Blockchain is the latest technological development in transferring and storing data in a way that has zero possibility of tampering with the data. If you are using blockchain technology for data transfer, your database will be shared among the nodes in your computer network.
Blockchain technology is in the form of a distributed ledger, a unique technology to power its operations. The major attraction of blockchain-empowered data is that they are way more secure and immutable than traditional data representation methods.
Blockchain technology does not vouch for any third-party interference because a block remains intact for good once it is created.
This technology came into being with the formation of Bitcoins in 2009. Later, it developed in scope and clarity through the creation of various cryptocurrencies, decentralized finance (DeFi) applications, non-fungible tokens (NFTs), and smart contracts.
This article is a comprehensive guide to everything concerning blockchain technology. You can refer to this guide to get basic clarity about this new technology.
How Does Blockchain Technology Work?
Before we explore further the nuances of blockchain technology you must understand its basic workings.
We can compare a blockchain to a familiar database software such as spreadsheets. Just like you enter data in the spreadsheet and store it, blockchain is also a database that helps you input and store data.
The major difference between a traditional data storage space like a spreadsheet and blockchain technology is how data is structured and can be accessed.
In the case of blockchain technology, data are entered and stored using a program called scripts. These scripts help in accessing the data from another system and storing or transferring it elsewhere. As blockchain is distributed, multiple copies of data are stored in various devices. You can only access the data when all these copies match with each other.
Every transaction in the blockchain sector is guarded by the digital signature of the data owner. This prevents any unauthorized access or tampering with the data.
The overall security of the data is ensured in this way. Every user engaging with a blockchain network can view the data, but it is impossible to tamper with the data.
How Is Data Transferred In A Blockchain Network?
The process of data transaction depends on the specific blockchain under consideration. Let us understand this process by taking the example of Bitcoin’s blockchain.
In the case of Bitcoin, data about each transaction is stored in a memory pool. A miner picks it up and fills it in a block. Many such data pieces are filled into the block till it fills up. The block is then mined by a validator.
When a transaction occurs, the nonce value associated with the transaction is filled up with the peculiarities of the transaction. The nonce value of a block increases with every attempt to mine the block.
A transaction gets completed once the block is closed. However, the block is not immediately confirmed. It takes about an hour for a block to get confirmed as it happens only after five other blocks are validated. This is the process by which Bitcoin’s blockchain validates a transaction. Other cryptocurrencies have blockchains that follow a different path of validation.
Benefits Of Blockchain
Blockchain technology offers many benefits to users when compared to other traditional methods of data transfer and storage. You will understand in detail the benefits of blockchain technology in this section.
✅Accuracy of the Chains
The blockchain transactions are quite accurate as they are validated by many machines. The transactions will be approved if the data in all machines matches with each other. No human being is involved in the validation process. This ensures that no manual errors creep into the chain. Even if there occurs a computational error in a transaction, the error would not be accepted by other machines, and thus, it won’t creep into the whole system.
✅Cost Reductions
Since there are no third parties such as banks involved in the validation process in blockchain transactions, the transaction cost is negligible or non-existent. Unlike banks and other financial institutions that charge a fee for transactions, businesses run by blockchain technology that do not involve any third-party authentication methods are very cheap.
✅Decentralization
Blockchain technology does not involve any supervision or regulatory oversight by a centralized authority. It is a level playfield with a network of many computers taht copy the transaction and check its validity. This process is called decentralization, where the power lies with the peripheral components. It is seminal in ensuring the overall security and scalability of the transactions.
✅Increased Efficiency of Transactions
The speed and efficiency of transactions are high in the case of blockchain technology when compared to other traditional methods of transaction. Many cryptocurrency platforms work to finalize thousands of transactions within a second. There are no time restrictions in blockchain transactions. They are available throughout the year. Moreover, blockchain transactions can speed up cross-border transactions without the restrictions of time zones.
✅Private Transactions
Even though blockchain transactions are available for the public to view, no data about the parties involved are available in the public domain. The stakeholders remain private while the transaction history remains public. However, contrary to popular perception, the names of the users are represented with pseudonyms rather than being left anonymous.
✅Transparency
The transparency of the transactions is an important aspect of blockchain transactions. The code of the programs is open source. That means everyone can view them. This level of transparency helps the users and auditors call out any breach in security. Anyone who has a stake holding in a cryptocurrency platform can suggest changes and edits to enhance its working. It also prevents companies or financial institutions from putting up fake data about their profit.
Demerits of Blockchain Technology
While blockchain technology has many benefits, you should not forget to consider its demerits before investing in it.
❌Technology Cost
The blockchains are entirely built on the latest technology. Sometimes the cost of adoption of the technology can pose a challenge to new users. The effective implementation of the technology requires immense hardware and software support in the form of computers and other machines, the internet, infrastructure facilities, etc. The cost of the energy consumed is quite high when compared to traditional technology.
❌Illegal Use
The level of confidentiality and privacy that blockchain technology gives its users is sometimes misused for illegal activities. The illegal transactions made through blockchain are not identifiable by the browsers because of the absence of a centralized authority. Of course, there have been many cases reported about using blockchain technology for terrorism financing.
❌Regulation
Many national governments have implemented strict regulatory measures in the crypto space, which will ultimately undermine the very basis of decentralization. Such regulations are because of instances of fraud and terrorism financing done in the pretense of blockchain technology.
❌Data Storage
Another significant drawback of blockchain technology is that you require ample technology for data storage. This storage requirement will only increase as time passes. At present, data storage is done through major centers. However, in the future, new storage technologies have to be devised to accommodate the increasing needs when more industries adopt blockchain technology.
Difference Between Blockchain And Banking Technology
Here are the key differences between blockchain technology and traditional banking technology for your reference.
| Blockchain Technology | Banking Technology |
| Blockchain technology is available 24/7, throughout the year. | Banks have definite working hours; transactions cannot be made during holidays. |
| The transaction fees are variable in the case of blockchain transactions. It is determined by the users and miners. | In banks, the transaction fees are mostly fixed for a particular type of service. |
| Blockchain transactions are much faster compared to traditional transaction methods. | Bank transfers are slow and may take upto 48 hours depending on the service. Transactions will not happen during off hours. |
| Blockchain transactions can be done anonymously. They do not require you to provide your KYC details. | Banks need you to submit your KYC details and other identification details. |
| Blockchain technology provides more privacy to its users than banks. The ownership details of blockchain transactions are not accessible to the public. | Banks also uphold the privacy of the user, but it is the responsibility of the user to uphold their privacy. Data thefts are possible, which can expose the users’ identities. |
| Blockchain technology provides more security to users. There are other options such as cold wallets which you can use to safely store your private keys. | Banks also offer the utmost security to their clients, but if the bank’s server is hacked, security efforts stand at risk. |
The Bottom Line
The blockchain technology is a revolution in the online space. It has given shape to a new era of internet usage called Web 3. The applications of blockchain technology are not limited to the financial space.
It has many applications in other sectors such as health care and education. Data collection, storage, and transfer are made easy with blockchain technology. With newer technological developments happening every day, we can expect blockchain technology to become more important in the coming years.
