Since the introduction of Bitcoin in 2009, the uses of blockchain networks have been set off via the creation of different cryptocurrencies, non-fungible tokens (NFTs), decentralized finance (DeFi) applications, as well as smart contracts. As blockchain keeps growing and becoming more user-friendly, it is important for everyone to learn this developing technology to equip themselves for the future. So what are blockchain networks and how can we use them? Come with us, let’s talk you through the key points to note.
What is a Blockchain?
A blockchain is a distributed, unchangeable database or ledger that is shared among the network nodes of a computer. Essentially, it helps to make recording transactions and organizing assets (both intangible and tangible) in a corporate network easier and much more accessible.
Blockchains are best known for their important role in the world of cryptocurrency where they help to maintain a decentralized and secure record of transactions. However, they are not just limited to their cryptocurrency uses. They can be used to make the data in any other industry immutable.
How does Blockchain work?
Using the Bitcoin interactions as an example, we’ve highlighted how blockchain, also called distributed ledger technology, works:
- The acquisition and sale of Bitcoin is entered and sent to a network of highly powerful computers, called nodes.
- This network of thousands of computer nodes around the globe vie to verify the transaction via computer algorithms. This process is known as Bitcoin mining. The first miner to successfully complete a new block will be rewarded with Bitcoin for their hard work. Generally, these rewards are paid with a variety of newly minted Bitcoin and some network fees, which will be passed on to both the buyer and seller. The fees can either increase or drop depending on the total volume of transactions.
- After the Bitcoin purchase is cryptographically confirmed, typically, the sale is put into a block on the network of distributed ledgers. The majority of the blockchain network must then verify the sale.
- The block is always chained to all past blocks of Bitcoin transactions with the use of a cryptographic fingerprint called a hash, and the transaction is processed.
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What are the key features of Blockchain technology?
Blockchain depends on a decentralized network of connected users to validate and record all transactions, rather than just a single authority. Generally, blockchain transactions are secure, fast, consistent, affordable and even tamper-proof because of this component. The major characteristics of a blockchain are explained below:
1. Fast
Transactions are transmitted directly from the sender to the receiver. This eliminates the need for one or more than one intermediaries.
2. Secure
A blockchain’s distributed and unchangeable network of nodes offers collective solid protection against hacks, attacks and outages.
3. Consistent
Blockchain networks function around the world, 24 hours every day, seven days every week. So there is no downtime, which makes it consistent.
4. Inexpensive
Blockchain networks are far less expensive to manage because they do not involve any centralized, rent-seeking, and complicating intermediaries.
5. Tamper-proof
Data is very transparent and cannot be altered once it is already time-stamped to the ledger. This makes the blockchain impenetrable to hacks, fraud, as well as other criminal conduct. Likewise, everyone who has access to a public blockchain network can easily see all the transactions that have been created in the past.
Blockchain networks explained
A blockchain network is basically a technical infrastructure that permits applications to easily access the ledger as well as smart contract services. Smart contracts are mostly used to develop transactions, which are then sent to each peer computer node in the network and documented immutably on their own duplicate of the ledger. End-users using blockchain network administrators or customer applications are good examples of app users.
On a blockchain network, practically anything of value can be recorded and traded, which lowers the risk and cuts the costs for all people involved.
Orders, payments, accounts, production and many more can easily be tracked with the use of a blockchain network. You can easily see all facts of any transaction end to end because members generally share a single perspective of the truth. This provides you with stronger confidence about the transaction and extra efficiencies and opportunities.
What are the types of Blockchain networks?
A blockchain network can be developed in different ways. This network can be public, private, permissioned or even constructed by a group of people (known as a consortium). We’ve explained the different types of blockchain networks below:
1. Public blockchain network
A public blockchain is a blockchain that everyone in the world can easily view, send transactions to, and count on those transactions to be added if they are valid and duly participate in the consensus process. This process helps to identify which blocks are included in the blockchain and the current state of the block.
Also, public blockchains offer a special mechanism to help guard app users from their developers by illustrating that certain actions are far beyond the scope of the authority and even the app’s developers’ authority. Since public blockchains are typically open, they are very likely to be used by many organizations, with absolutely no need for third-party verification.
The unique anonymity of the public blockchain is another good reason it has drawn so many supporters. Yes, it is a very safe and secure open crypto platform where you can execute your business appropriately (like buying crypto) and efficiently. Likewise, you are not mandated to disclose your true identity or full name before you can participate. No one can even trace your recent activity on the network as long as your identity is secured.
Nevertheless, substantial computing power is needed for public blockchain. Users are given little or no privacy for their transactions, and their security is inadequate. These are very important considerations for the different blockchains used in different industries.
2. Private blockchain network
Private blockchains, also called managed blockchains, are simply permissioned blockchains that are generally administered by one entity. Typically, the central authority in a private blockchain decides the people who can be a node.
Also, the central authority here does not always give each node equal rights to perform functions. However, since public access to private blockchains is limited, they are just partially decentralized.
Hyperledger, an umbrella project for different open-source blockchain applications, is a good example of a private blockchain.
For data security concerns, network sharing at the corporate level often necessitates a much higher level of privacy. A private blockchain is the most suitable option if this is one of your essentials. Private blockchains are undoubtedly a much more stable network option because just a few users have access to specific transactions.
What are the disadvantages of public and private blockchains?
Both public and private blockchains have their disadvantages. These disadvantages include:
- Public blockchains take a longer time to validate fresh data than private blockchains.
- Private blockchains are generally more liable to sham and bad actors.
- The centralized strategy often promotes an over-reliance on different third-party management tools and will only favour the same few industry parties.
Consortium blockchains were developed to overcome all of the shortcomings of the private and public blockchain networks.
3. Consortium blockchain network
Unlike private blockchains, Consortium blockchains, are permissioned blockchains that are administered by a consortium of institutions rather than just a single institution. For this reason, consortium blockchains have a much more decentralized nature than private blockchains, which makes it more secure.
However, setting up consortium blockchains can be quite difficult because it mandates collaboration between numerous businesses. This typically poses logistical issues and a very high risk of antitrust violations.
Also, some supply chain associates may lack the crucial technology or infrastructure to embrace blockchain technologies. Those who do may even decide that the upfront prices of digitizing their data and connecting it to other supply chain associates are way too high for them to pay.
The consortium blockchain is overseen by just one party, but it is highly protected against a central authority. Nonetheless, the supervisor can easily run their rules, make modifications in balances, and even terminate transactions that are already confirmed to be full of defects as soon as each partner agrees. Besides that, it does different tasks to deliver result-oriented collaboration for different businesses with the same goal.
Since the data from the checked blocks is concealed from the public eye, the consortium blockchain has a very high level of privacy. However, anyone who is a member can still access it. Unlike the public blockchain, the consortium blockchain has no transaction fees.
Another key element of the consortium blockchain that differentiates it from public blockchain is its high flexibility. Maximum validators can have problems with synchronization and mutual agreement in the public blockchain. As a result of this divergence, forks are created, which does not happen in consortium blockchain networks.
The famous corporate software developer R3 has built a prevalent set of consortium blockchain solutions that will be used for the financial services industry and others.
What are the disadvantages of consortium blockchain networks?
Despite its many advantages, the consortium blockchain still has its drawbacks. One of its major drawbacks is that it is centralized, which makes it vulnerable to fraudulent players. When the total number of participants is limited, it is believed that one of the participants is to blame.
4. Permissioned blockchain network
A permissioned blockchain network is generally set up by corporations that develop a private blockchain. This limits who is allowed to engage in the blockchain network and the kind of transactions they can execute. To participate, members must first get an authorization or invitation.
Generally, permissioned blockchain networks offer a decentralized platform, which means that data is not held in a central depository and that everyone can easily access it at any time and from anywhere. It makes sure that all records in the blockchain have unchangeable signatures. The whole system and its data is safe because all transactions and information exchange are encrypted cryptographically. Also, the network’s miners and the different participants remain anonymous.
Another benefit of the permissioned blockchain is high transparency. Everybody can see and have access to all of the data and information. Nonetheless, this advantage has backfired, spurring concerns about the data security in all the permissionless blockchains.
A person does not need to confirm his or her identity on the permissioned blockchain. To enter this network, all you have to do is devote your high computing power. Any miner who can determine the nonce value and can solve the complex mathematical puzzle can easily join the system.
Although the anonymity in this blockchain is a good sign since the trading participants’ identities stay hidden, it can equally be troublesome. For instance, in a sham or if a person tries to track the different persons involved in a specific transaction, the permissionless blockchain will make it impossible. As a result of this, many people are using the blockchain for illegal. activities.
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Industrial application of Blockchain networks
Blockchain technology is very helpful in several areas, including finance, supply chain, real estate and even gambling. Companies and people can easily avoid the ambiguity and cost of engaging with third parties to execute regular business by making use of smart contracts. Smart contracts are self-executing codes that are stored and easily accessible on an unchangeable blockchain.
Also, energy corporations, such as gas and electric suppliers, can easily profit from blockchain in different ways. One of such use is in smart grids, which mandates a local marketplace for different power supply and demand. Another good application of the blockchain network is in securely sharing data among smart meters in different homes.
Furthermore, industries that depend on efficient and protected data ownership and administration mechanisms, such as the healthcare and digital identification industry, are uncovering new and evolved cutting-edge solutions administered primarily by blockchain network protocols. Blockchains allow users to remain anonymous and easily secure data transfer via public-key cryptography. This provides users with a public key for accepting transactions and a unique private key for transmitting transactions.
Lastly, for governments and agencies globally, blockchain may be a very powerful tool for closing off transactions, streamlining operations, as well as fostering citizen trust. For instance, governments can make use of blockchains to safeguard sensitive information such as citizen’s birth dates, addresses, social security numbers, as well as driver’s license numbers. Another likely benefit of blockchain for the government is in cost-cutting and inefficiency reduction. Essentially, blockchain technology can easily eliminate redundancies, streamline techniques and guarantee data integrity.
What are the concerns surrounding Blockchain technology?
Despite the numerous advantages, blockchains lack a steady ecology of network players or a verified consensus process that is very vulnerable to fraud and centralized control.
Other concerns surrounding blockchain are associated with the environment. For example, the proof-of-work (PoW) consensus method, often uses up a large amount of electricity to function. Other problems are related to the technological complexity and oppression factor that blockchain technology may bring to different individuals and businesses.
To sum this up, what are blockchain networks and how can we use them? A blockchain network is essentially a technical network that delivers smart contracts (chaincode) and ledger services to its applications. A good example of where the blockchain network is in use is in the Bitcoin cryptocurrency, which has been integrated into the global financial landscape.
The rapid rise of cryptocurrencies on the international financial stage was just the onset of the integration of blockchain technology into business and our everyday lives. Today, more sectors are trying out blockchain technology, and more individuals are becoming conscious of the immense utility and advantages that blockchain-based products and services can provide in their everyday lives.
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