What Is Blockchain Technology?

What is Blockchain Technology and How Does it Work

The technological world has witnessed a rapid progression in recent years. It takes just a few seconds to complete processes and programs with the help of modern technology. You can now send and receive money globally without burning a hole in your pocket due to hefty transaction charges, all thanks to the introduction of a milestone technology called blockchain.

If you have a keen interest in banking, investing, or cryptocurrency, then you surely would have come across the term blockchain. You might be curious to know what the hype is all about. You’ve come to the right place, since this article will serve you as a comprehensive guide to blockchain technology and various blockchain applications. Let’s get started with the basics.

What Is Blockchain Technology?

Blockchain as a concept might seem complicated, but it is quite simple to understand. It is nothing but a type of database. A blockchain is a time-stamped series of unchangeable records of data which is managed by a cluster of computers not owned by any single entity. All these blocks of data are secured and bound to each other with the help of cryptographic principles (i.e., chain).

Why Is Blockchain So Popular?

Blockchain has become a very popular concept in recent years due to its easy functionality and transparency. The best part is that blockchain technology has no central authority. It is a shared and unchangeable ledger due to which the information is open for everyone to see.

However, every technology has its pros and cons, and it is the same with blockchain as well. Let us look at the advantages and disadvantages of this path-breaking technology.

Advantages of Blockchain Technology

  • Resistance to technical failures: Blockchain data is stored in a distributed network of nodes which makes the system and data resistant to malicious attacks and technical failures. Every node replicates and stores a copy of the database, so there isn’t a single point of failure.
  • Storing financial records: Once data is stored in a blockchain, it is practically impossible to reverse it. Thus, blockchain technology is ideal for storing financial data as every change is tracked and recorded on a public ledger.
  • Reduces cost: Transactions do not involve an intermediary party in blockchain technology as the transactions are verified through a process known as mining. This reduces the overall costs and transaction fees.

Disadvantages of Blockchain Technology

  • 51% attacks: Although the algorithm of blockchain is secure and foolproof, there are some potential attacks that can take place against this network. One of the most talked about probability of attack is the 51% attack which could take place if one entity manages to control more than 50% of the network hashing power. While such an attack has never taken place till date, the probability of it cannot be negated.
  • Difficult to modify data: It is very difficult to modify any data after it is entered in a blockchain.
  • Public keys: Another downside of blockchain is that it uses public keys to give users ownership over their cryptocurrency units. The blockchain address has a private key, but it needs to be kept secret; if the user loses their private key then they will end up losing their money and nothing much can be done about it later.
  • Storage: Blockchain ledgers can become huge over time. A bitcoin chain requires 200 GB of storage. This could lead to a loss of nodes if the ledger becomes too large.
How Does Blockchain Work

How Does Blockchain Work?

Information on blockchain is essentially in a shared and a reconciled database format. The database is not stored in a single location, which makes the records public and easily verifiable. A hacking incident is a remote possibility as there is no centralized version of this information. The data is also accessible to anyone on the internet as it is hosted by millions of computers at the same time.

The process of transaction

The process of transaction in a blockchain is immediate and permanent. The data gets replicated and stored on each node across the system. All the necessary details of a transaction such as the price, ownership, asset, etc., are recorded in a blockchain, and all this happens within seconds. Any changes made in one ledger automatically gets registered in all the other ledger copies. The process is so simple that it removes the involvement of any third-party verification as every transaction is recorded in a transparent manner.

Types of Blockchain

There are 4 types of blockchain:

Public BlockchainPrivate Blockchain Consortium Blockchain Hybrid Blockchain

Public Blockchain

It is a non-restrictive distributed ledger system. Anyone with internet access can sign into the network of blockchain and become an authorized node. A public blockchain is mainly used for mining and exchanging cryptocurrencies. Bitcoin, Ethereum, and Litecoin are the most common examples of a public blockchain. If you are using this type of blockchain, it is essential to follow the security protocols.

Private Blockchain

It is a restrictive ledger system which is operative in a closed network. A private blockchain is normally used in organizations with restricted access. In most cases, only selected members are part of the blockchain, and the organization has complete control over the security, permissions, and accessibility. Private blockchains are used for voting, digital identity, asset ownership, etc.

Consortium Blockchain

It is a semi-decentralized type of network which is managed by more than one organization. Many organizations can access the network or exchange information in this type of blockchain. Banks, government organizations, and similar entities usually use a consortium blockchain.

Hybrid Blockchain

It is a combination of a private and a public blockchain. A hybrid blockchain uses features of both the private and public blockchain. It is a very flexible type of node wherein information can be kept open or discreet as per the individual’s choice.

Private vs. Public Blockchain

Both these blockchains have their own set of pros and cons. Let us understand them in detail.

Private Blockchain

The advantages of a private blockchain are:

    • Speed: The transactions in this type of blockchain are faster as they have limited nodes. The transactions per second (TPS) of a private blockchain is faster than a public blockchain. This results in a faster verification process and new transactions get added faster. Private blockchains can have transactions at a rate of up to 100,000 TPS at a time.
  • Scalability: This is one of the best features of a private blockchain. An organization can choose the size of the blockchain as per their requirement. They can add nodes whenever they want and can also decrease them as per their need.

The disadvantages of a private blockchain are:

  • Security issue: As the blockchain can only be accessed by a few people, it can lead to a security concern. If any person in the organization gains access to the centralized system, they can then hack the entire blockchain and misuse the information as well.
  • Centralization: A private blockchain, as we know by now, has a centralized access wherein a few people have security controls over the network. This idea contradicts the foundation of blockchain technology, which is decentralization.

Public Blockchain

The advantages of a public blockchain are:

  • Security: There can be multiple participants in a public blockchain, and this distribution of records makes it difficult for a hacker to infiltrate the network. In a public blockchain, every block is legitimate as there is a verification of transaction and proof of work which takes place. This makes the public blockchain much safer than its private counterpart.
  • Transparent: A public blockchain is open and transparent as the records are available at every authorized node. There is no possibility of showing a fake node or hide an existing one as everything gets recorded in the database.

The disadvantages of a public blockchain are:

  • Lower speed: A public blockchain is a huge network with multiple transactions, which makes the TPS slower than a private blockchain. The verification of each transaction and proof of work makes it a time-consuming affair. Public blockchains like bitcoin can process only 7 transactions per second and Ethereum has a rate of 15 TPS. [1]
  • Scalability: As the network is huge with multiple transactions, it increases the scalability issue as well. With every increase in the size of the network, the speed reduces.

Pillars of Blockchain Technology

What Are the Three Pillars of Blockchain Technology?

The three pillars of blockchain technology are:

Decentralization

This is the foundation of blockchain technology. Decentralization has been a real breakthrough as it gives flexibility to the entire network. Instead of being owned by one individual or organization, the information is owned by everyone in the network. It eliminates the need for a third party and has made financial transactions very easy. This is the feature that allows us to send money anywhere in the world without having to visit a bank. Bitcoin thrives on the concept of decentralization.

Transparency

By now, this term would have become a bit familiar to you as it has come up several times throughout this article. As the term states, the blockchain network is transparent wherein you can access all the transactions made. This makes financial transactions very convenient as the records are stored in the database and is open to everyone.

Immutability

In simple terms, immutable means something that cannot be changed. In case of blockchain, especially related to financial institutions, this immutability feature is a boon as it prevents fraud and data tampering. This feature is due to the cryptographic hash function in a blockchain. Hashing is nothing but a process in which a string of any length is input into the system and the output is at a fixed length.

Some Applications of Blockchain Technology

We all know that blockchain is a great network to store financial records and data. However, in recent times, blockchain is gaining popularity as a reliable source to store data related to other types of transactions as well.

A few companies that have integrated blockchain in their functioning are Walmart, Pfizer, AIG, Siemens, Unilever, etc. [2] Blockchain has made its way into many industries due to its host of benefits and ease of use and accessibility.

Blockchain Technology in Healthcare

Blockchain in healthcare
In healthcare, blockchain can be used to store the medical records of patients. The data is immutable, so tampering with it is not even a possibility. Confidential data can be encoded and stored in a private key to limit access by various individuals.


Blockchain Technology in Agriculture

Blockchain in agriculture
According to Forbes, blockchain is making a hero entry in the food industry as it makes it easy to track the path and safety of food, right from its journey from the farm to the buyer/user. IBM’s Food Trust blockchain is one of the most successful implementations of blockchain in the food industry. [2]


Blockchain Technology in Banking

Blockchain in banking
The banking industry has benefitted the most by integrating blockchain into their business. It has increased their efficiency, reduced transaction time and fees, helped them store customer data, and much more. In 2016, a report from Capgemini stated that consumers could save up to $16 billion in banking and insurance fees each year through blockchain-based applications. [3]


Blockchain Technology in Voting

Blockchain in voting
Blockchain can be of great help in the modern voting system. This would eliminate frauds that take place during elections as the process will become tamper-free.


Blockchain Technology in Fintech

Blockchain in fintech
Blockchain is disrupting the fintech landscape like never before. The most challenging situation for any fintech company is the trust factor. Unlike banks, fintech companies do not have an overflow of cash reserves to build a secure and foolproof transaction network. Blockchain is the best solution to these companies as it helps them to build a highly secure network without spending too much. The value of global investment in the fintech industry has increased from approximately $3 billion in 2013 to $8 billion in 2018. [4]


Blockchain Technology in Education

Blockchain in education
Another sector which will benefit hugely from blockchain is the education industry. Student records are massive, and a collaborative way to consolidate all this data will streamline a lot of things. Many important student details like attendance, grades, course material, and even their diploma can be entered as part of their personal information. This data remains tamper proof and any amount of additional data can also be added into the existing records.

Bitcoin vs. Blockchain

The salient feature of blockchain is to record and distribute digital information. However, the data entered cannot be edited. The Bitcoin protocol is entirely built on a blockchain. It uses blockchain to record a ledger of payments but blockchain can immutably record a large number of data points. Blockchain technology is being applied across various industries due to its easy functionality.

The Future of Blockchain Technology

Blockchain shows very promising growth in the years to come. A trend insight report from Gartner states that:

  • By 2022, at least one innovative business built on the concept of blockchain technology will be worth up to $10 billion.
  • By 2026, blockchain will add a business value of just over $360 billion, and by 2030 it will grow to more than $3.1 trillion. [7]

Blockchain’s far reaching applications has led to a breakthrough across many industries. It is deployed to facilitate identity management, smart contracts, supply chain analysis, and many more important functions. Blockchain as a technology will be transformative in the tech and IT sector in the next few years and it has the potential to revolutionize many industries. [7]

Is Blockchain Worth Learning? What Does the Job Scope Look Like?

After looking at the various pros of blockchain and the way in which it is positively impacting businesses worldwide, the next question that pops up in our mind is the potential of this technology and its job prospects. The global blockchain market size is estimated to grow from $3 billion in 2020 to $39.7 billion by

2025. [5] The popularity of blockchain technology is steadily increasing across various industries like retail and supply chain management. If you have been considering a career in blockchain technology then there could not be a better time for it. A recent report by LinkedIn states that blockchain is one of the top tech skills in the year 2020. [6]

EC-Council’s Certified Blockchain Professional (CBP) training program is formulated in such a way that anyone, irrespective of their domain, can enroll for the program and get a comprehensive and complete understanding of blockchain right from the fundamentals of how the technology works to advanced applications and implementation strategies. If you are a blockchain enthusiast, then this certification will upgrade your career to new heights.

Join our blockchain certification program today!