Why is it important to know about Blockchain Technology?
Blockchain Technology emerged as highly popular as it started the conversation around transparency and security. The major threat today is data hacking which is more prevalent due to the easy manipulation of data in the Web 2.0 landscape. Web 3.0 contains blockchain technology as one of the foundational elements to cater to the needs of the physical world by decentralization.
Introduction to Blockchain Technology
The increase in acceptance of cryptocurrencies by merchants and applications of blockchain in the financial sector are highly influential factors in the market growth of Blockchain technology. Grandview research reported a compound annual growth rate of 82.4% from 2021 to 2028 to reach USD 394.60 billion by 2028 in the blockchain sector.
Our discussion would be incomplete without discussing decentralization which is the underlying principle of blockchain technology. So let’s get going.
Have you ever got overwhelmed by bank charges on several banking products which they try to sell you in the fear of losing you as a customer? I know the answer. That’s an entirely different story of the banking sector getting commercialized but now we just need to focus on exorbitant fees which they charge for being a facilitator and managing our identities.
Envision a world where you can send money straight to anyone without a bank in seconds rather than days and the best part is without paying banking fees. Imagine you store your money in a web wallet which is dissociated with the bank claiming full control over your money and acting as a bank yourself. You don’t need to have consent for the transactions from the bank or manipulated government policies. This is the basis of decentralization in the blockchain technology.
Decentralization in Blockchain
Decentralization in blockchain technology indicates a transfer of control from a central authority such as banks, governments, organizations & other institutions. It is an equal distribution of the database to a network of participants possessing a complete copy of the blockchain. The challenge of planning a bunch of people to behave and act in beneficial, serene ways has been the central story for ages. Let's find out how blockchain works without centralization.
Key points to note on Decentralization
Financial systems took exclusive possession of information of value in Web 2.0 which began to revert to single users in Web 3.0.
Blockchain opens the door as a decentralized principle that has the potential to re-democratize patterns of participation & cooperation of individuals.
Blockchain is independent of any central authority rather controlled by the entire network of participants responsible for setting up rules for participation and have capable of electing to evolve the process on consensus.
Elements of blockchain technology
Trust: Traditionally you have to trust the entity with your data being misused or change it altogether which was the primary concern entering the Web 3.0 landscape. Blockchain eliminates the possibility of manipulations and alterations of data. The blockchain contains data permanently which cannot be deleted.
Transparent: Due to a decentralized system blockchain offers complete transparency as opposed to centralized administration systems.
Efficiency: Blockchain involves a peer-to-peer network that has high availability due to its decentralized nature. The participants on the blockchain network have their computer running on a peer-to-peer network doesn’t affect if one peer goes down, the other peers are still functional in the system which makes it more efficient.
Security: The major benefit offered by blockchain technology is security. Blockchain is assumed to facilitate high security as all the transactions of blockchain are cryptographically secure and provide integrity which is an auto-generated algorithm.
Types of Blockchain :
Public: The public blockchain does not require permission as it is a distributed ledger technology facilitating transactions for everyone. In this type of transaction, each peer in the network has a copy of the ledger. It means that anyone can access the public blockchain with an internet connection. The first public blockchain released was the bitcoin on the public blockchain. It enabled anyone to have transactions in a decentralized manner.
Private: Blockchain that works in restrictive environments is referred to as a Private or closed network and controlled by an entity. It is kind of centralized as administered by a single entity. It is also known as permission-blockchain. The private blockchain is amazing to use at a privately held company or organization.
Federated: Federated or consortium blockchain is the amalgamation of public and private features of the blockchain as some aspects of the organization or entity is made public leaving the rest privately held. The consensus process in the federated blockchain is managed by more than one entity and controlled by the preset nodes. The consortium contains a validator node capable of performing dual functions of validating and initiating or receiving transactions.
Hybrid: This may sound like consortium or federated blockchain but it is not the same. Hybrid blockchain somewhere falls between private and public blockchain. It uses a public blockchain where a private network is being hosted which means that the participation is restricted and controlled by the private blockchain itself.
Blockchain technology is still needed to mature going forward which is a rising concern for technologists. The scalability and adoption are being hindered due to ambiguities associated with the nascent technology. Just like any other technology in the past blockchain has its share of drawbacks. Blockchain is a disruptive technology that leads technologists to redefine the solutions to be a better fit for society. For eg: Ethereum solved the inefficiencies by transforming blockchain technology by introducing automation through smart contracts. We are still scratching the surface and newer blockchain progress will play a vital role globally in futuristic developments.
Get in touch