Blockchain is a decentralized, distributed, and immutable ledger secured by cryptographic hash algorithms. Blockchain ledger has chained chronological and encrypted blocks of the synchronized data across the peer to peer network. The data is formed into blocks, and each block is appended to its previous block connected by hash. The blockchain first stores the data into back linked blocks. It then verifies the blocks with a distributed consensus process to keep the security, privacy, and transparency in the whole blockchain network.
Blockchain technology is a combination of 4 components:
- Peer-to-peer networks
- Consensus mechanism; Crypto economics and Game theory
- Blockchain data structure
Properties of Blockchain
1. Decentralization: In blockchain technology, the data is decentralized so that each node, which is the part of the blockchain network has consistent data. A central, trusted authority authorizes centralized data. In most cases, this centralized authority works well, but the increasing number of intermediaries trigger the cost of the transaction. For example, in the banking system, the banks are centralized trusted authorities, and in most cases, it works well. However, this mediation limits the minimum practical transaction cost and cuts its incentive. In a blockchain network, the transaction can be completed without a centralized authority. This helps in reducing the overall cost when multiple transactions are used for the same product. Also, the workload of the central server can be minimized significantly by partitioning the verification on multiple nodes.
2. Persistency: In the blockchain network, the transactions are inherently stored in blocks for creating a chronologically decentralized and distributed chain which is pursued by the entire network. Each node contains the blockchain ledger to recover from any data loss by a node. Persistence and consistency are easily achievable by storing the data in different nodes and detecting the missing data or any falsification.
3. Anonymity: In the banking system, the identity is stored by the banks to verify the transactions, and the personal details of the transaction can easily be traced. However, in the blockchain network, a person interacts with the generated wallet address and personal identity is kept hidden by using multiple addresses and there is no central authority which stores the private data of a node. Transactions are verified publicly, and the privacy is retained by using the addresses for each transaction. This ensures that a miner cannot know the identify the owner or the issuer of the wallet
address. Also, a central party does not ask for the private data of a user.
4. Transparency: Blockchain network provides transparency for the whole network by enabling distributed and consistent transaction records. In the supply chain and logistics industry, the requirement of transparency cannot be ignored. Blockchain network reduces the number of frauds by establishing a transparent system.
5. Auditability: The blockchain network includes the timestamp that can be used to trace the transaction detail, and the user can verify the transaction easily. The higher auditability is proved by the transparency and traceability of the transactions.
6. Time reduction: Each software in the blockchain network has consistent information and therefore removing the lengthy process of verification. The only single version of agreed can reduce the time by avoiding the need for a lengthy process of verification, settlement, and clearance.