Blockchain technology has ushered in a new era for crypto. A Blockchain is a growing list of records, called blocks that are linked together using cryptography. It is most simply defined as a distributed ledger and fully decentralized peer-to-peer immutable data storage system that facilitates the process of recording transactions and tracking assets in a business network. An asset can be tangible (House, Car, Shop, Cash, Land etc) or intangible (Intellectual Property, Logo, Copyrights, Patents, Branding etc).
Blockchain is a system of recording information in a way that makes it difficult or impossible to change, hack or crack the system and it is spread over a network of participants often referred to as Nodes (A node is a connection point inside a network that can receive, send, create, or store data and a blockchain node’s main purpose is to verify each batch of network transactions, called Blocks).
Each block in the chain contains a number of transactions, and every time a new transaction occurs on the blockchain, a record of that transaction is added to every participant’s ledger. The decentralised database managed by multiple participants is known as Distributed Ledger Technology (DLT). Blockchain is a type of DLT in which transactions are recorded with an immutable cryptographic signature called a Hash.
Today in this article we are going to discuss about this revolutionary technology – The Blockchain Technology, How It Actually Works, History of This Technology, Use of Blockchain Technology and many other useful information.
History of Blockchain Technology
Cryptographer David Chaum first proposed a blockchain-like protocol in his 1982 dissertation ‘Computer Systems Established, Maintained, and Trusted by Mutually Suspicious Groups’. Later the blockchain technology was described in 1991 by the research scientist Stuart Haber and W. Scott Stornetta. They wanted to implement a system wherein document timestamps could not be tampered with. So they develop a system using the concept of cryptographically secured chain of blocks to store the time-stamped documents.
In 1992, Haber, Stornetta, and Dave Bayer incorporated ‘Merkle trees’ (A Merkle tree is a data structure that is used in computer science applications) into the design, which makes blockchain more efficient by allowing several documents to be collected into one block. Merkle Trees are used to create a secured chain of blocks for the blockchain technology.
Later in 2004, Hal Finney, a computer scientist and cryptographic activist, introduced a system called Reusable Proof of Work (RPoW) as a prototype for digital cash. This was considered an important initial step in the history of cryptocurrency.
Later in 2008, Satoshi Nakamoto came up with the idea of the First Distributed Blockchain Theory. Actually, Satoshi Nakamoto is the name used by the presumed pseudonymous person or persons who developed bitcoin, authored the bitcoin white paper and also created and deployed bitcoin’s original reference implementation. As part of the implementation, Nakamoto also devised the first Blockchain Database. The words block and chain were used separately in Satoshi Nakamoto’s original paper, but eventually became popular as a single word, Blockchain, by 2016.
The evolution of blockchain is stable and promising. In August 2014, the bitcoin blockchain file size, containing records of all transactions that have occurred on the network, reached 20 GB. In January 2015, the size had grown to almost 30 GB, and from January 2016 to January 2017, the bitcoin blockchain grew from 50 GB to 100 GB in size. The ledger size had exceeded 200 GB by early 2020.
The global blockchain market size is expected to grow from USD 3.67 billion in 2020 to USD 48 billion (Approx) by 2025, at an impressive Compound Annual Growth Rate (CAGR) of 67.3% during 2020–2025.
How Blockchain Technology Works?
In recent years, many businesses around the world have been integrating blockchain technology. The advancements of Blockchain technology are still young and have the potential to be revolutionary in the future. Blockchain works via a multistep process, which in simple terms happens as follows:
- An authorized participant inputs a transaction, which must be authenticated by the technology.
- As each transaction occurs, it is recorded as a ‘block’ of data. Those transactions show the movement of an asset that can be tangible (House, Car, Shop, Cash, Land etc) or intangible (Intellectual Property, Logo, Copyrights, Patents, Branding etc).
- The block is sent to every computer node in the network. Then the blocks confirm the exact time and sequence of transactions, and the blocks link securely together to prevent any block from being altered or a block being inserted between two existing blocks.
- Transactions are blocked together in an irreversible chain and each additional block strengthens the verification of the previous block.
- Finally, the update is distributed across the network, which finalizes and ensures the transaction.
These steps take place in close to real time and involve a range of elements. Here it is important to note that with each new transaction, a secured block is created, which are secured and bound to each other using cryptographic principles. Whenever a new block is created, it is added to the existing Blockchain network confirming that it is secured and immutable.
Uses of Blockchain Technology
To preserve the security of the blockchain, A Specific Algorithm, known as Consensus, is used. It allows a new block to be added to the blockchain without compromising the integrity of data stored in the distributed ledger. Blockchain technology can be integrated into multiple areas. Beyond the cryptocurrency setting, there are other uses for blockchain too.
Individual use of blockchain technology has also greatly increased since 2016. Here we will discuss the effective application of blockchain technology:
- Most cryptocurrencies use blockchain technology to record transactions. For example, the Bitcoin network and Ethereum network are both based on blockchain.
- Potentially the most ideal and rational application of blockchain technology is using it as a means to accelerate the transfer of funds from one party to another. It also helps in transfiguring the retail experience by becoming the go-to for loyalty rewards.
- On 8 May 2018 Facebook confirmed that it would open a new blockchain group which would be headed by David Marcus, who previously was in charge of Messenger. Facebook also planned a cryptocurrency platform, Libra (now known as Diem), was formally announced on June 18, 2019.
- Blockchain provides the ability to Vote Digitally, and it is transparent enough that any regulators would be able to see if something was altered on the network.
- Blockchain-based smart contracts are proposed contracts that can be partially or fully executed or enforced without human interaction.
- Blockchain technology is the ideal way to back up crucial data. Banks are interested in this technology because it has potential to speed up back office settlement systems.
- Blockchain could be used in detecting counterfeits by associating unique identifiers to products, documents and shipments, and storing records associated to transactions that cannot be forged or altered. It is also being used in peer-to-peer energy trading.
- Blockchain technologies can also be used to protect against royalty and copyright infringement issues. It would also be used in storing electronic medical records.
Blockchain is being introduced in many industries and also widely used, the average traffic in all blockchain categories like blockchain platform, blockchain security, blockchain payment and blockchain as a service has increased by 120% in the last three months. And here we discuss some important uses of blockchain technology beyond Bitcoin and Cryptocurrencies.
Why Is Blockchain Technology Gaining So Much Popularity?
Blockchain can support a wide range of applications in different industries including retail, supply chain and the ones mentioned in the above infographic. Most importantly, this technology has many advantages and also brings a new era for cryptocurrency technology.
- Improved accuracy by removing human involvement in verification and also cost reductions by eliminating third-party verification.
- The technology applies a digital signature to create transactions which reduce fraud.
- Blockchain makes it virtually impossible to remove or change data without being detected by other users.
- This technology provides a banking alternative and way to secure personal and transaction information for citizens of countries with unstable or underdeveloped governments.
- The technology is completely programmable and can trigger actions, events, and payments once the conditions are met.
- Blockchain has become the safest and most secure data-recording and financial transaction system today.
These are some of the important reasons for the popularity of blockchain. Although blockchain is still a new technology but its future potential is huge. Individual use of blockchain technology has also greatly increased since 2016. According to statistics in 2020, there were more than 40 million blockchain wallets in 2020 in comparison to around 10 million blockchain wallets in 2016.
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The Bitcoin Network is more powerful than 500 super computers working together and the global spending on blockchain in 2019 has increased by 80% compared to 2018.