Related Books#
Mastering Ethereum - Implementing Smart Contracts#
WEB3 - CryptoPunks#
Overview of Blockchain Technology#
Definition of Blockchain: Blockchain is a shared and immutable ledger designed to facilitate transaction records and asset tracking processes in business networks. Assets can be tangible (such as houses, cars, cash, land) or intangible (such as intellectual property, patents, copyrights, brands). Almost anything of value can be tracked and traded on a blockchain network, reducing risks and costs in various aspects.
What is Blockchain Technology#
Blockchain technology is an advanced database mechanism that allows for transparent sharing of information within enterprise networks. The blockchain database stores data in blocks, which are then linked together in a chain. The data is consistent over time because without network consensus, you cannot delete or modify the chain. Therefore, you can use blockchain technology to create immutable ledgers to track orders, payments, accounts, and other transactions. Built-in mechanisms prevent unauthorized transaction entries and create consistency in the shared view of these transactions.
Key Elements of Blockchain#
Distributed Ledger Technology
All network participants have access to the distributed ledger and its immutable transaction records. With this shared ledger, transactions only need to be recorded once, eliminating the typical duplication of work in traditional business networks.
Immutable Records
Once a transaction is recorded on the shared ledger, no participant can change or tamper with the information. If there is an error in the transaction record, a new transaction must be added to undo the error, and both transactions are then visible.
Smart Contracts
To speed up transaction processing, a series of automatically executed rules called "smart contracts" are stored on the blockchain. Smart contracts can define conditions for the transfer of corporate bonds, terms of travel insurance to be paid, and more.
How Blockchain Works#
Each transaction is recorded as a data "block"
These transactions indicate the movement of assets, which can be tangible (such as products) or intangible (such as intellectual property). Data blocks can record the information you choose: people, events, time, location, numbers, and even conditions (such as food transportation temperature).
Each block is connected to its preceding and succeeding blocks
As assets move from one place to another or ownership changes, these data blocks form a chain of data. Data blocks can confirm the exact time and order of transactions, and by securely linking data blocks together, it prevents any data block from being tampered with or inserting additional data blocks between two existing ones.
Transactions are combined into an irreversible chain: the blockchain
Each addition of a data block enhances the validation of the previous block, thereby strengthening the validation of the entire blockchain. Therefore, tampering with the blockchain would be easily detected, which is a key advantage of immutability. This eliminates the possibility of malicious tampering and establishes a trusted transaction ledger for you and other network members.
Advantages of Blockchain Technology#
Blockchain technology brings many benefits to asset transaction management. We will list some of these benefits in the following sections:
Advanced Security Features#
Blockchain systems can provide advanced security and trust features required for modern digital transactions. The fear of someone manipulating the underlying software to generate counterfeit currency always exists. However, blockchain uses encryption, decentralization, and consensus principles to create a highly secure and virtually tamper-proof underlying software system. There are no single points of failure, and individual users cannot change transaction records.
Increased Efficiency#
Inter-business transactions can take a significant amount of time and create operational bottlenecks, especially when compliance and third-party regulatory agencies are involved. The transparency and smart contracts in blockchain can make such business transactions faster and more efficient.
Faster Auditing#
Businesses must be able to generate, exchange, archive, and reconstruct electronic transactions in an auditable manner. Blockchain records are immutable in chronological order, meaning all records are always arranged in chronological order. This data transparency speeds up the auditing process.
Types of Blockchain Networks#
Public Blockchain Networks
Public blockchains are blockchains that anyone can join and participate in, such as Bitcoin. Disadvantages may include the need for significant computational power, very low or no privacy of transactions, and weaker security. These are important considerations for enterprise use cases of blockchain.
Private Blockchain Networks
Private blockchain networks are similar to public blockchain networks in that they are decentralized peer-to-peer networks. However, in a private blockchain network, an organization is responsible for managing the network, controlling who is allowed to participate, and enforcing consensus protocols to maintain the shared ledger. This helps significantly increase trust and confidence among participants, depending on the use case. Private blockchains can run behind enterprise firewalls or even be hosted within the enterprise.
Permissioned Blockchain Networks
Enterprises that establish private blockchains often also establish permissioned blockchain networks. It is important to note that public blockchain networks can also be permissioned networks. This model imposes restrictions on who is allowed to participate in the network and execute specific transactions. Participants need to be invited or granted permission to join.
Consortium Blockchains
Multiple organizations can share the responsibility of maintaining a blockchain. These pre-selected organizations decide who can submit transactions or access data. If all participants must be granted permission to participate and share responsibility for the blockchain, then a consortium blockchain is the ideal choice for enterprises.
What is the Difference Between Blockchain and Bitcoin?#
Bitcoin and blockchain can be used interchangeably, but they are two different things. Due to Bitcoin being an early application of blockchain technology, people inadvertently started using Bitcoin to refer to blockchain, leading to this misuse. However, besides Bitcoin, blockchain technology has many other applications.
Bitcoin is a digital currency that operates without any centralized control. It was initially created for online financial transactions but is now seen as a digital asset that can be converted into any other global currency (such as USD or EUR). The public Bitcoin blockchain network creates and manages a central ledger.
Bitcoin Network#
The public ledger records all Bitcoin transactions, and numerous servers around the world maintain copies of this ledger. These servers are like banks, except each bank only knows about the funds its customers exchange, while Bitcoin servers know about every Bitcoin transaction in the world.
Anyone with spare computing power can set up such a server, called a node. It's like opening your own Bitcoin bank account instead of a bank account.
Bitcoin Mining#
On the public Bitcoin network, members create new blocks and mine cryptocurrencies by solving cryptographic equations. The system publicly broadcasts every new transaction to the network and shares this information among nodes. Every ten minutes or so, miners collect these transactions into a new block and permanently add these new blocks to the blockchain, which acts as the ultimate ledger for Bitcoin.
Mining requires a significant amount of computational resources and takes a long time due to the complexity of the software process. In exchange, miners can earn a small amount of cryptocurrency. Miners act as modern record keepers, recording transactions and collecting transaction fees.
All participants on the network use blockchain encryption technology to reach a consensus on who owns which Bitcoins.
References:
https://www.ibm.com/cn-zh/topics/blockchain