It all started with the introduction of a white paper called “a peer-to-peer electronic cash system” in 2008 by someone named Satoshi Nakamoto. When bitcoin came into the world, it required a structure to run on that resulted in the creation of Blockchain technology.
The blockchain is basically an underlying structure on which a digital currency runs. It basically allows everyone on the ledger to reach a consensus while eliminating the need to trust anyone.
As the hype around bitcoin rose, companies and governments started evaluating the cryptocurrency and its underlying technology that made blockchain so much popular that many believed it to be the real deal in the crypto world.
This technology comprises of a list of records that are known as blocks which keep on growing on a constant basis. These blocks are linked with each other and further secured through cryptography. Usually, each of these blocks contains a cryptographic hash function of the previous block along with the transaction data and a timestamp.
Over the last few years, blockchain has evolved a lot and the idea is that the blockchain can be used for any kind of transaction or agreement.
Typically, it can be now divided into three major types viz: Public Blockchain, Private Blockchain, and Federated Blockchain.
As the name suggests, this kind of blockchain is open to the public. Anyone can participate here as a node. The most common and popular examples are Bitcoin, Ethereum, and Litecoin. Anyone can start mining these crypto coins, make a transaction on its blockchain or review it.
Being transparent and open to everyone, these blockchains can be reviewed by anyone at any given time.
No one is the in charge here. Then you must be thinking how exactly a decision is made? Right! The decision is made through various decentralized consensus mechanisms like Proof of Stake (POS) and Proof of Work (POW).
This permissionless blockchain has the potential to disrupt the currently existing business models by eliminating the need for an intermediary. Moreover, these blockchains don’t require any infrastructure costs either as there is no need to maintain a system or servers.
As the name implies these are private blockchains meaning they are owned by an organization or an individual. Banks among other private institutions utilize the key idea of blockchain that is the distributed ledger technology to create their very own private blockchain.
Unlike its public counterpart, private blockchain has an in charge that manages everything related to this blockchain. The consensus here is achieved by the individual or organization that is controlling the network.
Using the term blockchain here is not quite the right thing to do as it is for the most part centralized which clearly defy the idea with which the blockchain was created. However, from the point of view of the company, it is certainly cost effective and more secured.
Though this kind of blockchain is extremely beneficial in solving the fraud, security and efficiency issues that the financial institutions have to face, it doesn’t have the potential to transform the financial system that the public blockchain certainly has.
These blockchains are basically under the control of a group that uses the private blockchains. Here, sole autonomy is removed by including particular people or organizations into it.
When it comes to controlling the blockchain, you would find a number of in charges instead of simply one or no one. Here, a particular group of representatives or organizations come together that makes all the decisions for the benefit of the network as a whole.
For instance, EWR and R3 utilize federated blockchain where only the members of this consortium can mine, make transactions or review the blockchain. These are mostly used in the banking sector.
This blockchain helps in reducing the data redundancies and transaction costs while being faster and offering higher scalability.
The use of blockchains is growing at a rapid pace that doesn’t show any sign of slowing down in the near future. From finance, automobile to energy, the blockchain is transforming every sector.
If you have any queries or want to share your thoughts on blockchain, its uses and how it is changing the economic scenario, feel free to comment below!
Ankit Saxena: A computer science engineer, I have been adamantly following the blockchain and cryptocurrency industry for the past few years. A crypto enthusiast and hardcore blockchain follower. My expertise extends to content marketing and advertising through which I was able to help few notable startups. For more follow me on my site Coingape
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