What Is Blockchain Technology?

Despite how popular blockchain technology has become in the media and the business world, there is still a fair level of mystery to the public about what it actually is, as well as the possibilities within the systems and protocols that use the technology beyond just decentralized finance. This article will dive into the subject of Blockchain Technology and some of the ways it is revolutionizing the digital age.

What Is a Blockchain?

A blockchain is an open and shared database organized into blocks capable of storing massive amounts of information - such as programs, codes, or transactions. Each block contains its own data signature, and once it is integrated into the chain, it cannot be deleted or liquidated, which presents a challenge in digital security, as well as lends more transparent storage of information - which is why every transaction or new block of information needs to be submitted, verified and validated, according to the rules it prescribes to.

Each block holds an imprint of all of the transactions - including the origin and destination of the information transfer - that was validated on a set period of time inside a network. They are added in sequences to the data chain, and each new information piece that is stored becomes a part of what is popularly known as a blockchain.

To make sure that the transactions are valid before allowing them to be a part of the chain, each block needs to be validated by a network of users. Those users are called nodes, and the validation occurs through a consensus process between them, typically reliant on a consensus mechanism, before a new block can be input.

The most known consensus mechanisms are:

• Proof-of-Work: famously used in the Bitcoin blockchain;

• Proof-of-Stake: a growing and trusted mechanism that offers both network security and computational power to the blockchains;

• Delegated Proof of Stake: has a voting and delegating structure that builds up on security;

• Proof of Authority: This is used in blockchain networks that rely on pre-approved “validators” to create new blocks.

The open nature of the blockchain lends transparency, security, and a more cooperative environment for developers and investors trading within a blockchain protocol. Being decentralized by nature, it is more secure against an organization’s or individual’s interests to interfere with governance and what type of information gets stored.

Data Validation Within a Protocol

A blockchain is run based on a consensus mechanism that organizes how the system protocol will ultimately operate, organize and store information. A key part of this is known as a “node”, which is the device that supports the network. To put it in perspective: in systems reliant on Proof-of-Work (PoW) and Proof-of-Stake (PoS), the miners and the wallets staked are the nodes - they all come into a consensus regarding the validity of the block, and the entire blockchain, consequently.

Once a node submits a new block of information, the other nodes will verify its validity, checking it against all of the transactions ever executed within that network before it can be added to the blockchain. Once consensus is reached with all nodes for that block’s validity, it is accepted.

Why Is Blockchain So Revolutionary?

There is a fair amount of excitement around blockchain in the media, online, and amongst data science academics, but why should anyone think a stack of data is revolutionary? Here are a few reasons:

Every new block added to the blockchain must be validated through consensus, meaning that a person or a virus could not simply input false information and destroy the network. For that to happen, the entity with malicious intentions would have to change the chain in its entirety, in every single node in the world, before the blockchain nodes had the chance to correct the mistake (which takes less than a second). As long as a single computing unit still has a copy of the entire blockchain, it is safe, reliable, and able to be kept up to date.

Another crucial point relating to trust is that no private or public individual owns a blockchain. Since it is decentralized by nature, changing political climate, personal greed, or using the network as a system of exploitation is probably impossible. Taking Bitcoin, for instance: it is estimated that the BTC network currently has over 800 times the computational power of the entire Google system, but is entirely autonomous from a single isolated institution.

Finally, Blockchain is not a tech gadget that will soon lose its relevance and be replaced by a better model. It can withstand new technologies, laws, and how the world relates to it. It is transparent - meaning that all its transactions can be easily verified, and there is no room for fraud within the system - making it safer from corruption and theft. It is independent, following only its own validity protocols, in a way that a single person, government, or institution could not simply demand it to be shut down and be 100% sure it is gone. Once a network has been set up, it is virtually unstoppable.

It is not simply revolutionary in data science but also holds power to change how banking, trust, finances, taxes, and trade function worldwide. It makes users independent from changing currency rates across different countries and allows for the kind of freedom and transparency unrivaled by any other technology.

Therefore, it is not a surprise that it can be a cause of concern for formerly conceived traditional and unquestionable institutions.

Private Blockchains

Even if the concept of blockchain is mostly aimed at decentralized uses and at solving the delicate problem of trust, there are blockchains that have been created especially for single organizations, or a small group of organizations, rather than being open to the public. These blockchains are typically used for business and enterprise applications, such as supply chain management, digital asset management, and other applications that require a high degree of security and control over access to the ledger.

This is the case of the so-called Distributed ledger technologies (DLT). DLTs work in the same way that a ‘classic’ blockchain works, i.e. they are a type of digital system that allows multiple parties to maintain a shared and synchronized database, which can be used to record transactions or other types of data. However, a sore point of this type of technology is that it is antithetical to the actual concept of blockchain. The reason is that, in a private blockchain, all participating identities must be known, there is a limited number of nodes, and access to data is limited. Still, there are some small but important differences even between a private blockchain and a DLT, some of these are:

1. In a DLT, there is no exchange coin/token;

2. In a private blockchain, history cannot be changed, while in a DLT, yes.

3. In a private blockchain all nodes can talk to each other, a DLT works from point to point;

4. In a DLT, there is no economic incentive to make the network secure.

Fields Where Blockchain Technology Can Have an Impact

Many fields can benefit from blockchain technology, besides the ones it is currently known for, like cryptocurrencies. Here are some:

• Documents processing and certification;
• Digital logistics and tracking of products;
• Elections and voting systems;
• Business management and its subsystems, like supply-chains, project management, and customer relations management software;
• Tokenization: creating tokens within a blockchain to represent physical assets that can be shared and distributed, representing shares of a company or even parts of a property to be inherited.
• Decentralized transport platforms.

With so many possible applications, it does not come as a surprise that powerful institutions treat it with distrust. Still, it is nonetheless an exciting and growing field for entrepreneurship and governance security.

Conclusion

The creation and development of blockchain set unprecedented and unlimited possibilities in dozens of sectors, especially in finance. Even though people are only used to relating blockchain to cryptocurrencies, it’s important to understand what a blockchain is and how it can be applied in several ways.

With Gate.io being one of the leading and oldest cryptocurrency platforms, we strongly believe in blockchain technology. It’s part of our mission to educate and demonstrate to our users how it works and what it can transform in every industry.