What Is a Blockchain?
Blockchain is a digital ledger that stores information in decentralized spreadsheets duplicated across an entire network of computer systems.
“Block” represents a series of records, while “chain” describes the linked relationship between this series of records. Just imagine a series of records linked to another series of records — this is basically what blockchain is.
Each block in the chain contains a number of transactions, and whenever a new transaction happens on the blockchain, a record of that transaction is duplicated to all participants’ ledgers. This makes it difficult or impossible for anyone to hack or cheat the system.
Today, blockchain is known to be the database technology that records information on cryptocurrency transactions, non-fungible token (NFT) ownership, or DeFi smart contracts.
While a cryptographically secured chain of blocks was described in 1991 by a group of researchers, the idea did not take off and went mostly unused. In 2009, it was adapted by Satoshi Nakamoto, a pseudonymous person or group, when they introduced Bitcoin to the world.
People often get confused and interchange blockchain and Bitcoin. The thing is that Bitcoin merely uses blockchain to transparently record a ledger of payments. However, blockchains can, in theory, be used to immutably record any number of data points in the form of transactions, product inventories, deeds to properties, and more (See Blockchain Use Cases).
The premise behind blockchain is not to alter data but to enable the recording and distribution of it. Thus, a blockchain is an immutable ledger of transactions that cannot be edited, deleted, or destroyed. This is why blockchains are also classified as a type of distributed ledger technology (DLT).
Different computers maintain regular blockchains. These computers, known as nodes, have a copy of all transactions within the blockchain. When a user attempts to add false transactional data, the blockchain network can easily flag it since it has a copy of whatever has transpired within the space.
A blockchain is comprised of multiple blocks, with each containing data, a cryptographic nonce, and a hash. Each block stores data, including the timestamp of a P2P transaction, a digital record of any event, or a smart contract.
The nonce acts as a pseudo-random number created in a secure protocol to ensure safe transactions and communications. It generates a cryptographic hash while the system stores data into the block.
In this context, miners discover new blocks to be added to the chain. They receive newly-minted cryptocurrency as rewards for their efforts.
Blockchain platforms enable users and developers to build new and original uses on top of existing blockchain infrastructure. Examples of blockchain platforms are Ethereum, Hyperledger Fabric, Bitcoin, Tezos, and Ripple.
Notably, the Ethereum blockchain permits the development of smart contracts, programmable initial coin offerings (ICOs), and NFTs. These are all built around the Ethereum infrastructure and secured by nodes on the Ethereum network.
A public blockchain is a type of blockchain where anyone can participate in the activities, such as reading, writing, and auditing the data, of the blockchain network. Bitcoin and Ethereum are both examples of public blockchains.
On the other hand, a private blockchain, like Ripple or Hyperledger, is operated by an organization or group. The only way users can join the network is through an invite. The system also has the authority to go back and change the blockchain. This type of blockchain is similar to an in-house data storage system but spread across multiple nodes for security purposes.
Although blockchain is synonymous with cryptocurrencies, the technology possesses the potential for a suite of applications in various industries.
Heralded as the innovative database technology that forms the bedrock for the majority of cryptocurrencies, digital currency application is the most common use of blockchain.
People buy, sell, and trade cryptocurrencies and the transactions of these activities are recorded on a blockchain. That is why some believe that the mass adoption of cryptocurrencies could result in the widespread use of blockchain technology.
Blockchain never sleeps, and this is why the banking and financial services sector is considered one of the industries that will benefit from integrating blockchain into its operations. While banks follow normal business hours, blockchain fast-tracks transactions through quick verification any time of the day.
Some real-world applications can already be seen, with blockchain transactions involving fiat currencies like dollars and euros already happening. In late 2021, HSBC and Wells Fargo began using blockchain platforms to settle bilateral foreign currency (FX).
Blockchain’s tamper-proof properties make the technology an efficient upgrade to recording and transferring the ownership of different assets. This use case is popular with NFTs but has expanded to be used to process the ownership of other assets like real estate deeds.
Parties involved in an ownership transfer can use the blockchain to verify that one owns the property and the other has the money to buy it. Once a sale or transfer is complete, the blockchain will record the transaction. This method eliminates the hassle of manually submitting paperwork to update existing records as the blockchain does it in an instant. Also, the process cuts costs and time consumed and avoids inaccuracy that may be caused by human error.
The blockchain innovation came with a self-executing contract known as “smart contracts.” These digital contracts automatically carry out all parts of the agreement once the specific conditions are met. A payment, for instance, for a service might be released in an instant once the buyer and seller have met all specified requirements for a deal.
Blockchain Research Institute co-founder Don Topscott on blockchain at TED (Source: TED)
Supply Chain Monitoring
As in the Walmart example, retail companies can leverage blockchain to trace the source of problems, like where the poor-quality goods came from, and ensure the safety of its food supply. Not only would blockchain make it easier for entities to monitor the supply chain but also verify the authenticity of each good and label them as organic, local, and fair trade accordingly.
Forbes reported that blockchain adoption within the food industry has been increasing to track the path and safety of food throughout the farm-to-consumer journey.
Personal health records can be stored in the blockchain after they are created and verified. This assures patients that the record cannot be tampered with. To ensure absolute privacy, medical records can be kept in the blockchain using a private key that is only accessible to certain individuals.
Experts are looking into ways to apply blockchain technology to prevent electoral fraud, with some companies already offering such a service. Blockchain voting would allow people to submit votes that couldn’t be tampered with.
West Virginia utilized blockchain voting during the November 2018 midterm elections and saw the technology’s potential to eliminate fraud and boost voter turnout.
|✔️ Pros||❌ Cons|
|Transaction accuracy||High energy costs associated with bitcoin mining|
|No middlemen||Speed and data inefficiency|
|Increase security due to decentralization||Illegal activity potential|
|Secure, private, and efficient transactions||Regulation challenges|
|Transparent technology||Data storage limitations|
|Provides a banking alternative and a way to secure personal information||Asset loss risks|
|Anyone can use it|
According to a 2021 Deloitte study on the marketplace adoption of blockchain, around 96% of Financial Services pioneers believe blockchain has already achieved mainstream adoption. With many practical applications for the technology already being explored and implemented, it comes as no surprise that experts deem blockchain as a broadly scalable solution.
While hurdles remain, especially with blockchain’s drawbacks, we could still see more legacy enterprises leveraging the technology, and after seeing the potential of blockchain, investors may invest in blockchain-based projects.
Blockchain Fun Facts
- The global blockchain market will be Zworth $67.4 billion by 2026 and $1,431.54 billion by 2030.
- Blockchain could improve global GDP by $1.76 trillion by 2030.
- The business value generated by blockchain will grow to around $176 billion by 2025, then to $3.1 trillion by 2030.
- The global market size for blockchain in healthcare is expected to reach $1189.8 million by 2028.
- Blockchain in the agriculture and food sector will hit $1.48 billion by 2026.
- The solution in manufacturing is growing at a rate of 73% between 2022 and 2026.
- Over $270 billion in assets have been transferred via blockchain.
- There are more than 68 million blockchain wallet users as of 2021.
- More than 20 countries have actively researched blockchain.
- A survey found that 52% of experts believe blockchain will be essential to verifying customer identity in the future.