Most of the people use the terms blockchain and Bitcoin interchangeably. But the truth is that Bitcoin is one of the applications of blockchain technology. Blockchain technology has the potential to revolutionize businesses and industries around the world.
What is Blockchain Technology?
The blockchain technology is the brainchild of a person or group of people known by Satoshi Nakamoto. The technology was initially devised for the digital currency, Bitcoin but the tech community is continually finding other potential uses of blockchain technology. Blockchain is a technology which allows digital information to be distributed but not copied. Blockchain offers a way to untrusted parties to reach consensus on common digital history. For blockchain, common digital history is essential because digital assets and transactions can easily be faked or duplicated. Blockchain technology solves the problem of faked or duplicated transactions without using a trusted intermediary. Blockchain is a publicly distributed ledger which maintains an ever-growing list of records or transactions (blocks) which are fully traceable and safe from any revision. Blockchain database is a decentralized system managed autonomously through the peer-to-peer network and distributed timestamping server.
Main Components of Blockchain
To participate in a specific blockchain ecosystem, each internet-connected computer has to install and run a node application related to that particular blockchain ecosystem. For example, for a Bitcoin ecosystem, it is necessary to install and run Bitcoin wallet application on each computer which wants to participate in the Bitcoin ecosystem. Participation through node application can or cannot be free like Bankchain, a blockchain ecosystem which only allows banks to participate.
Distributed Ledger (database)
Distributed ledger is a type of database which is shared, synchronized, and replicated among the members of a decentralized network. The shared database and content is available for the participants of a particular Blockchain ecosystem. Distributed ledger records transactions like an exchange of data or assets among the participants of the network. Shared ledger lists down its guidelines or rules which need to be followed in each node application. Participants of the network agree by the consensus, so no third party mediator such as a financial institution or clearinghouse is required to perform the transaction. For example, if you are participating in the Bitcoin node application, then you have to abide by all rules and guidelines which are set down in the program code of the Bitcoin application node. One can participate in as many node applications as they wish and are allowed. Some node applications have a restriction on entry. Every record in the distributed ledger has a unique cryptographic signature and timestamp which makes the ledger auditable and immutable.
Consensus algorithm is essential for deciding how the blockchain will function and how it can be extended in future. It provides security and permanence to data in the blockchain. Consensus algorithm depicts the status of the network and how the nodes of the network arrive at an agreement regarding what transaction to accept. It is a logical component of the blockchain ecosystem. It is implemented as a part of the node application and decides the rules of the game or how the blockchain ecosystem will arrive at a single view of the ledger.
Every block of the blockchain contains a hash of its predecessor block, so there is a chain of blocks which includes an enormous amount of work in them. A block can be changed only made by a new block from its predecessor. It also requires regenerating all successors and redoing their contents.
Some Applications of Blockchain Technology
- Streamlined supply chains
- Forming smarter predictions
- Building decentralized apps
- Simplifying the Internet of Things
- Fortifying identity management
- Decentralising the energy market
- Handling the inefficiencies of current data management practices in the healthcare sector
Blockchain technology is going to improve every industry via more accessible data intelligence, predictive capabilities, blockchain based services, etc. Different industries including healthcare, insurance, banking, education, retail, and even agriculture are working on how emerging technology can bring in greater efficiencies in their operations.