Principles

A blockchain functions as a digitally distributed ledger, shared across the nodes of a computer network. While they are predominantly recognized for their role in cryptocurrency systems, where they help maintain a secure and decentralized transaction record, their utility extends beyond cryptocurrencies. Blockchains are employed across various industries to render data immutable, meaning the data cannot be altered.

The integrity of a blockchain lies in the fact that once a block is added, it cannot be changed. This characteristic minimizes the reliance on trusted third parties, such as auditors, who traditionally add costs and are prone to errors.

Since the advent of Bitcoin in 2009, the applications of blockchain technology have significantly diversified. This expansion includes the development of different cryptocurrencies, decentralized finance (DeFi) applications, non-fungible tokens (NFTs), and the implementation of smart contracts.

1. Blockchain Decentralization –

Blockchain technology enables the distribution of a ledger across multiple network nodes, which are computers or devices running the blockchain’s software, located in different places. This distribution not only ensures redundancy but also preserves the integrity of the data. For instance, if an attempt is made to alter a record in one instance, the other nodes in the network would intervene to prevent this change, ensuring that no single node can unilaterally modify the shared information.

This decentralized structure, combined with the cryptographic proof of completed work, renders the recorded information and history (such as cryptocurrency transactions) irreversible. While often associated with recording transactions in cryptocurrencies, blockchain’s capabilities extend to storing a wide array of data types, including legal contracts, state identifications, or a company’s product inventory.

2. Blockchain Immutability –

In a blockchain network, once a transaction is recorded on the shared ledger, it becomes immutable, meaning that no participant can alter or tamper with it. This characteristic is fundamental to the blockchain’s integrity and trustworthiness. If a transaction is recorded with an error, it is not possible to directly edit or delete it. Instead, to rectify the mistake, a new transaction must be added to the ledger that counters or corrects the previous erroneous transaction. This corrective transaction is essentially an acknowledgment and reversal of the original mistake.

Both the incorrect transaction and its correction remain permanently visible on the blockchain. This transparency ensures that the entire history of transactions is always available for verification, preventing the possibility of fraud or manipulation. This aspect of blockchain technology is particularly valuable in scenarios where accuracy and historical records are crucial, such as in financial transactions, legal agreements, and supply chain management. The permanent record of all transactions, including errors and their corrections, helps in maintaining a clear and auditable trail of all activities on the network.

3. Blockchain Transparency –

The decentralized structure of blockchains allows for the transparent viewing of all transactions. This visibility is possible either through operating a personal node or utilizing blockchain explorers, which enable anyone to observe live transactions. Each node maintains an updated copy of the chain, which is refreshed as new blocks are confirmed and added.

Take, for instance, instances where exchanges have been hacked, leading to significant cryptocurrency losses. Although the identities of the hackers might be concealed, barring their wallet addresses, the movement of the stolen cryptocurrencies can be tracked with ease due to the public nature of wallet addresses on the blockchain.

1. Private Blockchain Networks –

Private blockchains are designed for closed networks, making them a suitable choice for private businesses and organizations. These blockchains allow companies to tailor their network according to specific needs, including access control, authorization settings, and various security parameters. In a private blockchain, there is typically a single authoritative entity responsible for managing and maintaining the network. This centralized control can offer enhanced privacy and efficiency, tailored to the specific requirements of the organization using it.

2. Public Blockchain Networks –

Bitcoin, along with various other cryptocurrencies, emerged as public blockchains, significantly contributing to the widespread recognition of distributed ledger technology (DLT). These public blockchains have been instrumental in addressing and mitigating challenges like security vulnerabilities and centralization concerns. In a DLT framework, data is not confined to a single location but is instead dispersed across a peer-to-peer network, enhancing security and resilience.

To authenticate and verify the information on the network, public blockchains employ consensus algorithms. Two of the most commonly used methods are proof of stake (PoS) and proof of work (PoW). These consensus mechanisms ensure that transactions and data are accurately processed and validated across the network, maintaining the integrity and trustworthiness of the blockchain.

3. Hybrid Blockchains –

Hybrid blockchains merge the features of public and private blockchains, creating a versatile system where certain aspects are open and transparent (public), and others are restricted to authorized participants (private). This dual nature makes hybrid blockchains particularly effective in scenarios where a balance between openness and confidentiality is essential.

For instance, in supply chain management, a hybrid blockchain can allow multiple parties to access specific information pertinent to the supply chain, enhancing transparency and coordination. At the same time, it can securely protect sensitive data, ensuring it’s accessible only to those with the necessary permissions. This selective accessibility makes hybrid blockchains a strategic choice for industries and applications that require both public engagement and privacy protection.

Blockchains can be categorised based on their consensus mechanisms. Here are some of the most notable types:

1. Proof of Work (PoW) –

A well-known consensus algorithm, PoW is employed by leading cryptocurrencies like Bitcoin and Litecoin. It necessitates that participating nodes demonstrate the computational work they have completed to earn the right to add new transactions to the blockchain. A notable downside of PoW, as seen in Bitcoin mining, is its substantial energy consumption and lengthy processing times.

2. Proof of Stake (PoS) –

Developed as a more energy-efficient and cost-effective alternative to PoW, PoS assigns the responsibility of maintaining the public ledger to nodes based on the quantity of cryptocurrency they stake. This environmentally friendly approach encourages coin holders to participate in network security. A blockchain that uses this method is Ethereum.

3. Proof of Authority (PoA) –

In the PoA consensus mechanism, validators are limited to specific people, addressing potential vulnerabilities inherent in other models. Within some PoA, the real-world identities of validators are verified and established, ensuring a high level of trustworthiness. Network administrators assess the credibility of each potential validator, which also facilitates easy tracking in the event of any misconduct.

1. Healthcare –

Blockchain technology can revolutionize the healthcare industry by enabling the tracking and tracing of prescription drugs across supply chains. This capability significantly curtails the distribution of counterfeit medications and facilitates the recall of ineffective or unsafe drugs. Additionally, blockchain emphasizes securing patient data and enhancing data sharing, thereby improving healthcare services across hospitals, governments, and research institutions.

2. Supply Chain Management –

Blockchain’s immutable ledger is ideal for real-time tracking of goods in the supply chain. It allows businesses to efficiently manage logistics, from allocating new deliveries in shipping containers to organizing tracking data in innovative ways, ensuring authenticity and traceability.

3. Voting Systems –

Blockchain is emerging as a solution for secure voting systems. While electronic voting addresses many issues of traditional voting methods, concerns like voter privacy and fraud persist. Blockchain can secure the voting process through encryption and smart contracts, ensuring transparency and privacy for voters, and is already being used in smaller-scale elections like university polls.

4. Cross-Border Payments –

Blockchain technology allows for rapid international fund transfers (e.g. quick transactions), significantly cutting down the processing time from days to just a few minutes. It also minimizes the number of intermediaries involved in the payment process, as the blockchain itself verifies payment authenticity and maintains a high level of transparency.

5. Internet of Things (IoT) –

IoT involves interconnected devices sharing data for enhanced insights. Blockchain is crucial for securing this vast network, ensuring data safety, and restricting access to authorized entities only, thereby addressing vulnerabilities in less secure devices.

6. Asset Management –

Blockchain could transform the asset management sector, particularly in managing and trading diverse assets like stocks, real estate, and mutual funds. It simplifies and reduces the cost of cross-border transactions by eliminating intermediaries like brokers and settlement managers, offering a transparent and efficient process.

7. Gaming –

Blockchain gaming allows players to own and securely trade their in-game items as NFTs for profits or other resources. Thanks to the blockchain’s ability to record each item and its ownership, players can engage in transactions with assurance. They can trust that their items are safe from theft or duplication, fostering a secure and reliable trading environment and creating new economic opportunities within the gaming industry.