What is Blockchain

In the year 2008, a revolutionary paper was published by an anonymous person “Satoshi Nakamoto“. This paper was based upon a topic of a new electronic cash system, and it was entitled “Bitcoin: A Peer-to-Peer Electronic Cash System“.

This paper consists of the term “Chain of blocks“, and over time this term evolved as Blockchain.

So, in this tutorial, we will deep dive into this term and understand what is blockchain and why it is used. The complete list of topics that we are going to cover is given below.

  • Introduction to blockchain
  • History of Blockchain
  • Blockchain Versions
  • Benefits of Blockchain
  • Limitations of Blockchain
  • Applications of Blockchain
  • Companies using Blockchain Technology
what is blockchain technology and how does it work

Introduction to blockchain

In the past few years, the term Blockchain has gained a lot of attention, especially in the United States of America. And even many people refer to it as a revolutionary innovation of the decade.

So, in this section, we will try to give a gentle introduction to Blockchain or Blockchain Technology.

Now, there are different ways in which this Blockchain can be defined. Let’s understand a simple layman definition for blockchain.

The Blockchain is a decentralized, secure, and shared recordkeeping system. In this system, each data user has a copy of the records, which can only be modified if all parties involved in a transaction agree to do so.

It is a chain of blocks that carries some information. In this chain, each block captures all recent transactions and adds them to the blockchain, which serves as a permanent database.

Once a block is completed, a new block is generated.

Chain of Blocks
Chain of Blocks

Also, check out, Blockchain Architecture

History of Blockchain

Blockchain technology gained attention after the success of peer-to-peer electronic cash known as Bitcoin. And this Bitcoin first came in the year 2009 which was developed by an anonymous person “Satoshi Nakamoto“. But, the term Blockchain was introduced much before that.

In this section, we will deep dive into the history of Blockchain technology and try to understand the events that led to the blockchain.

1991: Start of Blockchain

  • Blockchain technology was first introduced in the year 1991 by research scientists Stuart Haber and W. Scott Stornetta.
  • Their main aim is to offer a computationally feasible approach for time-stamping digital documents. And this will prevent the documents from being backdated or tampered with.
  • Then they developed a system for storing time-stamped documents that are based on the concept of a cryptographically secure chain of blocks.
  • In the year 1992, they incorporated their system with Merkle Trees result in making the Blockchain more efficient.
  • Merkle Trees allows multiple documents to be collected in one block.

2004: Reusable Proof Of Work

After this, in the year 2004, a computer scientist and cryptographic activist Hal Finney proposed a system as a prototype for digital money. The system was called Reusable Proof Of Work (RPoW). And this system solves the double-spending problem.

2008-2009: Rise of Bitcoin

However, the main boom for blockchain came in the year 2009 when Satoshi Nakamoto develop Bitcoin. Many people assume Bitcoin and Blockchain as the same but this is not true.

Bitcoin is a cryptocurrency that is based on Blockchain technology. Additionally, Bitcoin is the very first application of blockchain.

2013-2015: Evolution

After Bitcoin, the major evolution in the blockchain world came in the year 2013. Vitalik Buterin was one of the initial contributors to the Bitcoin codebase. After realizing the limitation related to Bitcoin, Vitalik Buterin came up with Ethereum.

Buterin set Ethereum apart from the Bitcoin Blockchain by introducing new a feature. This feature allows users to store other assets as well such as slogans and contracts.

The new functionality increased Ethereum’s capabilities beyond cryptocurrency to include decentralized application development.

Read Types Of Blockchain

Blockchain Versions

So, as we have discussed the history of blockchain. Now, let’s take a look at the evolution of this technology, from version 1.0 to version 4.0.

Blockchain versions
Blockchain Versions

Blockchain 1.0: Cryptocurrency

The first-ever version of blockchain was introduced in the year 2005 by Hall Finley. He implemented DLT (Distributed Ledger Technology) which represents its first application for cryptocurrency.

This distributed ledger enables the execution of a financial transaction based upon DLT using Bitcoin. In fact, Bitcoin is the most well-known example in this category. This type of Blockchain is mainly used in payments and currency.

Blockchain 2.0: Smart Contracts

The primary problems with bitcoin were lack of network scalability and wasteful mining. To overcome this issue, version 2.0 was introduced which extends the concept of bitcoin beyond currency.

So, in Blockchain 2.0, a new key concept was added named “Smart Contracts“.

Smart contracts are small computer programs that live inside the blockchain. And these programs are executed automatically based upon the conditions specified like facilitation, verification, or enforcement. Additionally, tampering or hacking smart contracts is nearly impossible.

The Ethereum Blockchain is one of the most well-known examples in this category. It provides a platform for developers to create distributed applications for the Blockchain network.

Blockchain 3.0: DApps

The blockchain version 3.0 includes Dapps which is also known as Decentralized Applications. A DApp is similar to a traditional application which has a frontend written in any language that calls the backend. Furthermore, the backend code is distributed throughout a peer-to-peer network.

A Dapp’s frontend can be hosted on decentralized storage, such as Ethereum’s Swarm. Also, many decentralized applications exist nowadays, such as BitMessage, BitTorrent, Tor, Popcorn, and others.

Blockchain 4.0: Blockchain for Industries

The main goal of the fourth generation is to resolve all of the problems that the previous three generations have caused.

The tactics and approaches that enable enterprises to exploit blockchain technology are outlined in Blockchain 4.0. Despite the fact that the value of Blockchain in numerous businesses is still unknown.

Still, there are some areas, such as finance, supply chain, manufacturing, healthcare, logistics, and others, where this technology has the potential to deliver benefits.

Also, numerous companies are aiming to create a blockchain that is scalable, versatile, and economical.

Read Decentralization in Blockchain

Benefits of Blockchain

Using blockchain technology offers a significant amount of advantages in various industries all over the world.

In this section, we will discuss some of the notable benefits of blockchain. And the list of benefits is discussed below.

Features of blockchain technology
Benefits of Blockchain Technology
  • Decentralized: This is a fundamental principle and benefit of blockchain technology. In Blockchain, there is no central authority to verify a transaction. Instead, a mechanism is used in which users need to agree on the validity of the transaction.
  • Transparency: As blockchains are shared recordkeeping systems, each user can see what is on that blockchain. This makes the entire system transparent for each user on that blockchain.
  • Immutable: In a blockchain, once data is added, changing or modifying it is incredibly difficult. Although, the blockchain is not truly immutable. Still, this can be considered as a benefit because altering data is so difficult and practically impossible.
  • High Availability: The blockchain system is based upon thousands of nodes in a peer-to-peer network. Also, the data is replicated and updated on every node. Now, even if one node is inaccessible due to some reason, the network will still work. Due to this feature, blockchain offers high availability of data.
  • Secure: In a Blockchain, all the transactions are cryptographically secured. Now, whenever any transaction is submitted to the blockchain, it is first verified according to a set of rules. After this, only the valid transactions are considered for inclusion in the blockchain.
  • Cost-Saving: In the blockchain model there is no need to have third-parties for the validation of a transaction. This significantly reduces the overhead costs in the form of fees paid to such parties.
  • Platform for Smart Contracts: We also have such blockchain platforms using which some business logic can be executed. For example:- Etherum, MultiChain, etc, but not Bitcoin.

Limitations of Blockchain

Each coin has two sides and blockchain technology is not different. With some decent amount of benefits, there are also some limitations in blockchain technology.

However, both academia and industry are working extensively to tackle the obstacles offered by blockchain technology.

So, in this section, we will discuss some of the sensitive drawbacks of blockchain that need to be handled. And the points related to it are discussed below.

Drawbacks of blockchain technology
Drawbacks of blockchain
  • Scalability: Blockchain technology is not scalable as the centralized system, for example, financial network. Blockchain like Bitcoin requires each participating node to verify the transaction. This limits the number of transactions a blockchain network can handle.
  • Regulations: As we know that the blockchain technology is decentralized in nature. This also implies that in a blockchain there is no regulatory authority or control. It means if something went wrong, there is no one to be accountable for it. This factor can be a concern for many users.
  • Immutable: Blockchain technology is also immutable this implies, we cannot modify any record in a blockchain. This feature offers benefits in terms of security and integrity. But it can also be a drawback for blockchain as making changes to a record is nearly impossible. For example, we have processed a payment but what if we want to amend that payment.
  • Privacy and confidentiality: Privacy and confidentiality are also a concern for public blockchains like Bitcoin. As every transaction in a blockchain is visible for every user. But in some sectors like law, medical, and finance this much transparency is not desired.
  • Immature Technology: In comparison to the traditional IT system where a lot of research is already done. Blockchain technology is still new and people don’t know the exact value of blockchain.

Also read, Pros and Cons of Blockchain

Applications of Blockchain

Blockchain offers a wide range of applications in a variety of industries, including finance, government, media, law, and the arts, to name a few. And almost every industry has realized the true potential and power of blockchain.

In this section, we will discuss some of the top areas of applications for blockchain technology.

  1. Financial Services: The financial sector is one of the biggest application areas for blockchain. Because blockchain technology simplifies the entire process associated with payments and assets management. Using blockchain, all participants have access to the same data about a transaction. This eliminates the need for intermediaries, while also ensuring transactional data transparency.
  2. Healthcare: Blockchain technology can also play a major role in transforming the healthcare sector. Using blockchain, healthcare records can be store in a distributed manner. Additionally, encryption and digital signatures can be used to assure privacy and authenticity.
  3. Hospitality: Using blockchain in the travel and hotel business has the potential to completely transform the industry. It can be used to process payments, save crucial documents such as passports and other identification cards, make reservations, and manage travel insurance, loyalty, etc.
  4. Government: Using blockchain, data can be linked and shared properly, allowing for better data management across departments. It also increases transparency and makes monitoring and auditing transactions easier.

So, these are some of the main areas of blockchain applications. But it can be used in different ways as well. Here are some of the applications for using blockchain in the United States.

  • Cryptocurrency exchange
  • Voting mechanism
  • Real-time IoT operating systems
  • Supply chain and logistics monitoring
  • Real estate processing platform

Companies using Blockchain Technology

With the growing popularity of blockchain, many companies have adopted the use of blockchain technology.

Besides that, blockchain can be used in a variety of applications, including supply chain, healthcare, government, banking, real estate, etc.

Although blockchain was once thought to be primarily fit for the banking sector, it has begun to impact other businesses as well.

As a result, we now have a large number of solutions in the initial stages or use in the company.

Companies Using Blockchain
Companies Using Blockchain

Here is the list of some major companies using blockchain technology.

Amazon: Amazon offers blockchain tools as an extension of Amazon Web Services. It is used to help companies that don’t want to develop their blockchain. Some of the blockchain clients for amazon include Accenture, Sony Music Japan, BMW, etc.

IBM: IBM is offering businesses with the backbone of Blockchain-related services. They empower organizations in developing their own distributed ledger and smart contract systems using the Hyperledger Blockchain creator tool.

Microsoft: Microsoft is another tech behemoth that has been a believer in Blockchain since its beginnings. In 2014, when almost no one had heard of cryptocurrencies, Microsoft started accepting Bitcoin payments on its website. Microsoft is also enabling businesses and developers to use Stratis in Microsoft Azure to deploy their Blockchain.

Walmart: Walmart and nine other food corporations have collaborated with IBM to develop a Blockchain for tracking food across the globe.

And there are many companies around the world from different industries which have started using blockchain. Here is the list of some more companies.

  • BMW
  • Facebook
  • Google
  • HSBC
  • Visa
  • Mastercard
  • Overstock
  • Ripple
  • Tencent
  • VMware
What is Blockchain
What is Blockchain

Difference Between Bitcoin and Blockchain

Let us understand the difference between bitcoin and blockchain. You may have been confused that both are the same but they are not.

BasisBitcoinBlockchain
MeaningBitcoin is the cryptography powered by blockchain.Blockchain is a distributed database.
ReleaseBitcoin was released in 2008.Blockchain was released far before bitcoin.
TransparencyBitcoin focuses more on Anonymity. No third party can track the source and destination.Each transaction in the blockchain is transparent. As it maintains the ledger of each transaction.
Powered byBitcoin is part of the blockchain. bitcoin is one application out of various blockchain applications.
ScopeBitcoin’s scope is limited to the transfer of digital currency.Blockchain is has a wider scope as it is used for the transfer of digital currencies, properties, assets, rights, etc.
ConclusionBitcoin uses blockchain so it is superior to it but on the other hand bitcoin made blockchain famous.Blockchain is a service and bitcoin, smart contracts, etc use this service.

We have understood the major difference between bitcoin and blockchain.

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So, in this tutorial, we have understood what is blockchain and why it is used. The complete list of topics that we have covered is given below.

  • Introduction to blockchain
  • History of Blockchain
  • Blockchain Versions
  • Benefits of Blockchain
  • Limitations of Blockchain
  • Applications of Blockchain
  • Companies using Blockchain Technology