Blockchain is not a new term for anyone following the financial industry, especially banking, cryptocurrency, or investment, for the last ten years. So, what is Blockchain? As we know, Blockchain is not a very new concept; however, its recent popularity increased from 2008 onwards. Blockchain was combined with other computing concepts and several other technologies to revolutionize the modern concept of cryptocurrency. Instead of a central repository, Blockchain encourages peer-to-peer electronic transactions utilizing cryptographic mechanisms and that too also without any trusted third party in between. In a single phrase, it is a distributed, decentralized, and public ledger.
Blockchain categorization
Based on the permission model Blockchain networks can be categorized into two types:
Permission model: If only particular users can publish blocks, it is permissioned. Thus it determines who can publish blocks in the Blockchain network.
Permissionless model: If anyone can publish a new block in the Blockchain network, it is permissionless. It is like the public internet, where anyone can participate.
What is Blockchain engineering and components
At a high level, Blockchain technology utilizes well-known cryptographic primitives like cryptographic hash functions, asymmetric-key cryptography, digital signatures, record-keeping concepts like append-only ledgers, and computer science.
Cryptographic Hash Functions
The most crucial component of Blockchain technology is cryptographic hash functions. Here hashing method is applied to data, which is in other terms known as the cryptographic hash function. It calculates the unique output for any input type and size, e.g., a file, text, or image.
Input data -> Hash the data ->Derive the result without changing data
Not to mention, Cryptographic hash functions maintains vital security properties where
1. Only one-way calculation is possible
2. Cryptographic hash functions are designed so that only one single input space is there for output.
3. They are collision-resistant. This means that one cannot find two inputs that hash to the same output.
Asymmetric/Public Key Cryptography
Understanding Blockchain technology, asymmetric-key cryptography is essential to understand the Blockchain engineering mechanism. Asymmetric-key cryptography uses a pair of keys. These are mathematically related to each other.
Public key – This key is made public without reducing the security of the process
Private key – It remains secret if the data is to retain its cryptographic protection.
Even though there is a relationship between the two keys, we cannot determine the private key based on the public key’s knowledge. However, we can encrypt with a private key and then decrypt with the public key and vis-a-vis. Additionally, asymmetric-key cryptography establishes a trust relationship between users involved in the transaction. Not only that, it enables the transaction authentic using a digital signature, which is nothing but a private key encrypted in the transaction which anyone with a public key can decrypt.
Blocks
In a Blockchain network, users submit transactions via software. The software sends these transactions to a node or nodes within the Blockchain network. These nodes are known as blocks in a Blockchain network. Now there are two types of nodes:
Non-publishing full nodes
Publishing nodes.
Furthermore, a block consists of two parts –
Block Header which consists of
– The block number, also known as a block height.
– The previous block header’s hash value.
– A hash representation of the block data
– A timestamp
– The size of the block.
Block Data which consists of
– A list of transactions and ledger events included within the block.
– Other data may be present.
Chaining Blocks
What is Blockchain technology? Well, Blocks in such networks are chained together. How does this happen? Here each block contains the hash digest of the previous block’s header and forms the Blockchain. So, if a previously published block changes, it will result in a different hash. This will turn all subsequent blocks to have different hashes as they include the previous block’s hash. Thus it is easier to detect and reject altered blocks. This mechanism is known as chaining blocks.
Transactions
The transfer of the cryptocurrency or digital assets between the Blockchain network users is known as a transaction. Each block can contain zero or more transactions. A Blockchain network user sends information to the Blockchain network. The information may include
– the sender’s address
– sender’s public key
– a digital signature
– transaction inputs
– Transaction Outputs.
Besides transaction also transfer data viz. smart contracts
A transaction contains the following minimum information. However, it can contain more:
Inputs – The inputs means the digital assets in a transfer. As mentioned earlier, an input is a past event of a transaction and cannot change. So, any user can’t add or remove value from the digital asset. We can either combine multiple new digital assets or split a single digital asset into many to specify the transaction output. The critical point here is the digital signature of the sender of the input to provide access to the private key.
Outputs – The outputs are the recipient’s digital assets and refer to their receivable amount. Each output consists of the following:
– the number of transferrable digital assets to the new owner(s),
– the identifier of the new owners
– A set of conditions the new owners must meet to spend that value.
If the digital assets are more than the required amount, the extra funds are explicitly sent back to the sender, known as “make change.”
Validity and authenticity are two essential criteria in a transaction.
Validity: It ensures whether the transaction meets the protocol requirements and data formats specific to the Blockchain implementation.
Authenticity: The authenticity of a transaction determines whether the digital assets’ sender has access to those digital assets.
Private Key Storage
Especially with a permissionless Blockchain network, users utilize software to store the private keys securely. Such private key storage is known as a wallet. Wallet stores not only private keys but also public keys and their associated addresses. Besides, it may calculate other functions as the total number of digital assets of a user.
Ledgers
A ledger is a collection of transactions. It is a digitally stored component usually in databases owned and governed by a centralized body. Also, it is implemented either in a centralized or distributed way.
Addresses and Address Derivation
In a Blockchain implementation, an address refers to the “to” and “from” endpoints. It is a short, alphanumeric string of characters derived from the public key using a cryptographic hash function. It also contains additional data like version number, checksums. To generate an address, a cryptographic hash function is applied to the public key and converts the hash to text:
public-key -> cryptographic hash function -> address
Related post – What are the different types of Blockchain and Consensus algorithm?
What is Blockchain engineering Mechanism
Once a transaction is submitted to the network, it propagates to the other nodes. However, the transaction does not happen automatically. A publishing node adds the transaction to the network. If any pending transaction is distributed to the nodes, then the latest transaction waits in the queue. Once a publishing node publishes a block which means it adds a transaction. As mentioned earlier, a block contains a block header and data. The block header holds the metadata, whereas the block data includes a list of authenticated and validated transactions submitted to the network. It depends on the transaction format and digital assets with the cryptographical sign, which in other terms, verify the access to the private key of the digital assets. Blocks with an invalid transaction are not accepted.
Four characteristics of Blockchain
Till now, we have known a few things about a Blockchain network. Does that mean everything that can store and record transactions can be labeled as Blockchain? What are the specific characteristics of the Blockchain network? Theoretically, a Blockchain network has 4 key characteristics:
1. Consensus – All the participants in a Blockchain network must follow/agreed to the same rules, violating which a transaction will be considered invalid.
2. Provenance – This signifies the traceability of the asset in a Blockchain network. This means the participants must know the origin of an asset and its ownership changes over the journey.
3. Immutability – As the name suggests, no transaction can be modified once recorded in a ledger.
4. Finality – In a Blockchain network, only a single ledge is maintained, which is in other terms known as truth for the network.
Applications of Blockchain in different fields
Smart contract in Blockchain technology
The most prevalent use of Blockchain technology may be Smart contracts, a collection of code and data. It uses cryptographically signed transactions on the Blockchain network, e.g., Ethereum’s smart contracts. A smart contract can represent multi-party transactions, better business decisions, and reduces time to finish a transaction.
Health and Pharma areas
In the Pharmaceutical industry, Blockchain technology is used for traceability of supply chain and authenticity purposes. Similarly, in the healthcare industry, Blockchain is used for more secured digitization of medical records. Interestingly, Blockchain can solve the biggest healthcare problem by allowing healthcare providers and doctors to access their patients’ health records easily and securely. It makes health records singular instead of storing them in different systems and can cover birth to death regardless of how many times it changes for insurance systems and doctors. Simultaneously, the health record can be accessed ad-hoc basis, potentially helping doctors in an emergency.
Real Estate
Real estate transactions, no doubt, involve a lot of paperwork, which comes out cumbersome. With the intervention of Blockchain smart contract, it eliminates escrow. It could be designed so that it will be executed only when certain conditions are met. At the same time, it will store valuable documents securely.
If you’ve ever bought or sold a home, you know how much paperwork is involved. But blockchain systems could be used to simplify the process and eliminate escrow. Smart contracts could be designed that only execute when certain conditions are met, including funding. Besides, all these various documents could be stored
Legal Industry
The legal industry needs to handle a bundle of documents involving storing and retrieving them along with their verification. Blockchain can securely store documents eliminating the questions over the legality of legal documents like wills etc. Besides, it eliminates the question of digital inheritance.
Education
As the trends for distance learning and online education are increasing, it creates the need to verify the students’ educational records and transcripts. A blockchain-based system can serve the purpose of a notary for educational records. It enables a collaborative approach for universities and other institutions. It facilitates instant transferable grades and records among intra universities
Government
Single digital identity is the new sensational concept that wipes out the need to remember those bothering countable user names and passwords. And Blockchain technology is used to generate such digital identity. This is not only useful for the voting system but also helpful to reduce corruption in government agencies. It will help in verifying veterans, disability, welfare benefits, and handling unemployment benefits. Smart contracts can ensure that government funds will only be released when certain conditions are met. This will increase the security, transparency, and efficiency in government functions.
Supply chain industry
Leveraging Transparency
Blockchain which is nothing but a distributed database, records each transaction on a block across multiple copies of the ledger. Hence, it is not a difficult task in the supply chain to find the correct journey path of goods from origin to touchpoints with Blockchain. Thus it makes a transparent supply chain service. Besides, it enables useful information sharing on other associated tasks related to manufacturing, logistics, and transportation.
More Security
In Blockchain, the ledgers are distributed across many nodes, and each node is linked with another node one before and one after it. Thus this chain structure is tamperproof. So, even if you can add or access the data, modification is not allowed as a user. Hence, the architecture is highly secure.
Easy Scalability
Since there is no central authority of the Blockchain, it is easily scalable. Thus any number of participants can access virtually from any number of touchpoints and be added to the process.
Correct record tracking
As mentioned above, maintaining transparency is easier using Blockchain, so accurate record tacking like quantity and transfer of assets are also smooth between supply chain nodes.
Reliability and integrity
The built-in chain of command in Blockchain facilitates necessary reliability and integrity in supply chain management.
Banking
Blockchain is the more secure way to store banking records. Besides, it is a faster and cheaper way of transferring money through the decentralization provided by a blockchain. Since there is no central vault concept, there’s minimal risk of running on a blockchain system. It can be compared to an individual’s money in the private vault without any access to outsiders.
Advantages and disadvantages
Pros :
-Users can experience faster transactions as Blockhain is awfully faster than any traditional system. So, in emergency time, it is more reliable for consumers comparing to slow-paced systems.
– Since less human involvement, so it is more accurate.
– As verification happens automatically, it is cost-effective.
– Decentralized so harder to tamper with
– More secure, efficient and private transactions
– More transparency in the technological aspect as every block is encrypted with a hash value. And it is tough to hack it as blockchain is a chain of blocks, so to decrypt the hash of one blog and change it
Cons
– Lower transactions rate
– It is much more difficult to design and build a secure blockchain system than a traditional centralized system
– Blockchain systems are harder to change. So, in some sense, though it is a pros in case of any important modification, it remains immutable.
– Blockchain systems are harder to fix as they are immutable. So if anything goes wrong in Blockchain, it will be minus.
– Blockchain technology consumes heavy energy equivalent to supercomputers or similar powerful hardware resources for each transaction. This is because miners take a large amount of computing power for solving the computations for both verifications and processing the transactions.
– Blockchain technology is not easy to grasp, as it involves complex mathematical calculations. Also, there is a lack of certified blockchain professionals to handle this technology with practiced ease.
As every node in the Blockchain network verifies the transactions, it limits the speed of the transaction process, leading to scalability issues.
How is Blockchain technology going to change the world?
Blockchain removes the involvement of mediators from any transaction. Besides, it improves the chances of transactions to go through the way the user intends. Blockchain enforces everybody to follow the same rules, in the same way, all the time, and these rules can’t be changed. It is the “one universal record” that Blockhain enable for people. It ensures certainty in handling documents without forging the records, although ownership can change from hand to hand.
Few of the ways Blockchain will change the world:
Investment
– Decentralized exchanges replaces traditional brokers and traders.
– Distributed apps enable traders and investors to create trading platforms or switch between trading platforms.
– This has an amazing potential for micro-trades.
– It enables frictionless movement of huge amount of money within a portfolio.
Multinational businesses
– Enables streamlined accounting for organizations that have subsidiaries in countries that use a different currency.
– Free, instant money transfers to anybody anywhere anytime.
– Peer-to-peer lending across borders.
Intellectual Property / Piracy control
– Since it is time-stamped, and verified it maintains the copyrights.
– Tamper-proof digital tags identifying ownership and smart contracts
Product Tracking
– RFID-enabled product labels recorded on blockchain makes it impossible to smuggle goods.
– Maintains universal records of cargo movements from exit from country of origin to entry to destination country.
Final verdict
Though gained popularity only after the name of cryptocurrency and Bitcoin, the Blockchain journey has been long since 1991. However, today, it is no small part of the technology arena with its multiple use cases. It is expected that Blockchain will help governments and businesses operate more accurately, efficiently, and securely soon.