Introduction:
Blockchain is one of the most important technical invention in the recent years. Blockchain is a transparent money exchange system that has transformed the way a business is conducted. Companies and tech giants have started investing significantly in the blockchain market and it is expected to be net worth of more than 3 trillion dollars in next 5 years. It has become growing popular because of its irrefutable security and ability to provide complete solution to digital
identity issues. It is a digital ledger in a peer to peer network. This paper provides a background on Blockchain technology, history, it’s architecture, how it works, advantages and disadvantages and its application in different industries.
What is Blockchain
Blockchain technology is normally associated with cryptocurrencies such as Bitcoin. It is a database of record of transactions which is distributed, and which is validated and maintained by a network of computers around the world. Instead of a single central authority such as a bank, the records are supervised by a large community and no individual person has control over it and no one can go back and change or erase a transaction history. As compared to a conventional centralized database, the information cannot be manipulated due to blockchain’s built in distributed nature of structure and confirmed guarantees by the peers. In another words, when a normal centralized database is located on an individual server, blockchain is distributed among the users of a software. Blockchain allows anyone on the network to access everyone else’s entries which makes it impossible for one central entity to gain control of
the network. Whenever someone performs a transaction, it goes to the network and computer algorithms determine the authenticity of the transaction. Once the transaction is verified, this new transaction is linked with the previous transaction forming a chain of transactions. This chain is called the blockchain. Blockchain technology is based on decentralized network meaning it operates as a peer to peer network.
One of the most popular blockchain technology is Bitcoin which hosts a digital ledger. Bitcoin provides the platform to mine, store and trade bitcoins via a complex computer algorithm which is tied to a distributed network. Blockchains can be not only used for transactions but it can be considered as registry and inventory for all assets.
Blockchain Architecture
Blockchain technology works on the concept of decentralized database where these databases exist in multiple computers and every copy of these database are identical.
Organizations maintain their data in centralized database which makes them an easy target for the hackers whereas due to decentralized structure of blockchain, it has made the blockchain as a temper proof technology. Blockchain can be considered as a peer to peer network that run on the top of the internet. Blockchain architecture can be mainly divided in three layers which are Applications, Decentralized Ledger and Peer-to-Peer Network. Applications is the top layer pf the network which is followed by the Decentralized Ledger and the bottom layer is the Peer-to-Peer Network. Application layer contains the application software of the Blockchain. For example, Bitcoin wallet software creates and stores private and public keys enabling users to keep control over the unspent bitcoins. Application layer provides a human readable interface where users can keep track of their transactions.
Decentralized Ledger is the middle layer in a blockchain architecture that confirms a consistent and temper-proof global ledger. In this layer, transactions can be grouped into blocks which are cryptographically linked to one another. Transactions can be defined as the exchange of tokens between two participants and every transaction goes through validation process before it is considered as a legitimate transaction. Mining is the process of grouping transactions
into a block that is added to the end of the current blockchain. Blockchain uses a proof-of-work algorithm to decide the chain that has required the most cumulative effort to build and to assure consensus among all the nodes to determine the blockchain’s legit. The bottom layer in the blockchain architecture is the Peer-to-Peer Network where Node types play different roles and various messages are exchanged to main the Decentralized Ledger.
How Blockchain Works
Following picture depicts how Blockchain works
Tiers of Blockchain
Following three tiers of blockchain technology were originally described in the book ‘Blockchain, Blueprint for a new Economy’ by Melaine Swan based on the applications in each category.
Blockchain 1.0
This Blockchain is basically used for cryptocurrencies and it was introduced with the invention of bitcoin. All the alternative coins as well as bitcoin fall into this tier of blockchain. It also includes core applications as well.
Blockchain 2.0
Blockchain 2.0 is used in financial services and industries which includes financial assets, options, swamps and bonds etc. Smart Contracts was first introduced in Blockchain 2.0 that can be defined as the way to verify if the products and services are sent by the supplier during a transaction process between two parties.
Blockchain 3.0
Blockchain 3.0 offers more security as compared to Blockchain 1.0 and 2.0 and it is highly scalable and adaptable and provides sustainability. It is used in various industries such as arts, health, justice, media and in many government institutions.
Generation X
This vision the concept of singularity where this blockchain service will be available for anyone. This blockchain will be open to all and would be operated by autonomous agents.
Types of Blockchain
- Public Blockchains
- Private Blockchains
- Semi-private Blockchains
- Sidechains
- Permissioned Ledger
- Distributed Ledger
- Shared Ledger
- Fully Private of Proprietary Blockchains
- Tokenized Blockchains
- Token less Blockchains
Add Comment