Blockchain is a distributed shared ledger storing data (or transactions) in a sequential chain of blocks. Each block contains a set of data (or transactions) created within a short span, and each block has its own unique fingerprint or hash value. These blocks are connected with the hash value of the previous block.
Core Technologies used in Blockchain
Blockchain is not totally a new concept, and it was there earlier in one or another form. It uses underlining technologies that are already matured, such as Cryptography, Networking, and Distributed Systems.
- Public Key Cryptography for identity management and Cryptographic hash functions for block chaining to connect the next block from the previous block hash.
- TCP/IP networking for communication among the nodes over the internet or intranet.
- Distributed System algorithms and concepts, such as the consensus protocol, are mechanisms through which different participants will agree on adding records to the distributed ledger.
- Blockchain design concepts make it generic and use it for multiple purposes. For example, smart contracts are written using a programming language for process automation rather than hard-coded attributes and parameters.
Blockchain Vs. Database Systems
If we compare Blockchain and Database systems, we will know that blockchain maintains records in the form of blocks, and these blocks are connected by a hash chain that cannot be altered once a block is committed into the blockchain. However, the Database system also maintains records or structure data, but data can be altered or modified after proper authentication and authorization checks. The administrator or central authority controls most database systems. However, blockchain is controlled by everyone, as everyone’s contribution is required to commit a block. It is achieved using consensus protocols.
Categories of Blockchain
Blockchain is categorized into three categories, Permissionless, Permissioned, and Private blockchain.
- The permissionless or public blockchain is freely available on the internet, and anyone can join it. Software is open-source, and protocol specifics are usually published. The best example of these kinds of blockchains is Bitcoin Cryptocurrency. These kinds of blockchain use Proof of Work (PoW) kind of consensus algorithm.
- The permissioned blockchain is accessed on the internet, but the software is usually proprietary, and access is through keys issued by an authority. The permissioned blockchain is set up by collaborating with multiple organizations for the common goals that agreed to build the network, and only the authorized participants can join the network. These kinds of blockchain can use Byzantine fault tolerance algorithms when there is a chance of having malicious nodes in the network and Raft or similar consensus algorithms when there is a need to handle a crash or network faults.
- The private blockchain is only available on an intranet/within a single enterprise, and access is through keys issued by an authority.
Features of Blockchain
- The records cannot be changed once these are committed to the blockchain ledger, which guarantees Immutability.
- The records or transactions can be traced completely as transactions cannot be altered once these are committed, which gives Provenance:
- The transactions are anonymous in the public blockchain. Still, transactions are linked to some unique public identities, but these public identities are associated with those not available in the system, which gives Anonymity.
- Hash functions are cryptographically secured, which means finding the collision is difficult.
- All the transactions are Transparency, and anyone can join and verify the transactions.
These features enable a model of trust that can enable different participants to streamline different business operations that in the current systems would require more auditing and more reconciliation.
Internet Technologies
As we are seeing, people are talking about blockchain as new internet. We feel this is not completely correct. We can use blockchain where there is a need to exchange anything among the parties (i.e., Parties means different organizations that may have different working policies), so blockchain technology is not required within an organization. The centralized systems can easily fulfill the requirements.
The parallels between Blockchain and TCP/IP being both open and distributed network. TCP/IP enabled low-cost connections, whereas Blockchain cutting the cost of financial transactions and payments. TCP/IP enabled bilateral messaging whereas Blockchain-enabled bilateral financial transactions. Generally, Web 2.0 refers to TCP/IP, and centralized systems and Web 3.0 refers to Blockchain Technology or decentralized systems. TCP/IP enabled the exchange of information freely and openly, whereas blockchain enabled the exchange of value more freely and openly.
Assessment to User Blockchain in your next project
Anyone who plans to consider blockchain technology and starting a blockchain project requires a careful assessment of the following activities.
- Identify the suitable use case.
- Which platform to build on and type of blockchain.
- Scalability factors such as how to scale the system. It is like certain platforms can reach thousands of transactions per second, such as hyperledger fabric.
- Privacy: To ensure that even though there is transparency, certain data of the users must be kept private.
- Workforce: Need to be educated and brought up to the level of how to deploy blockchain solutions.
- Governance: Especially in permissioned blockchain networks where different participants need to agree on certain rules in the blockchain network.
Important parameters are Infrastructure and smart contracts, which code the business rules into the smart contracts deployed on a blockchain to automate certain business processes.
Use cases Of Blockchain
- Documenting records and data or having a way to build and audit trace for these documents has the smart contracts that will automate business rules or exchange value and can be addressed in different sectors.
References
- Introducing Hyperledger Fabric Architecture and IBM Blockchain Platform
- NPTEL lecture series on Blockchains Architecture, Design and Use Cases by Prof. Sandip Chakraborty, IIT Kharagpur.
- https://ethereum.org/en/developers/docs/web2-vs-web3/
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