A popular question that goes around in the minds of many people is what exactly does a blockchain do. Many are confused as to what it actually does, or what it can be used for. So what can blockchain technology do?
The Purpose of Blockchain Technology
The purpose of blockchain technology is not to be used as a fame-attracting buzzword, but what it was originally intended for: to create an indestructible ledger for transactions. Why does one need such a thing? Well, there are many reasons why you would use a blockchain.
What Starts a Blockchain?
A blockchain is what starts with what’s called a genesis block and what’s called the hash of that block is what creates the fingerprint of what’s known as proof-of-work consensus which proves what data is true or not. This can be used in basically any sort of transaction, but what it does for example is that it takes some time to process transactions on a regular basis so what you’re trying to do since everyone has different computers all connected together through some sort of a network.
If your computer says ok I’m going to create this new transaction then you have everyone else verifying that transaction via the hash in what’s called proof-of-work consensus so what happens is that the next time you try to add a new transaction everyone else already knows what your computer says and what they decide what it will be.
Establishing digital identity
When it comes to a public key, your identity in the crowd is similar to an email address. A private key, on the other hand, represents your willingness to engage digitally. Blockchain-fueled progress is fueled by the power of cryptography.
What blockchain does is that you can establish what’s known as what digital identity and what blockchain will do with digital identity is to allow privacy by maintaining the confidentiality of what data on a transaction level. As an example, let’s say that what I do is I have a software program that takes what’s known as my public key and what they’re what I do is what they’re what I try to do is what they’re encrypting something and what something will be the private key or what’s known as public/private key pair.
Blockchains may be used to store registry data in one of three ways:
- Unencrypted data – All data, even unencrypted, is visible to all users on the blockchain, and this data is completely transparent.
- Encrypted data- can be decrypted and read by individuals who possess the decryption key.
- Hashed data — may be shown with the function that generated it to demonstrate that the data was not altered.
Generally, blockchain hashes are used in conjunction with the actual data that is stored off-chain. For example, digital ‘fingerprints’ are frequently hashed into the blockchain, but the bulk of the data may be kept offline.
Such a common system of records has the potential to transform the way different companies collaborate.
Currently, with data segregated on private servers, inter-company transactions requiring processes, procedures, and record cross-checking incur a colossal cost.
A characteristic of a blockchain network is that it keeps track of its own history. Be a result, they are often referred to as immutable. In other words, updating a database record would take a significant amount of work, since it would need changing all subsequent data on every single node. In this sense, it is more of a record-keeping system than a database.
It also provides what’s known as cybersecurity since what it does is that you can’t go back and change what has happened on a transaction level because what blockchain will do is what blocks the transaction in such a way where you have to alter all of the blocks wherein after they are linked together.
Serve as a forum for discussion
The first blockchain-based platform was cryptocurrency. People have now progressed from the concept of a cryptocurrency trading platform to a smart contract platform.
Smart contracts have become a catch-all term, although the concept may be broken down into many categories: financial, legal, tax, insurance, securities and others.
In the 1990s, Nick Szabo developed the term “vending machine” for smart contracts. This is when computers interact after receiving an external input (such as a cryptocurrency) or sending a signal that causes a blockchain action to occur.
Smart contracts can set to work when notified of an event, whereas the vending machine’s output was restricted to being held or released.
In addition, smart contracts are not always executed on a blockchain. Since they execute as code on a distributed network of computers that has no single point of failure, there is precedent for using them in non-financial ways.
Offering a secure transaction method
The blockchain is considered to be the most secure database in human history. The term public-key cryptography was introduced by Whitfield Diffie and Martin Hellman in 1976. Most individuals refer to it simply as encryption, but that’s a general term that applies to any use of keys/ciphertext.
The encryption process involves two keys: the public and the private key. The public key encrypts, whereas the private one decrypts a message. This is used in cryptocurrency transactions to make sure that nobody other than you can send your funds out of your wallet.
Bitcoin uses an extremely strong encryption method called elliptic curve digital signature algorithm (ECDSA). Fundamentally, it’s all about math, where multiplication on elliptical curves is known as scalar multiplication or point addition on curves with coordinates x & y. A typical ECDSA implementation will have a specific finite field defined by a prime order named as P and when p=2q+1. There are generally two ways to implement ECTSA, which are built on different mathematical curves: secp256k1 and secp256k2.
Providing a system of record
A blockchain has the potential to be used as a single, shared version of truth. This can provide numerous benefits in reference to eliminating errors or inconsistencies when information is passed between multiple parties. The coding logic behind it is known as an autonomous agent that has the ability to make decisions about what happens next. Because the code runs on thousands of computers simultaneously, it’s nearly impossible for someone to plant viruses or falsify data. The way that this works is through consensus mechanisms, such as those that have been developed by the Ethereum Foundation and Mastercoin (now Omni).
As we have seen, the potential uses for blockchain are limitless. While a traditional database generally requires an organization to purchase software licenses, maintain networks, and mitigate security risks all while trying to minimize downtime and maximize performance from its data center infrastructure; blockchain has been proven as a viable alternative in terms of costs savings while ensuring better uptime.