Basic Concepts of Blockchain
What is blockchain?
A blockchain is a ledger that is shared and immutable. It aids in the process of recording transactions and keeping track of assets within a business network. Assets can be either tangible (such as a house, car, cash, or land) or intangible (such as intellectual property, patents, copyrights, or branding). Almost anything valuable can be monitored and exchanged on a blockchain network, leading to reduced risk and lower costs for everyone involved.
Why is blockchain important?
The efficiency and accuracy of a business depend on the speed and accuracy of the information it receives. Blockchain is an ideal technology for delivering this information as it offers immediate, shared, and completely transparent information stored on an unchangeable ledger that can only be accessed by authorized network members. A blockchain network can effectively track various aspects such as orders, payments, accounts, production, and more. Additionally, since all members have access to the same information, you can confidently analyze the complete details of a transaction, resulting in improved confidence, increased efficiency, and new possibilities.
Key elements of a blockchain
Distributed ledger technology
All participants in the network have access to the distributed ledger and its record of transactions that cannot be changed. This shared ledger ensures that transactions are only recorded once, eliminating the need for duplicating efforts commonly seen in traditional business networks.
Immutable records
No participant is allowed to alter or manipulate a transaction once it has been recorded on the shared ledger. In case of an error in a transaction record, a new transaction must be appended to rectify the mistake, and both transactions will be visible thereafter.
Smart contracts
In order to expedite transactions, a collection of regulations, known as a smart contract, is stored on the blockchain and implemented automatically. This smart contract has the ability to establish guidelines for the transfer of corporate bonds, incorporate conditions for the payment of travel insurance, and encompass various other functions.
How blockchain works
As each transaction occurs, it is recorded as a “block” data
These transactions demonstrate the transfer of either a tangible asset, such as a product, or an intangible asset, such as intellectual property. The data block has the capability to capture various types of information, including the person involved, the nature of the transaction, the time and location it occurred, the quantity or value of the asset, and even specific details like the temperature of a food shipment.
Each block is connected to the ones before and after it
As an asset moves from one place to another or changes ownership, these blocks create a chain of data. The blocks verify the precise time and order of transactions, and they are securely linked together to prevent any alteration of a block or the insertion of a block between two already existing blocks.
Transactions are blocked together in an irreversible chain: a blockchain
The verification of each additional block strengthens the verification of the previous block, thus enhancing the security of the entire blockchain. As a result, the blockchain becomes tamper-evident, ensuring its immutability. This eliminates the potential for tampering by malicious individuals and creates a trustworthy ledger of transactions for you and other network participants.
Benefits of blockchain
Greater trust
By utilizing blockchain technology within a restricted network of members, you can have confidence in the accuracy and timeliness of the data you receive, as well as the assurance that your private blockchain records will only be disclosed to those members whom you have specifically authorized.
Greater security
All network members must reach a consensus on the accuracy of data, and validated transactions cannot be deleted as they are permanently recorded. Even a system administrator does not have the ability to delete a transaction.
More efficiencies
Eliminating time-wasting record reconciliations, a distributed ledger shared among network members is utilized. Additionally, to expedite transactions, a collection of regulations, known as a smart contract, can be stored on the blockchain and executed automatically.
Types of blockchain networks
Public blockchain networks
A public blockchain, like Bitcoin, allows anyone to join and take part. However, there are drawbacks to consider, such as the need for significant computational power, lack of privacy in transactions, and relatively low security. These factors are crucial to keep in mind when it comes to using blockchain in enterprise scenarios.
Private blockchain networks
A decentralized peer-to-peer network, known as a private blockchain network, operates similarly to a public blockchain network. However, the network is governed by a single organization that determines participation, executes a consensus protocol, and maintains the shared ledger. This arrangement can greatly enhance trust and confidence among participants, depending on the specific scenario. A private blockchain has the capability to operate within a corporate firewall or be hosted on premises.
Permissioned blockchain networks
Businesses that establish a private blockchain typically establish a permissioned blockchain network, which should be noted as public blockchain networks can also be permissioned. This imposes limitations on individuals eligible to engage in the network and the transactions they can partake in. To join, participants must acquire an invitation or authorization.
Consortium blockchains
Multiple organizations have the ability to divide the duties of upholding a blockchain among themselves. These specifically chosen organizations are the ones who decide which individuals can send transactions or retrieve the information. A consortium blockchain is advantageous for businesses in situations where every participant must be given permission and collectively be accountable for the blockchain.
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