What is Blockchain Technology & How Does It Work?

Blockchain has its fair share of hype for being novel to the tech world. It offered a virtual and public ledger which would be a tamper-proof ledger of transaction data, which used cryptography. The concept took hold of the world slowly since its creation in 2008. Coming from obscurity, blockchain technology has now taken over the world and different industries with unprecedented scale and speed.

Introducing faster financial transactions was the first application of blockchain, but that was simply the tip of the iceberg. It has found extensive application in several fields. The financial sector is the most prominent investor in blockchain at 46% market share, manufacturing and energy utilities at 12% each, healthcare at 11%, government at 8%, and more. Its scope of application has enabled a compound annual growth rate of 68.4% from 2021 to 2026. It is also finding a place in the infrastructure of business operations, with 60% of CIOs planning to integrate blockchain into their infrastructure by the end of 2022.

 What is Blockchain Technology?

Blockchain can be considered a shared database. It is different from databases because all the entries are verified and encrypted. It can be considered a digital ledger that cannot e edited and hacked. It has a shared transaction log.

The ‘block’ in a blockchain can be compared to a new line item in a ledger. It contains all the information about a transaction in an encrypted form. This information in a block is not shared in a single database or central location, rather, it is stored in different computers worldwide. This may be thousands of computers. Thus, information storage is decentralized.

The information in it is encrypted to be accessible only to certain people. Nobody can read it despite being stored on multiple computers. The transaction process requires confirmation from multiple computers that have stored a recorded history of the information. Only after confirmation and authorization from these computers can a line be added to the ledger. Thus these verification techniques ensure that the history of the information stored in the blockchain cannot be edited. If anyone attempts to edit it, it will be rejected. Hence, the data can be seen by anyone, but it cannot be corrupted.

Types of Blockchain

There are four different types of blockchains.

• Private Blockchain Networks

As the name suggests, these are for private organizations which operate on a private closed network. These private blockchains can have different parameters regarding access and authorization powers. It can also enhance security options, usually with a single authority managing the network.

•  Public Blockchain Networks

Public blockchain networks are where the data is distributed among many computers and exists across a peer-to-peer network. This works only by verification and information authenticity using a consensus algorithm. It is employed via either of the methods called proof of stake (PoS) and proof of work (Proof of Work). The public blockchains played an important role in making distributed ledger technology, or DLT, popular among the masses via cryptocurrencies like bitcoin. 

• Permissioned Blockchain Networks

A permissioned blockchain is a distributed ledger, much like a public blockchain, but the access is restricted to only those with permission. Those with permission can perform specific actions granted to them by ledger administrators. They must prove their identity through certificates or digital means to get access.

• Consortium Blockchains

A consortium blockchain is also a blockchain that is limited by permissions. But unlike permissioned blockchain, it is accessible to multiple organizations instead of a single one. They are more secure and offer better platforms for collaborations for different organizations.

How Does BlockchainTechnology Work?

Blockchain has shown significant applications in various industries, and the different adoption rates mentioned above show that blockchain has immense potential for the future. Let us look at how this revolutionary technology works.

Three components make blockchain technology work. They are:

• Cryptographic keys: These are the keys that enable encrypting of data. Classified into two public keys and private keys, they are what help keep the data between parties secure. They are also referred to as digital signatures.

• A shared ledger with a peer-to-peer network: With a digital signature, individuals with authority enable transactions by coming to a consensus. Thus cryptography is employed to carry out the transactions over these networks.

• Blockchain storage: It relies on DLT technology or distributed ledger technology, wherein the information is stored in a decentralized database. The DLT is filled in chronological order and is stored in the ledger. It is stored as a series of blocks.

The technology of blockchain is finding a lot of applications in various industries. Although cryptocurrency is the most popular one, many more are taking the market by storm.

• In Financial Transactions: Faster money transfer and payment processing, reducing the time taken from days to mere hours and minutes
• In Supply Chain Management: Gives more transparency and traceability and reduces overall administrative costs.
• In DIgital ID: There have been attempts to create a facility using blockchain technology that enables users to control their digital identities and control who has access to it.
• For Data Sharing: It provides a secure data sharing and storage platform.
• In Protecting Copyright and Royalties: The immutable nature of the data stored in blockchains provides artists with the opportunity to protect their copyright and royalties.
• In IoT network management: It works as a regulatory that identifies devices connected to a network, monitors its activity, and determines its trustworthiness.
• In Healthcare: Blockchain technology is used to store data from electronic medical records and clinical trials and maintain regulatory compliance.

Summing Up If you were wondering why is blockchain popular, we hope you have found your answer. Its immense applications and versatility have been adopted in various businesses. Using such cutting technology also gives its users an advantage over competitors. If you are looking for a blockchain development company for your business needs, you are at the right place. Silwatech has the best blockchain app development team that builds client-specific business solutions integrated with blockchain. Reach out to Silwatech today if you want to work with a reliable and result-driven blockchain development company in Dubai and UAE.