteristics of private and public blockchains.
An example of a hybrid blockchain is IBM Food Trust, developed to improve efficiency throughout the global food supply chain.
Features of the blockchain
The blockchain makes it relatively easy to carry out peer to peer transactions on the internet today without any regulation from central institutions like banks and the government.
Some of the features of the blockchain are;
The blockchain network is one of the most secure computer networks in existence. There is a digital signature feature which allows users to verify transactions before they are successful.
Also, you cannot tamper with or change the records of an individual block. You would have to change the entire chain, which is deemed an impossible feat.
This makes the blockchain a great and secure store for information.
Before the rise of the blockchain, you would need regulatory bodies like the bank or merchants for transactions to occur.
The blockchain takes the process of transaction verification and democratises it. Anyone can verify a transaction on the blockchain once there is a mutual agreement between the parties involved.
The blockchain takes automation to the next level. Everything is powered by pre-existing computer code. Rewards and punishments on the network are automatically meted out to those deserving.
Uses of the blockchain
Since its recent popularity, the blockchain has mostly been known in relation to finance and wealth creation via cryptocurrencies and decentralised finance.
However, the rise of non-fungible tokens (NFTs) and various metaverse worlds has revealed a couple of other possibilities and use cases for emerging technology. Some of the real-life scenarios and situations where the blockchain can come into play include:
- Elections: If election information is available on the blockchain, it can never be tampered with. This presents a case for a free and fair election.
- Logistics monitoring: The blockchain can help with location tracking and supply chain monitoring.
- Royalties: With the blockchain, creators can directly collect royalties in form of tokens instead of losing value to publishing and distribution platforms.
- Healthcare: Imagine the physical records of every patient being available to every doctor across the world. The amount of time that would be saved is enormous.
Like any other emerging technology, the blockchain will go through a series of iterations as humans try to find the best use for this amazing discovery. It will be interesting to see what it becomes in the next couple of years.