9 Important Basics You Need to Know about Blockchain Technology

Concepts of Blockchain Technology

Decentralization

Blockchain technology is based on the concept of decentralization, meaning it is not owned or managed by any single entity. This means that all transactions are recorded, authenticated, and validated by a distributed network of computers instead of a single, centralized authority. This makes it much more secure than traditional databases, as it is much more difficult to hack or alter the data. Additionally, it is also much faster, as transactions can be completed in seconds instead of days.

Immutability

Blockchain is an immutable ledger, meaning that once data is added to the blockchain, it can never be changed or removed. This is because each new block of data is linked to the previous block, creating a chronological chain of records that is verified by all nodes in the network.

Security

Blockchain technology uses cryptography to secure data, making it virtually impossible to tamper with or alter the data. This ensures that data stored on the blockchain remains safe and secure, making it ideal for use in financial transactions or other sensitive data.

Transparency

Blockchain technology is transparent, meaning that all transactions are visible to anyone on the network. This makes it easier to track and audit transactions, as well as detect any fraud or illegal activity.

Trustless Environment / Consensus

This is the process of verifying and validating transactions on the network. A consensus algorithm is used to determine how transactions are approved, and it is usually a combination of cryptography, game theory, and computer science. This ensures that only valid transactions are approved and that no one can alter the data without detection. Blockchain technology eliminates the need for trust between parties, as it is a distributed ledger that is maintained by a network of computers. This means that transactions are verified and validated by the network, instead of relying on a third party for verification.

Smart Contracts

Blockchain technology is also used for smart contracts. These are computer programs that execute predefined actions when certain conditions are met. This eliminates the need for a third party to verify the transaction, as the code itself is programmed to fulfill the contract automatically when the conditions are met. This makes it much faster and more secure than traditional contracts.

Types of Blockchains

Public Blockchains

Public blockchains are permissionless and open to all participants in the network and are often referred to as “decentralized” networks. Transactions are publicly visible and can be verified by anyone. Examples of public blockchains include Bitcoin and Ethereum.

Private blockchains: Private blockchains are permissioned networks where only selected participants are allowed to participate in the network. Transactions are not visible to the public and can only be verified by the network administrator. Examples of private blockchains include Hyperledger and R3 Corda.

Consortium blockchains: Consortium blockchains are a hybrid of public and private blockchains. They are permissioned networks that are governed by a group of pre-selected participants, such as a consortium of banks or financial institutions. Transactions are not publicly visible but can be verified by any member of the consortium. Examples of consortium blockchains include Quorum and Ripple.

Private Blockchains

Private blockchains are permissioned networks where only selected participants are allowed to participate in the network. Transactions are not visible to the public and can only be verified by the network administrator. Examples of private blockchains include Hyperledger and R3 Corda.