Blockchain is a concept that has gained great popularity in recent years, it's almost impossible that you haven't heard about it. But do you really know what it means? It not only evolves technology as we know it, but also represents a huge step forward for our economy. There are infinite possibilities that blockchain technology offers us. So we have put together a small guide to explain what it is, how it works and what benefits it offers us.
What is blockchain?
To define what Blockchain is, we must first explain why it means a big change in the way we do business. Let's put it this way: when you make a bank transaction, you generally need the bank's approval to do so. Sometimes this is a lengthy process that only the bank will have control over. This entity will handle the information from both parties, set a limit on the amount for which you make the transaction. And, of course, they will charge fees at the cost they deem appropriate.
Blockchain, on the other hand, works like a ledger. Therefore, each transaction is stored and certified to guarantee its integrity and long-term availability. Additionally, the content is encrypted, so it will be highly confidential. This will be completely unique and unalterable, since the different nodes are in charge of distributing them in each block.
In this sense, this technology allows you to record transactions and track a specific asset within its network. All this without the need for intermediaries, since the millions of nodes that conform it are the same ones that are in charge of validating such transactions. This means a big goodbye to the whole lengthy process of a conventional banking transaction.
How does it work?
This network uses peer-to-peer data exchange technology to connect different users who share information. This is possible since data isn't centralized through a system, but is shared by all network users. The blocks will be able to record all the information provided during the transaction, some data such as who performed the transaction, when, where, how much and how they did it.
Each of these blocks will be linked to each other and form a chain with an unbreakable record. Thus a block reinforces the verification of the previous one and rules out the possibility of being manipulated or deleted. Once this is achieved, the transaction is carried out.
This chain stores a large amount of information, so it continues to grow over time. This has led to the creation of efficient query mechanisms that don't require downloading all the information: the Merkle tree. This tree data structure allows a large number of separate pieces of data to be related to a single hash value.
Now let's look at some of the most outstanding features of blockchain. Perhaps this will help you understand in a more practical way what the advantages of this technology are.
- Security: this works with cryptography, so its storage security is unbreakable.
- Reliability: the main objective of blockchain is to offer transparency in each of its procedures. Any user can have access to their information, and this is essential to be able to manage their finances in a trustworthy network.
- Traceability: all transactions are available to everyone, so you can easily track them
- Immutability: When information is added to the distributed database, it can't be modified. Thanks to cryptography and hash functions, this distributed accounting record guarantees immutability.
- Open source: anyone can access the code of this technology, as it's publicly available.
Types of blockchain
Finally, let's talk about the types of blockchain that exist. In order for you to understand them correctly, we'll give a brief description of each one of them:
This is the one that is publicly accessible on the internet, and is the first type of blockchain to exist. It keeps its data, software and maintenance publicly open, so everyone can review it and develop it. Some examples of this type of public blockchain are Bitcoin, Ethereum, Dash or Zcash.
As time went by, the progress of this technology led to its expansion, so as a result, several companies got interested in it. This brought the emergence of private blockchain. A new type that, despite having the same features as the public network, depends on a center that manages all its actions.
This entity is the one that grants access to users and controls the functionality and the permissions within the network. A leading private blockchain developer in the field is Hyperledger. Ther are also others such as R3's Corda or JPMorgan's Quorum.
As its name suggests, this one is a fusion between public and private blockchains and takes advantage of both. In the hybrid blockchain, one or more entities control access to network services. Only in this case, the ledger is available to the public, so anyone can explore everything that happens on the network through each block.
This type of blockchain is especially useful for government agencies or companies that require a system to store specific data and share it safely. A prime example is the healthcare field, which is using blockchain to maintain a concise inventory of data from its drug manufacturing lines. This allows authorities to review the data and control its quality.