Blockchain technology has been hailed as the new future for financial transactions and other applications where trust is paramount. The blockchain is a public ledger of all transactions, and it cuts out the need for a central authority to store and manage the history of transactions. Instead, the blockchain is maintained by a network of computers, and each person in the network has a copy of the blockchain. This makes it impossible for anyone to alter the transaction history, and the fact that anyone can hold and share a copy of the blockchain makes it completely transparent. The blockchain ledger is also a type of distributed database, which means that it’s a huge amount of data that needs to be stored and managed.
What is a Blockchain?
Blockchain is the technology that underpins cryptocurrencies—in particular, bitcoin. It provides a secure, encrypted, and decentralized way to store and transfer value. Blockchains are a type of data structure that makes it possible to create a ledger of transactions between two parties. The purpose is to create a decentralized, immutable, and transparent database. The power of a blockchain lies in making it impossible to modify the records without them being noticed in the entire network.
Importance of Blockchain
Blockchain is a trustless, distributed ledger technology that enables a decentralized, immutable, and secure digital record of transactions that cannot be changed or hacked. The blockchain eliminates the need for third-party verification and cuts costs for businesses, banks, and governments.
Types of Blockchain:
- Centralized Blockchain
This is an approach that aims to keep control of the blockchain in a single entity, such as a corporation or government. The rationale is that it is easier to control such a colossal amount of data than it is to control a single computer. In a centralized blockchain, all the nodes are controlled by a single entity, typically the corresponding bank. This makes blockchain more transparent and means that all transactions are recorded by one central entity. It is a centralized version of blockchain that maintains a ledger of transactions without any third-party involvement.
- Decentralized Blockchain
This approach is where the blockchain is broken up into many “nodes” of various sizes, with each node being a computer that stores the entire blockchain ledger. Decentralization is a process that happens in a decentralized network. In a decentralized network, the traditional concept of control is broken, and more power is distributed to the people who use the network product. Decentralized blockchain is the name given to a class of blockchain protocols that allow for some degree of data censorship. This is because the distributed nature of these protocols means that nodes run by participants in the network can be prevented from transmitting any specific data through censorship-resistant consensus rules—and this is how most of today’s blockchains operate. The most well-known example of a decentralized blockchain is the networks that run the EOS.IO software and the EOS.IO blockchain, which is currently being tested by a community of decentralized application developers.
- Permissioned Blockchain
This is a variation of decentralized blockchain, where each node stores only a portion of the blockchain ledger. A permissioned blockchain is one where each node on the network—both the miners that secure the network and the users that use its transactions—must be granted permission to participate before they are allowed to participate. In other words, permissioned blockchains are more centralized than public blockchains. Permissioned blockchain is a hybrid of centralized and decentralized blockchains. It is a private version of a public blockchain, which means that it is permissioned, but can be used by anyone. It is a security solution that works in conjunction with a private key manager, which is used to secure the network and permit it.
Blockchain is a hot topic these days, though, in many ways, it is still a mystery: its origins, feasibility, and potential applications remain largely unknown. Theoretically, blockchain is based on distributed ledgers, securely storing and transferring data and forming a shared database among several stakeholders. But blockchain is more than just a database: it can also be used for peer-to-peer transactions and to verify digital assets and transactions.