Hearing blockchain for the first time, what came to your mind? Some people reason it with the literal meaning and believe it means blocks that are chained together. You are right though, it's a chain of blocks but not the way you might be thinking. In this article, I will give you a rundown of blockchain and the basic concept under the hood. This writeup might not be enough to give you a full technical understanding of a blockchain, but it sure will get you started. I think I should start with a short story.
I live in a town of about 5,000 people. We had a town hall meeting one day and the Mayor suggested we start contributing towards the development of the community. At the end of the project, the top 100 people that contributed the most will have their names pinned on the hall of fame.
He said that all money will be deposited with the mayor's office, and at the end of the year the Mayor's office will publish a list of all the donors with their donations. It sounded like a good idea until questions were raised over transparency due to previous corrupt practices that had occurred under the said Mayor. As all the payments and record-keeping will be centralized and not distributed, with only the Mayor in charge makes people lose trust in the system.
We, therefore, adopted a different type of record-keeping (let's call it blockchain system). What we did is that we first agreed that all money and record cannot be kept in the Mayor's office. We nominated 20 computer-savvy individuals among us to store the records for us (let's call them nodes) and one trusted person to hold the money (let´s call this person a network). They will have the same copy of the transaction at the same time the transaction is been done. This means that once a transaction is done, they are sent immediately to all the nodes. Don't forget for easy tracking, all transaction details (let's call it to block) must reference the previous block except for the first block which is called the "genesis block". A transaction may contain details such as sender, receiver, timestamp, etc. To be able to find out details about the account that received the payment, community members can query the account, and it will supply all the details.
This is a simple way that blockchain works on the surface. Now let's get to its definition.
What is blockchain?
A blockchain is defined as a decentralized, distributed, and most times public database containing records called blocks that are used to record transactions or data. Using my story above, I will explain the features of a blockchain.
Features of Blockchain?
Immutability: This means that something can never be altered or changed. Remember from my story above, every node in the network has access to all the blocks in the network. To be able to add a single transaction (block) to the blockchain, the majority of the nodes need to agree to it. This means that no single person can add transactions to the system (there are lots of technical details in between). This is a top feature of blockchain that ensures it remains as it is, a permanent unaltered network.
Decentralized: By decentralized it means that it does not have a governing body or any single person that looks after it. Instead, it is managed by a group of nodes. Like in my story, we have nodes that manage the networks. This puts the system in the hands of people and makes it possible for anyone to store and view anything on the blockchain. Things that can be stored include cryptocurrencies, documents, contracts, etc.
Security: It makes use of a high layer of security. This is achieved through decentralization and cryptography (this is simply the practice of secure communication in ways that only the sender and receiver of the message are allowed to view). Cryptography is achieved through the process of hashing. Hashing uses a hash function which is an algorithm that takes in data and produces an enciphered text called a hash value.
Distributed: It means that it makes use of nodes to record, share and synchronize transactions. Due to this, everyone on the blockchain can see what is happening on the blockchain. This enables one to track all the inflow, outflow, and balance of the account. Like in the case of my community, it enabled us to track the donations, and when it came to usage of the funds, we were also able to track it and see how it is been used.
Consensus: This is a decision-making process for the group of nodes active In the blockchain. This is always needed in scenarios where there is a conflicting transaction that needs to be resolved, here the majority is supported. I didn't mean to confuse you, but sometimes there might be a possibility of a conflict such as incorrect payment, etc.
Faster Transactions: Users of a blockchain can transfer money faster than the conventional blockchain.
Blockchain can either be public or private: Just like the name implies, a blockchain can either be public meaning that it is accessible to the public while private means that it is not accessible to the public (some technical details in between).
Blockchain and Cryptocurrencies
I know you must have been asking yourself if blockchain is not the same thing as a cryptocurrency. The truth is that it is the same thing but I will explain further. Blockchain was created in 1991, but it is not until 2009 that the founder of Bitcoin, Satoshi Nakamoto implemented the first cryptocurrency "Bitcoin". After Bitcoin successfully implemented blockchain, there have been several other implementations by other cryptocurrencies such as Ethereum.
I guess you already know what cryptocurrency is, but I will still go ahead and explain a little for completeness.
What is cryptocurrency
Cryptocurrency is a decentralized (recall decentralized from our explanation above) digital money that is used over the internet. The majority of the cryptocurrency adhere to the decentralized form of governance and control. This means that cryptocurrencies are based on the blockchain. According to coinmarketcap.com, at the time of writing this, we have 9280 cryptocurrencies in the market. This goes a long way to show how widely blockchain has been used.
Blockchain use cases
You might be wondering where I am going with this since I have initially mentioned that blockchain is used for the development of cryptocurrency. While this is true, there are several other things that blockchain can be used for. Large industries and cooperations are already building applications with the help of blockchain to harness the powerful features therein. For example, IBM created a solution in e-commerce where they were able to track all foods produced until it gets to the final consumer. They leveraged the decentralization, security, and transparency of blockchain to fight counterfeit.
Perhaps we might say that the folks that need blockchain more are the banking industry, but you and I know that it is not possible. Let's reserve the discussions around the reason for another day.
Pros and Cons
It will not be fair that I conclude my write-up without listing the advantages and disadvantages of blockchain. I will love to start with the advantages and then progress to the disadvantages.
Pros of Blockchain
- It is less prone to failure because it does not depend on human calculations.
- The users have control over their assets.
- Due to the decentralization, it is less prone to breaking down and there is no third party.
- Quick transactions and a host of other advantages.
Cons of Blockchain
- Energy cost associated with mining.
- Due to the privacy, it could be used for illegal activities
- Data storage limitations. etc.
Before I draw my writing curtain here, I believe blockchain is awesome and has a lot of potential and use cases that are yet to be discovered. It will also be wise to say that it is a blockchain that is powering web 3.0 and other cool use cases around it such as NFT. I see a very bright future in this field.
Some sites I referenced while writing: