BACKGROUND IMAGE: iSTOCK/GETTY IMAGES
Blockchain is a type of distributed ledger for maintaining a permanent and tamper-proof record of transactional data. A blockchain functions as a decentralized database that is managed by computers belonging to a peer-to-peer (P2P) network. Each of the computers in the distributed network maintains a copy of the ledger to prevent a single point of failure (SPOF) and all copies are updated and validated simultaneously.
In the past, blockchains were commonly associated with digital currencies such as Bitcoin, or alternate versions of Bitcoin like Bitcoin Cash. Today, blockchain applications are being explored in many industries as a secure and cost-effective way to create and manage a distributed database and maintain records for digital transactions of all types.
How blockchain works
A blockchain ledger consists of two types of records, individual transactions and blocks. The first block consists of a header and data that pertains to transactions taking place within a set time period. The block’s timestamp is used to help create an alphanumeric string called a hash.
After the first block has been created, each subsequent block in the ledger uses the previous block’s hash to calculate its own hash. Before a new block can be added to the chain, its authenticity must be verified by a computational process called validation or consensus. At this point in the blockchain process, a majority of nodes in the network must agree the new block’s hash has been calculated correctly. Consensus ensures that all copies of the distributed ledger share the same state.
Once a block has been added, it can be referenced in subsequent blocks, but it cannot be changed. If someone attempts to swap out a block, the hashes for previous and subsequent blocks will also change and disrupt the ledger’s shared state. When consensus is no longer possible, other computers in the network are aware that a problem has occurred and no new blocks will be added to the chain until the problem is solved. Typically, the block causing the error will be discarded and the consensus process will be repeated.
Blockchain platforms can be either permission-less or
Blockchain consensus/validation algorithms
Choosing which consensus algorithm to use is perhaps the most crucial aspect of selecting a blockchain platform. There are four standard methods blockchain and other distributed database platforms use to arrive at a consensus. Generally, public platforms choose algorithms like Proof of Work because they require a lot of processing power to compute, and are easy for other network nodes to verify.
- Proof-of-work algorithm (PoW)
byzantinefault tolerance algorithm (PBFT)
- Proof-of-stake algorithm (PoS)
- Delegated proof-of-stake algorithm (
Who uses blockchain?
Bitcoin was one of the most visible uses of blockchain, crashing; however, in 2018 when its price fell by 65-80% from its peak value. Bitcoin and other cryptocurrencies such as Ethereum or Litecoin can be used the same way as any other distributed database.
In 2016, the online retail company Overstock.com used blockchain to sell and
Banks and financial institutions across the globe are exploring how they can use blockchain to improve security. Other industries, including healthcare, government
Advantages and disadvantages of blockchain
Experts cite several key benefits to using blockchain. Security is considered one of the significant advantages of this technology. It is almost impossible to corrupt a blockchain because
On the other hand, experts say blockchain also has potential drawbacks, risks
This BBC video explores the significance of blockchain: