What Is Blockchain Technology?

Blockchain is a data recording technique that makes it difficult or impossible for the system to be altered, compromised, or tricked. Distributed ledgers, or blockchains, replicate and disperse transactions among the computers that are part of the blockchain network.

In a network of peer-to-peer nodes, blockchain technology provides a framework for storing public transactional records, or blocks, across several databases, or the "chain." This kind of storage is usually called a "digital ledger."

Each and every transaction in this ledger is validated and protected against manipulation by the owner's digital signature. The data on the digital ledger is therefore extremely safe.

The digital ledger, to put it simply, is a network of multiple computers sharing a Google spreadsheet where transactional data are kept according to actual purchases. People can view the data, but they cannot alter it, which is an intriguing aspect.

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History of Blockchain

The invention of blockchain is generally attributed to cryptography professor David Chaum, who in a dissertation from 1982 initially suggested a blockchain-like protocol among a decentralized node network. The origins of it, however, date back to computer scientist Ralph Merkle's 1970s patent for hash trees, or Merkle trees, which enable cryptographic linking between blocks of stored data.

When the first-ever blockchain product was introduced in 1991, these notions would come together. Scientist Stuart Haber and cryptographer Scott Stornetta devised a computational method that would use a hash function to time-stamp documents in a chronological chain of digital certificates, with the goal of creating tamper-proof records in the digital age. The next year, Merkle trees were added to the architecture with the assistance of mathematician David Bayer, allowing data to be combined into a single block, much like what we currently understand blockchain technology to be capable of. 

Then, the world's first cryptocurrency, Bitcoin, made its debut in 2009. Under the alias Satoshi Nakamoto, the peer-to-peer electronic cash system was presented, bringing with it the idea of a public, decentralized blockchain that eliminates the need for intermediaries and providing a digital substitute for fiat currency. The Ethereum platform's launch in 2015 put serious competition to this project, which played a major role in bringing blockchain technology into the mainstream. Through smart contracts, which are self-executing scripts that streamline transaction verification, and decentralized applications, or DApps, which let developers participate in Web3 by creating their own applications, its founder, Vitalik Buterin, improves blockchain technology.

In the two decades since its first real-world implementation, distributed ledger technology has made its way into a number of industries, from reducing logistical bottlenecks to offering transparent patient care. That being said, blockchain is almost synonymous with Web3 and bitcoin.

Blockchain Timeline

 "Bitcoin: A Peer to Peer Electronic Cash System" is published in 2008 under the pseudonym Satoshi Nakamoto, which refers to an individual or organization.

 (2009) The enigmatic Satoshi Nakamoto and computer scientist Hal Finney complete the first Bitcoin (BTC) transaction that is successful.

 (2010) Two Papa John's pizzas are purchased using Bitcoin, marking the first transaction ever made by Florida-based programmer Laszlo Hanycez.

 (2011) The cryptocurrency gained parity with the US dollar when 1 BTC was worth 1 USD.the US dollar.

 2011 saw the Electronic Frontier Foundation, Wikileaks, and other organizations begin to accept donations made with Bitcoin.

 2013) Bitcoin crosses $100/BTC and the BTC market cap tops $1 billion.

 Buterin releases the "Ethereum Project" paper in 2013, arguing that blockchain technology can be used for purposes other than Bitcoin, such as smart contracts.

 (2014) The first NFT is struck.

 2015) More than 100,000 retailers accept Bitcoin.

 (2015) NASDAQ and San Francisco-based blockchain startup Chain collaborate to test the technology for private company share trading.

 2016 saw the announcement by tech giant IBM of a blockchain strategy for cloud-based commercial solutions.

 In 2017, Bitcoin hits $1,000 per unit.

 The market value of cryptocurrencies reached $150 billion in 2017. 

 (2018) Big banks including Citi and Barclays join IBM's blockchain-based banking platform.

 China's central bank declares in 2019 that it is developing its own cryptocurrency, and President Ji Xinping of China publicly welcomes blockchain technology.

 2019 saw the launch of Bakkt, a digital wallet business that also offers cryptocurrency trading, according to the New York Stock Exchange (NYSE).

 By the end of 2020, Bitcoin is almost at $30,000 in value.

 PayPal stated that starting in 2020, users would be able to buy, sell, and keep cryptocurrency.

 2020 will see the Bahamas launch its digital currency through its central bank, becoming the first country globally to do so.

 In 2021, the market capitalization of Bitcoin surpasses $1 trillion. 

 (2021) There is an increase in support for Web3 implementation.

 (2022) As a result of growing interest rates and economic inflation, the market value of cryptocurrency drops by $2 trillion.

 The British government suggests protecting stablecoin owners in 2022.

How Does Blockchain Technology Operate?

You may have observed a rise in the use of Blockchain technology in several industries worldwide in recent years. But how precisely does the blockchain technology function? Is this just a small addition or a major change? Let's start deconstructing Blockchain technology since its advancements are still in their infancy and could prove to be revolutionary in the future.

Blockchain combines three cutting-edge technologies:

• Cryptological keys

• A network of peers with a common ledger

• A computing system for storing network records and transactions

The public key and the private key are the two keys used in cryptography. These keys make it easier for transactions between two parties to be completed successfully. Each of these two keys is unique, and they are utilized to provide a secure digital identity reference. Perhaps the most significant feature of Blockchain technology is this encrypted identification. This identity, known as a "digital signature" in the context of cryptocurrencies, is used to authorize and manage transactions.

The peer-to-peer network and the digital signature are combined, and a lot of people who function as authorities use the digital signature to agree on transactions and other matters. The two network-connected parties engage in a successful secured transaction once they approve an agreement, which is validated by a mathematical check. In conclusion, users of blockchains utilize cryptography keys to carry out various digital operations over the peer-to-peer network.

Blockchain Categories

Blockchains come in a variety of forms. In the following order, they are listed:

Networks of Private Blockchains:

Private blockchains are typically effective for private companies and organizations, operating on closed networks. Businesses may customize network properties, permission choices, accessibility, and other vital security aspects using private blockchains. Networks using private blockchains are managed by a single authority.

Blockchain Networks Open to the Public:

Public blockchains, the source of Bitcoin and other cryptocurrencies, also contributed to the rise in popularity of distributed ledger technology (DLT). Additionally, public blockchains assist in removing some obstacles and problems including centralization and security holes. Instead of being stored in a single place, data is dispersed over a peer-to-peer network using DLT. Information authenticity is confirmed via a consensus process; two popular consensus techniques are proof of stake (PoS) and proof of work (PoW).

Blockchain Networks With Permission:

Permissioned blockchain networks, commonly referred to as hybrid blockchains, are private blockchains that grant specific access to individuals who have been granted authorization. These kinds of blockchains are sometimes put up by organizations to combine the best features of both worlds, and they allow for more structure in terms of determining who can join in the network and in which transactions.

Networks for Consortiums:

Consortium blockchains feature both public and private components, just like permissioned blockchains, however a single consortium blockchain network is managed by several organizations. These blockchains can provide superior security once they are operational, despite the fact that they can be more difficult to set up initially. Consortium blockchains are also the best option when working with several organizations at once..

Blockchain Hybrids:

The combination of public and private blockchains is known as a hybrid blockchain. Certain sections of a hybrid blockchain are private and only available to designated members, while other sections are transparent and open to the public. For situations where a balance between privacy and openness is needed, hybrid blockchains are therefore the best option. Supply chain management, for instance, allows for the privacy of critical data while allowing different parties to view some information.

Sidechains:

In order to offer more scalability and functionality, several blockchains referred to as "sidechains" operate in parallel with the main blockchain. Developers can experiment with new features and applications without endangering the main blockchain's integrity by using sidechains. For example, sidechains can be used to build specific consensus mechanisms and develop decentralized apps. Main blockchain transactions can also be handled by sidechains to reduce congestion and enhance scalability.

Blockchain Levels:

Building several blockchain layers on top of one another is referred to as "blockchain layers." Every layer can have its own rules, functionality, and consensus mechanism that can communicate with other layers. Due to the capacity to handle transactions concurrently across multiple layers, this guarantees increased scalability. As an illustration, the Lightning Network is a second layer solution that facilitates quicker and less expensive transactions by opening up payment channels between users and is built on top of the Bitcoin blockchain.

The Transfer Process:

The confirmation and authorization of transactions is a fundamental characteristics of blockchain technology. When two people want to conduct a transaction, for instance, and each has a private and public key, the first party would attach the transaction data to the second party's public key. This entire set of data is assembled into a block.

A timestamp, a digital signature, and other pertinent and significant data are included in the block. It should be mentioned that the identity of the parties to the transaction is not included in the block. The block is then sent to every node in the network, and a transaction is successfully completed when the correct user matches the block with his private key.

The Blockchain can store transactional information about homes, cars, and other items in addition to financial transactions.

This use case demonstrates how blockchain technology functions:

Hash Cryptosystems:

The SHA256 algorithm is the primary means of data security used by blockchain technology, which also employs hashing and encryption. SHA256 transmits the sender's address (public key), the recipient's address, the transaction, and the recipient's private key information. Hash encryption is used to encrypt data that is sent over the internet and added to the blockchain once it has been verified. Because the SHA256 technique makes hash encryption nearly impossible to crack, sender and recipient verification is made easier.

Evidence of Work:

In a blockchain, a block consists of four main headers.

• Previous Hash: Using this hash address, one can locate the previous block.

• Transaction Details: Details pertaining to each and every transaction that has to happen.

• Nonce: A cryptographic random integer that is used to identify a block's hash address.

• Hash Address of the Block: A hashing technique is used, among other things, to send the nonce, transaction details, and prior hash. This generates an output that is 64 characters (256 bits) long and is referred to as the unique "hash address". For this reason, it is referred to as the block hash.

• Many individuals worldwide attempt to use computer procedures to determine the appropriate hash value to satisfy a predefined criterion. The predefined condition must be satisfied for the transaction to be completed. In simpler terms, blockchain miners try to figure out a proof of work problem, which is a mathematical challenge. First to solve it wins a prize.

Mining:

"Mining" is the term used to describe the process of adding transactional data to the current digital/public ledger in blockchain technology. Despite having a connection to Bitcoin, the phrase can also be used to describe other Blockchain technology. By creating the difficult-to-forge hash of a block transaction through mining, the entire Blockchain is kept secure without the need for a centralized mechanism.

Blockchain Decentralized

A blockchain makes it possible for the information contained in a database to be dispersed over multiple network nodes—computers or other devices that are running blockchain software—at different places. This keeps the data fidelity intact while also generating redundancy. For example, the other nodes would stop someone from trying to change a record at one instance of the database. In this manner, no single node in the network is able to change the data stored there.

Reversible information and history, similar to cryptocurrency transactions, result from this distribution and the encrypted proof that task was completed. A blockchain can store a great deal of other data, including contracts, state identities, and inventory held by a business, in addition to a list of transactions (like those involving cryptocurrencies).

Hyperledger and Blockchain

"Started in December 2015 by the Linux Foundation, Hyperledger is an umbrella project of open source blockchains and related tools, supported by industry players like IBM, Intel, and SAP to support the collaborative development of blockchain-based distributed ledgers."

According to Hyperledger members, "the transparency, longevity, interoperability, and support required to bring blockchain technologies forward to mainstream commercial adoption can only be ensured by an Open Source, collaborative software development approach."

The Hyperledger project aims to "develop blockchains and distributed ledgers to advance cross-industry collaboration, with a particular focus on improving these systems' performance and reliability (as compared to comparable cryptocurrency designs) so that they can support global business transactions by major financial, supply chain, and technological companies."

Security on Blockchain

Many times, people assert that blockchain technology is "unhackable." Nevertheless, threat actors can "take control of more than half of a blockchain's compute power and corrupt the integrity of the shared ledger" thanks to 51% incidents. Security professionals should view blockchain as a helpful tool rather than a miracle solution to every issue, even though this specific assault is costly and challenging.

The so-called 51% problem, which states that "it is possible to falsify an entry into the blockchain, allowing for double spending, and even to fork a new chain to the advantage of the mining pool," is exploited by the 51% assault.

Different levels of security are provided by the two primary types of blockchain: private and public. In order to add transactions to the ledger and validate them, public blockchains "use computers connected to the public internet to bundle them into blocks." Conversely, known organizations are usually the only ones allowed to join private blockchains. Public blockchains may not be appropriate for businesses that are worried about the confidentiality of the data traveling via the network because any organization can join them.

The identity of participants is another distinction between public and private blockchains. Anonymity is a fundamental design feature for public blockchains. A private blockchain is made out of a permissioned network where transactions are verified by known users, allowing consensus to be reached through a procedure known as "selective endorsement." Businesses can benefit from this because the transaction ledger can only be maintained by those with the necessary access and permissions. Though many of the problems with this approach can be resolved with a sufficiently secure infrastructure, there are still some, such as insider threats.

Blockchain technology is advancing at a never-before-seen pace, enabling innovative ideas for social networks and shared storage, among other applications. We are pioneering new territory in terms of security. Developers should prioritize security while building blockchain applications and services. A developer's roadmap for a blockchain application should include tasks like risk assessments, threat modeling, and code analysis, including interactive security testing, software composition analysis, static code analysis, and so on. Ensuring a successful and secure blockchain application requires including security from the beginning.