Table of Contents
What is the Blockchain?
Origin of the Blockchain
Components of the Blockchain
The Blockchain: Pros and Cons
Why is everyone talking about the Blockchain?
The blockchain is a shared, immutable ledger that facilitates the process of recording transactions and tracking assets on a business network. Tangible assets such as cars, houses, land, etc. can be tracked on the blockchain. Intangible assets like intellectual property, patents, copyrights and branding can also be tracked on the blockchain.
You can think of the blockchain as a shared database that is split among the nodes of a computer network. A blockchain collects data in groups called blocks. These blocks help store information: when one block is full, it is closed and linked to the next block. In that manner, all the new information that follows the freshly added block is compiled into a newly formed block that will be added to the chain once it is filled.
The blockchain is so designed that the decision to add a transaction to the chain is made by general agreement. That means that the majority of nodes in the network must agree that a transaction is valid. The blockchain was created to be decentralized: no single authority can control transactions. The validation of transactions done by different nodes on the network is done by using cryptographic keys and a password to confirm every transaction.
In 1991, when Stuart Haber and W. Scott Stornetta worked on a cryptographically secure chain of blocks, the blockchain was not as popular as it is now. The blocks then were designed so that no one could tamper with timestamps of documents. In 1992, Stuart Haber and W. Scott Stornetta upgraded their work to include Merkle trees that enhanced efficiency and enabled the collection of more documents on a single block.
In 2004, the computer scientist and cryptographic artist introduced a system called Reusable Proof of Work. This system was designed to enable cryptocurrency users to verify the transfer of tokens in real time. 2008 saw Satoshi Nakamoto conceptualize the theory of distributed blockchains. He improved the blockchain design to enable the addition of extra blocks to the chain without requiring the blocks to be signed by trusted parties.
In 2009, Satoshi Nakomoto mined the first Bitcoin block and he received a reward of 50 Bitcoins. Then Bitcoin was linked to the blockchain and everyone associated Bitcoin with Blockchain until 2013 when Vitalik Buterin stated that Bitcoin needed a scripting language for building decentralized applications. He then built Ethereum, a new blockchain based distributing platform on which hundreds of decentralized apps run. Since the Ethereum launch in 2015, different blockchain platforms have been launched: from Hyperledger by Linux Foundation, EOS.IO by block.one, IOTA, NEO and Monero dash blockchain. The block chain industry is still growing and businesses built on the platforms are expanding daily.
The Blockchain has numerous components and they are:
1. Node: The node is divided into two sections: the full node and the partial node. The full node maintains a full copy of all the transactions and it has the authority to validate, accept and reject any transaction. On the other hand, the partial node or lightweight node maintains only the hash value of the transaction. It does not maintain the whole copy of the blockchain ledger, hence it has low storage and low computational power.
2. Ledger: The ledger is a public database of information. There are three types of ledger: public ledger, decentralized ledger and distributed ledger. The public ledger is available to all and anyone on the blockchain can add information to the ledger. A decentralized ledger allows each node to participate in each transaction. The distributed ledger gives all nodes a copy of the database. A group of nodes can collectively verify transactions or add blocks of information on the blockchain.
3. Wallet: A blockchain wallet enables users to send, receive, store and exchange digital assets on the blockchain, as well as monitor and manage the value of their assets on the blockchain. There are two main types of wallets: hardware wallets and software wallets. A wallet can either be online or offline. Online or hot wallets are used when connected to the internet. Offline wallets like paper wallets and hardware wallets can be used to store private keys offline and sign transactions without an internet connection. Wallets generally provide users with a private key and wallet address for securing transactions.
4. Nonce: A nonce is a short term for a "number used once''. It is used to describe a random number that can only be used once. Nonces are generated often to modify the result of cryptographic communication. A nonce is a number that changes over time, so it is used to ensure that some values cannot be reused. It can also be a timestamp or special marker used to prevent the reproduction of a document. In addition, it can be used to vary input in a cryptographic hash function. Nonces have varying functions: from authentication to hashing and even electronic signatures.
5. Hash: A hash is a mathematical function that converts inputs of arbitrary length to outputs of fixed length. That means that or regardless of a file size, the hash will be unique and unchanging in size. A hash cannot be used to generate input from an already hashed output, but it can be helpful in identifying a file. Hashes can be used to check the integrity of messages and authenticate information. Cryptographic hash functions add security to typical hash functions, making it difficult to detect the contents of a message or get information about the senders.
A major reason why the blockchain serves its users is that it provides a trustworthy, secure and trackable platform for business transactions speedily and at reduced costs. The blockchain generally reduces the need for paperwork, errors in documentation and the need for third parties or middlemen to verify transactions.
The security that blockchain technology provides is based on a system of unaltered records of transactions with end-to-end encryption, reducing fraud and unauthorized activity. The blockchain also helps in the confirmation of authenticity of items such as food from farms, medicines and even certification of employees. The quality that endears the block chain to its users is the provision of control over data, thus giving users privacy that no other platform offers.
The blockchain has its limitations: its popular application, which is Bitcoin, can only handle seven transactions a second. This is opposed to Hyperledger and Visa which can handle ten thousand and twenty four thousand transactions every second. Also, each participant node is required to verify and approve transactions, making exchanges time-consuming and reducing scalability.
The blockchain consumes a lot of energy: large amounts of electricity are required to keep the platform running. In addition, the blockchain is not a hugely distributable system and it is destructible. Security can also be compromised if hackers hack into the block chain; it is not completely foolproof. Also the blockchain entries are immutable and they cannot be changed, so data cannot be removed. The high energy consumption that the blockchain provides and reduced scalability reduces its efficiency.
The blockchain is one of the biggest giants in technology. In 2018, a whopping 90% of US and European banks had started exploring the potential of blockchain. In 2021, it was projected that 24% of companies expected to invest between $5 million to $10 million on the blockchain. In 2022, financial institutions have spent over $552 million on blockchain-powered projects and in the end of 2024, it is expected that corporations will spend $20 billion per year on blockchain technical services.
The main reason why everyone is talking about the blockchain is the versatility that it provides: blockchain is used in cryptocurrency, the storage of medical records, identity verification, election voting, security, agriculture, business and many other fields. The blockchain offers a secure, more decentralized and less corrupt system of making swift payments all over the globe, making it loved by the cryptocurrency enthusiasts. The faster processing time and reduced bureaucracy as compared with the bank and healthcare systems makes it more readily adopted by users who want to save their time and energy.
The blockchain is a moving train that most organizations have jumped on and for good reason: the potential for the blockchain industry is greater than ever before. The launch of IBM's Blockchain Wire, Paystack, Aza Finance and Bloom are visible proof of the wonders that the blockchain has done. In the future, the cryptocurrency segment of the blockchain might not be as popular as the other segments that the blockchain caters to; the innovations in the different industries where the blockchain is used are proof. The blockchain is here to stay and for a long time, it will be on the lips of different individuals not just in tech, but in multiple industries.