Blockchain is defined as a ledger of decentralized data that is securely shared. Blockchain technology enables a collective group of select participants to share data. With blockchain cloud services, transactional data from multiple sources can be easily collected, integrated, and shared. Data is broken up into shared blocks that are chained together with unique identifiers in the form of cryptographic hashes.
Blockchain provides data integrity with a single source of truth, eliminating data duplication and increasing security.
In a blockchain system, fraud and data tampering are prevented because data can’t be altered without the permission of a quorum of the parties. A blockchain ledger can be shared, but not altered. If someone tries to alter data, all participants will be alerted and will know who make the attempt.
There are several ways to build a blockchain network
They can be public, private, permissioned or built by a consortium.
Open blockchains are more user-friendly than some traditional ownership records, which, while open to the public, still require physical access to view. Because all early blockchains were permissionless, controversy has arisen over the blockchain definition.
An issue in this ongoing debate is whether a private system with verifiers tasked and authorized (permissioned) by a central authority should be considered a blockchain.
Proponents of permissioned or private chains argue that the term “blockchain” may be applied to any data structure that batches data into time-stamped blocks.
1. Public blockchain networks
A public blockchain is one that anyone can join and participate in, such as Bitcoin. Drawbacks might include substantial computational power required, little or no privacy for transactions, and weak security. These are important considerations for enterprise use cases of blockchain.
2. Private blockchain networks
A private blockchain network, similar to a public blockchain network, is a decentralized peer-to-peer network. However, one organization governs the network, controlling who is allowed to participate, execute a consensus protocol and maintain the shared ledger. Depending on the use case, this can significantly boost trust and confidence between participants. A private blockchain can be run behind a corporate firewall and even be hosted on premises.
3. Permissioned blockchain networks
Businesses who set up a private blockchain will generally set up a permissioned blockchain network. It is important to note that public blockchain networks can also be permissioned. This places restrictions on who is allowed to participate in the network and in what transactions. Participants need to obtain an invitation or permission to join.
4. Consortium blockchains
Multiple organizations can share the responsibilities of maintaining a blockchain. These pre-selected organizations determine who may submit transactions or access the data. A consortium blockchain is ideal for business when all participants need to be permissioned and have a shared responsibility for the blockchain.
How does blockchain technology work?
Think of a blockchain as a historical record of transactions. Each block is “chained” to the previous block in a sequence, and is immutably recorded across a peer-to-peer network. Cryptographic trust and assurance technology applies a unique identifier—or digital fingerprint—to each transaction.
Trust, accountability, transparency, and security are forged into the chain. This enables many types of organizations and trading partners to access and share data, a phenomenon known as third-party, consensus-based trust.
All participants maintain an encrypted record of every transaction within a decentralized, highly scalable, and resilient recording mechanism that cannot be repudiated. Blockchain does not require any additional overhead or intermediaries. Having a decentralized, single source of truth reduces the cost of executing trusted business interactions among parties that may not fully trust each other. In a permissioned blockchain, used by most enterprises, participants are authorized to participate in the network, and each participant maintains an encrypted record of every transaction.
Any company or group of companies that needs a secure, real-time, shareable record of transactions can benefit from this unique technology. There is no single location where everything is stored, leading to better security and availability, with no central point of vulnerability.
To learn more about blockchain, its underlying technology, and use cases, here are some important definitions.
- Decentralized trust: The key reason that organizations use blockchain technology, instead of other data stores, is to provide a guarantee of data integrity without relying on a central authority. This is called decentralized trust through reliable data.
- Blockchain blocks: The name blockchain comes from the fact that the data is stored in blocks, and each block is connected to the previous block, making up a chainlike structure. With blockchain technology, you can only add (append) new blocks to a blockchain. You can’t modify or delete any block after it gets added to the blockchain.
- Consensus algorithms: Algorithms that enforce the rules within a blockchain system. Once the participating parties set up rules for the blockchain, the consensus algorithm ensures that those rules are followed.
- Blockchain nodes: Blockchain blocks of data are stored on nodes—the storage units that keep the data in sync or up to date. Any node can quickly determine if any block has changed since it was added. When a new, full node joins the blockchain network, it downloads a copy of all the blocks currently on the chain. After the new node synchronizes with the other nodes and has the latest blockchain version, it can receive any new blocks, just like other nodes.
Two main types of blockchain nodes:
- Full nodes store a complete copy of the blockchain.
- Lightweight nodes only store the most recent blocks, and can request older blocks when users need them.
Benefits of blockchain
The use of blockchain technology is expected to significantly increase over the next few years. This game-changing technology is considered both innovative and disruptive because blockchain will change existing business processes with streamlined efficiency, reliability, and security.
Benefits of Blockchain Technology – blockchain technology delivers specific business benefits that help companies in the following ways:
- Establishes trust among parties doing business together by offering reliable, shared data
- Eliminates siloed data by integrating data into one system through a distributed ledger shared within a network that permissioned parties can access
- Offers a high level of security for data
- Reduces the need for third-party intermediaries
- Creates real-time, tamper-evident records that can be shared among all participants
- Allows participants to ensure the authenticity and integrity of products placed into the stream of commerce
- Enables seamless tracking and tracing of goods and services across the supply chain
Blockchain uses a shared and immutable ledger that can only be accessed by members with permission. Network members control what information each organization or member may see, and what actions each can take.