Blockchain Unlocking the Future: Best Technology Introduction in 2024

What is Blockchain?

Blockchain is a distributed database or ledger shared among computer network nodes. Known for their key role in maintaining secure and decentralized transaction records in cryptocurrency systems, their use extends beyond cryptocurrencies. Blockchains can render data across any industry immutable—meaning it cannot be altered.

The inability to alter blocks means trust is only necessary where data is input by users or programs. This reduces reliance on trusted third parties, often auditors or others who introduce costs and errors.

Since Bitcoin’s introduction in 2009, blockchain usage has surged with the creation of various cryptocurrencies, decentralized finance (DeFi) applications, non-fungible tokens (NFTs), and smart contracts.

Key Points about Blockchain

• Blockchain is a shared database that differs from typical databases in how it stores information; it stores data in cryptographically linked blocks.
• Various types of information can be stored on a blockchain, but it is most commonly used as a ledger for transactions.
• Regarding Bitcoin, the blockchain is decentralized, meaning no single individual or group has control; instead, control is shared among all users.
• Decentralized blockchains are immutable, meaning once data is entered, it cannot be reversed. For Bitcoin, transactions are permanently recorded and accessible to anyone.

How Does It Work?

You might be familiar with spreadsheets or databases. Blockchain is similar in that it is a database for inputting and storing information. However, the main difference between traditional databases or spreadsheets and blockchain is in the structure and access to data.

Blockchains are made up of programs called scripts, which perform tasks you would normally do in a database: inputting and accessing information and saving and storing it somewhere. Blockchains are distributed, meaning multiple copies are held on many machines, and they must all match to be valid.

Blockchains collect transaction information and input it into a block, similar to how a spreadsheet contains information in cells. Once full, the information runs through a cryptographic algorithm, creating a hexadecimal number known as a hash value.

This hash value is then input into the header of the block below it and encrypted using the other information in the block. This creates a series of linked blocks.

Transaction Process

1. Transactions follow a specific process, depending on the blockchain where the transaction occurs. For example, on Bitcoin’s blockchain, initiating a transaction with a cryptocurrency wallet (an application that provides an interface to the blockchain) triggers a series of events.
2. In Bitcoin, your transaction is sent to a mempool, where it is stored and queued until a miner or validator picks it up. Once it’s entered into a block and that block is filled with transactions, it’s closed and encrypted using a cryptographic algorithm. Then, mining begins.
3. The entire network works simultaneously to “solve” the hash problem. Each generates a random hash, except for the “nonce,” a shorthand for a number used once.
4. Each miner starts with a nonce of zero, which is appended to the randomly generated hash. If that number doesn’t equal or is less than the target hash value, 1 is added to the nonce, and a new block hash value is generated. This continues until a miner generates a valid hash value, wins the race, and receives a reward.
5. Generating random hash values until a specific one is found is what you often hear referred to as “proof of work”—it “proves” the miner did the work. The amount of work required to verify the hash value is why Bitcoin’s network consumes so much computational power and energy.
6. Once a block is closed, a transaction is completed. However, the block is not considered confirmed until another five blocks validate it. The network takes about an hour to complete confirmation because each block takes an average of less than 10 minutes (the first block containing transactions and the subsequent five blocks multiplied by 10 equals about 60 minutes).
7. Not all blockchains follow this process. For example, the Ethereum network randomly selects a validator from all users who stake Ethereum to verify a block, then it’s confirmed by the network. This is faster and consumes less energy than Bitcoin’s process.

What is Decentralization

Blockchain allows data in the database to be distributed across multiple network nodes (computers or devices running blockchain software). This not only creates redundancy but also maintains the fidelity of the data. For example, if someone tries to change a record in one instance of the database, other nodes would prevent it from happening. This way, no single node in the network can alter the information stored within it.

Due to this distribution and the cryptographic proof of completed work, information and records (like transactions in cryptocurrency) are irreversible. Such records can be a list of transactions (like in cryptocurrencies), but blockchains can also store various other types of information, such as legal contracts, proofs of identity, or company inventories.

Transparency

Due to the decentralized nature of the Bitcoin blockchain, all transactions can be transparently viewed by owning a personal node or using a blockchain explorer that allows anyone to view transactions in real-time. Each node has its copy of the chain, updated with the confirmation and addition of new blocks. This means you can track Bitcoin wherever it goes, if you wish.

For example, exchanges have been hacked in the past, resulting in the loss of large amounts of cryptocurrency. While the hackers may be anonymous (other than their wallet addresses), the cryptocurrency they extracted is easy to track because the wallet addresses are published on the blockchain.

Of course, records stored on the Bitcoin blockchain (and most other blockchains) are encrypted. This means only the person assigned the address can reveal their identity. Therefore, blockchain users can remain anonymous while maintaining transparency.

Is Blockchain Secure?

Blockchain technology achieves decentralized security and trust in several ways. First, new blocks are always stored linearly and chronologically. That is, they are always added to the “end” of the blockchain. Once a block is added to the end of the blockchain, it is very difficult to go back and alter the contents of a block unless a majority of the network has reached a consensus to do so.

Any change to the data in a block would alter its hash value. Since each block contains the hash value of the prior block, one change would affect all subsequent blocks. The network would reject any altered block because the hash values would not match up.

Not all blockchains are 100% impenetrable. They are distributed ledgers, using code to create a known level of security. If there are vulnerabilities in the code, they could be exploited.

For example, suppose a hacker runs a node on the blockchain network and wants to alter the blockchain to steal cryptocurrency from others. If they were to alter their copy, they would need to convince other nodes their copy is the valid one.

They would need to control a majority of the network to do this and insert it at the right moment. This is known as a 51% attack because you would need to control more than 50% of the network to attempt the attack.

In such types of attacks, timing is everything—the network likely would have moved past the block they are trying to change by the time the hacker makes any moves. This is because these networks hash at an incredibly fast pace—as of April 21, 2023, the Bitcoin network’s hash rate was 348.1 exahashes per second (that’s 18 zeros).

Bitcoin and Blockchain

Blockchain technology was first outlined in 1991 by researchers Stuart Haber and W. Scott Stornetta, who wanted to implement a system where document timestamps could not be tampered with. But it wasn’t until nearly two decades later, with the launch of Bitcoin in January 2009, that blockchain was first used in the real world.

The Bitcoin protocol is built on the blockchain. In a research paper introducing digital currency, Bitcoin’s pseudonymous creator, Satoshi Nakamoto, described it as “a new electronic cash system that’s fully peer-to-peer, with no trusted third party.”

The key to understanding is that Bitcoin uses the blockchain as a means to transparently record a ledger of payments between parties or other transactions.

The blockchain can permanently record any number of data points. This could be in the form of transactions, election votes, product inventories, state identifications, house deeds, and more.

Currently, tens of thousands of projects are looking to implement blockchain in various ways to aid society, not just in recording transactions but, for example, as a way to vote securely in democratic elections.

The immutability of the blockchain means that fraudulent voting would become far more difficult. For instance, a voting system could give every citizen of a country a single cryptocurrency or token.

Each candidate would then receive a specific wallet address, and voters would send their token or cryptocurrency to the address of the candidate they wish to vote for. The transparent and traceable nature of the blockchain would eliminate the need for manual vote counting as well as the capacity for bad actors to tamper with physical ballots.

How is Blockchain Used?

It’s well known that blocks on the Bitcoin blockchain store transaction data. Today, over 23,000 other cryptocurrency systems are running on blockchain. But it turns out that blockchain is a reliable way to store data about other types of transactions as well.

Some companies experimenting with blockchain include Walmart, Pfizer, AIG, Siemens, and Unilever, to name a few. For example, IBM has created the Food Trust blockchain to track the journey of food to its destination.

Why do this? The food industry has witnessed countless outbreaks of E. coli, salmonella, and listeria; in some cases, harmful substances were inadvertently introduced into foods. In the past, it could take weeks to find the source of these outbreaks or the cause of the diseases from what people were eating.

With blockchain, brands can trace the route of food from its origin, through every stop, to delivery. Not only that, but these companies can now see everything else it may have come into contact with, allowing them to identify problems faster, potentially saving lives. This is one example of blockchain in practice, but there are many other forms of blockchain implementation.

The Bottom Line

As the technology has seen many practical applications already implemented and explored, blockchain has finally come into its own largely thanks to Bitcoin and cryptocurrencies. As a buzzword on the tongue of every investor nationwide, blockchain stands to make business and government operations more accurate, efficient, secure, and cheap, with fewer middlemen.

As we enter the third decade of blockchain, the question is no longer if traditional companies will catch up to the technology, but when. Today, we see the surge of NFTs and the tokenization of assets. Thus, the coming decades are set to be a significant growth period for blockchain.

References

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