What Is Blockchain Technology? Types and benefits
Bitcoin, Ethereum, Dogecoin, etc. What are these? And the quick, easy answer in cryptocurrencies. Cryptocurrency has strengthened its roots worldwide in recent years. And there is one more name that has become familiar to us with the names of different cryptocurrencies, and that is blockchain.
Most of us know that blockchain is used to store information and transaction records but have never looked over how it works. When we hear the name cryptocurrency, the first word which hits our mind is “complex,” but the blockchain is different in this case. In this article, we will discuss Blockchain technology and bring out important points that you must know in simple language.
What is Blockchain Technology?
Blockchain is a facility that records the transaction, information, address, and more of an asset. It helps in tracking the investment in a broad business network. What is unique about Blockchain? Then the answer is its immutable records, which means no one can attempt to make changes, hack or rewrite the transaction record once it’s shared with the ledger.
We can also say that blockchain works like a database. But what differentiates between both is how they store the information. The information in the blockchain is collected in groups called blocks, and each block has limited capacity. When each block is filled, they form a new block while linking to the previous block and form a chain by repeating the cycle.
Blockchain is a powerful technology that enables cryptocurrency and is now used in many more industries due to its versatility. However, all cryptocurrency doesn’t use blockchain technology. Blockchain is considered more safe, efficient and has better transaction records.
How does blockchain technology work?
You would have already noticed that blockchains aren’t that simple. Let’s briefly discuss how blockchain technology works without getting too deep insights for a better understanding.
As mentioned before, blockchains are numerous linked blocks containing information in them. This information is further shared with different network users known as nodes. And the number of nodes is limited according to the blockchain type. Furthermore, each block has a mathematical algorithm product called hash which represents all previous data and helps link the blocks in the form of a chain.
Types of blockchain
Blockchains are typically categorized into four different types based on their structures. Four types of blockchains include:-
- Public blockchain
Public blockchains are exactly like their name. Publicly available for all and allows everyone to have access to it. The vast network of public blockchains gives a lot more freedom to the users compared to other types of blockchains.
In this blockchain, everyone can join, write, read, and participate in outgoing activities. This characteristic of public blockchain makes it self-governed, decentralized, and appreciated. However, public blockchain doesn’t provide any privacy for your transaction records. You may lose your anonymity because of this feature.
- Private blockchain
The characteristics and name of the private blockchain are antonimos to the public blockchain. Participants can join a private blockchain only by invitation or if they qualify the specified criteria of the operators or the blockchain owner.
The entrance procedure of a private blockchain is in very official way. One must provide the required identity and other important information for verification. These networks have implemented strict protocols, including smart contracts or other automated approval methods, to join the blockchain.
Overall we can consider that the operator or the owners completely manipulate private blockchains. Besides this, private blockchains don’t provide all kinds of freedoms to every participant. Only selective users can maintain and make changes in the shared ledger. And the owner or the operator has the extra power to edit, overwrite, and delete the entries if required.
- Consortium Blockchains
Consortium Blockchains, also known as federated blockchains, have similar characteristics to private blockchains. Both private and consortium Blockchains require re-authorization or an invitation to use and join blockchain.
Then what differentiates between a private blockchain and consortium blockchains? The answer is ownership. A sole operator doesn’t own a consortium or federated blockchain, owner, or any organization; instead, multiple groups and organizations collaborate and use the federated blockchain.
As consortium Blockchains are rooted in collaboration, the groups in this blockchain allow each other to exchange that among themselves securely. We all know that blockchains are involved in cryptocurrencies, but consortium breaks all norms and can be least seen in cryptocurrencies. Blockchains have taken a step out from cryptocurrencies through consortium blockchains. These blockchains are used in many industries to share and record data.
- Hybrid blockchains
A hybrid blockchain is a versatile blockchain as it is a blend of both private and public blockchain characteristics. These blockchains are customizable. The operators can decide who can join the blockchain, and also they can make their records and data public selectively. Therefore, these characteristics help companies to work efficiently without hampering their security.
Advantages of blockchain
The use of blockchains started with cryptocurrencies like bitcoin. But it didn’t limit its services till there, and now it has a significant impact on many financial and non-financial industries due to its versatility which has various advantages, including:-
Blockchain’s key feature is immutability which means no one can temper, make changes, or rewrite the recorded data. And this is opposite to the traditional database as standard databases use CRUD, which means one can Create, Read, Update and delete data, which makes it unsecured and easy to manipulate.
Blockchains give freedom to network members. They can check and verify recorded data in the blockchain whenever they want, as blockchains are decentralized, and the public can trust the network.
And if we talk about traditional databases, it is centralized and doesn’t provide any freedom to the network members. Users neither get complete data publicly nor are allowed to verify it whenever they want. In traditional databases, authority is provided only to selected people.
Blockchains don’t have any censorship as it doesn’t have control of any single owner or party on it. Hence, no one can interrupt or create uncertainty while operating or using the network.
Traditional databases are wholly looked over by central authorities regularly; they can use their authority power to control and change network operations.
Blockchain has irreversible audit trail features, which make it easy to trace the changes in the network without consuming much time.
Blockchain technology is yet a neophyte and is getting developed even more with time. The fantastic abilities of blockchain technology are gradually replacing the traditional database system across various industries. As blockchains offer better security, have different types to choose from, and can be used even for non-financial records