Blockchain Explained

Nowadays blockchain has become a popular talking point among people. There are a lot of misconceptions regarding the functions, usage and safety of blockchain. In this article we will discuss Blockchain bit by bit in simple form to make blockchain understandable even for those who are not particularly geeks.

Key Takeaways:

• Blockchain is a type of database where information is stored in blocks and each time a new block is filled with data it is given a timestamp and a hash code and connected with the previous block by the hash code of the previous block, making a chain of blocks.
• In blockchain, the blocks are arranged chronologically based on their timestamp and the hash codes, making them resistant to any alteration.
• Blockchain can be used for inventory management and storage of sensitive information such as legal documents.

What is Blockchain?

Many people confuse blockchain with bitcoin, since blockchains are commonly used for cryptocurrency transactions. Though the pre-concept of blockchain was first coined by a group of researcher in a research proposal to timestamp digital documents to immune them from tampering data back in early 90s, the actual concept of blockchain was adopted by Satoshi Nakamoto in 2008 as the public transaction ledger of bitcoin. 

But what exactly is blockchain?

To put it simply, blockchain is a type of database where information is stored in blocks with a specific storage capacity and once a new block is filled with data it is connected with the previous block creating a chain of blocks; hence the name ‘blockchain’.

In a blockchain the information are stored in blocks with a specific timestamp and a unique hash code.The blocks in a blockchain are stored in a chronological order. The data stored in the blocks depends on the type of the blockchain and its purpose.

One of the main characteristics of blockchain is once a data is stored in a block of a blockchain, they become almost immune to any alteration due to the specific timestamp and the hash code of each block, making data storage more secure. 

How a new information is stored in a blockchain (Image Source: Investopedia)

How secure is the blockchain?

Because of lack of awareness many people think either blockchain is not safe or unhackable. Both concepts are wrong. As blockchain networks operate as a public database, anyone can see a transactions' history stored in the blockchain network. But the viewers will not be able to access any information about the users. Unlike bitcoin, the data in blockchain are not stored anonymously, rather confidentiality is strictly maintained, protecting users' privacy and preventing hacking.

• Once a block of data is added to the end of a blockchain, it becomes hard to alter it as it has its own hash code, along with the hash code of the previous block and a unique timestamp. Hash is a string of codes unique to each of the blocks of a block chain. If the information of a block is changed or altered, the hash code associated with the block changes. Also as each block contains the hash of its previous block, it creates a chronological order of blocks that makes the blockchain secure.

• Blockchain usually operates in a decentralized manner where it is governed by a central entity. Implementing the decentralization concept in blockchain can ensure transparency and fair distribution of information.The benefit of a decentralized database is, trust is unnecessary here and everyone has the exact same copy of data provided by a distributed ledger. If one member’s ledger is changed somehow, it can be rejected by the other members of the network.

• Transparency is one of the characteristics of blockchain. All the transactions of a blockchain can be seen by using either a personal node or a blockchain explorer.As a result any piece of information can be tracked, making it hard for hackers to hack a system integrated with blockchain. But as mentioned before, as confidentiality regarding the identity of the user is maintained, the viewers can not get access to any information about the user. 

Though blockchain is extremely secure, it can be hacked. Hackers can hack a blockchain if there are glitches or errors during the creation of a blockchain or lack of security. But it should be kept in mind that hackers can mainly target small blockchains. Because considering the immense size of large blockchains and how fast they grow, it is hard for hackers to hack a large scale block chain.

Use of Blockchain

Because of its high security level blockchain is an effective way to store digital data. Large companies such as Walmart, Unilever, Pfizer, IBM etc have already integrated blockchain in their system. Some other uses of blockchain are-

• IBM has built ‘Food Trust Blockchain’, a blockchain to trace and monitor food transportation, to make it easy to trace the source of outbreaks of diseases introduced by food and even identification of an issue related to foods and taking preventive measures sooner which can save a lot of lives.

• Financial institutions, where a large volume of transactions occur at once, can reduce their transaction processing time by integrating blockchain into their system. Besides, it is more secure than a normal database. According to Capfemini, a French based consultancy firm, consumers can save upto $16 billion each year in banking and insurance fees only by integrating blockchain based applications.

• Blockchain can be used to keep a record of patients’ information in hospitals or store legal documents or in supply chain management or even facilitate a modern voting system. As blockchain is capable of storing an immense amount of data and information saved in blocks are resistant to change, it can be an effective way to store sensitive and important data in a secure way.

Though blockchain has become a buzzword in the developed economies, in emerging economies like Bangladesh, blockchain is still a new concept. Integrating blockchain in private and public institutions can ensure a strong security regarding storage of data making them more resistant to hacks or any other illegal activities.

Source:

www.investopedia.com