What has made blockchain a truly transformative technology is the key characteristics that define it. It has become such a widely adopted technology because of the elements that give it the ability to allow asset transactions, be they financial or physical – in a secure, transparent and effective way.
Key Elements of Blockchain Technology
All transactions and blocks in the blockchain are cryptographically safe and sealed on the network. To maintain security, integrity and verification, the blockchain’s mechanism generates two keys for network members – a public key and a private key. These keys together help unlock a user’s ledger. This technique ensures transactions are impervious to fraud and establish a shared truth. If two members were to execute a transaction and either one’s private key was compromised, the transaction would not execute.
- P2P Network
Blockchains are peer-to-peer (P2P) networks, a decentralised mechanism to conduct transactions between members on the chain without the need for a third-party or central server. This is exactly how Bitcoin operates. Contrary to the regular client/server model where the client makes a request like executing a transaction, and the server works to fulfill it, on P2P networks each party acts as both – the client and the server. What this technically means is that every member owns a copy of the ledger once the network is formed, which can be used to store and share information without the need for an intermediary.
Every transaction recorded on blockchain networks is immutable – what this means is that it cannot be edited, deleted or reversed. This protects data recorded from being changed or tampered with once recorded by any member of the network or external malicious actor. However, if a transaction is recorded as an error the process to rectify it is extremely difficult and expensive.
Blockchain networks allow for transactions recorded on their network to be viewed by any member of the public – through a personal node or platforms like blockchain explorers. Giving members the power to scrutinize records creates transparency and leaves no room to hide data. Even in the case of private blockchains where transparency is lower, there is always an auditable trail of data.
- Distributed Ledger
Blockchain networks are based on distributed ledger technology. Distributed ledgers are basically shared databases that maintain a record of all transactions that can be accessed by all network participants. You could think of it as a shared document that all members of a team can edit. However, there are rules that govern who can make an edit and how an edit can be made. Blockchains being shared immutable ledgers will not allow you to delete an entry once recorded. This kind of distributed and synchronised design of the distributed ledger makes blockchain attractive for multi-organizational business networks like financial institutions and supply chains.
- Smart Contracts
A smart contract is a set of rules stored on the blockchain that executes automatically once the predetermined conditions of the contract have been met. The types of transactions that can be carried out on the blockchain are agreed between participants through these ‘smart contracts’, which helps ensure everyone is sticking to the set rules. These contracts come in handy when businesses need to self-manage contracts in the absence of a third party. An example could be a logistics company automatically executing a payment once goods are delivered at the port through a smart contract.
Blockchain’s characteristics and elements have helped create a technology that is trusted, secure and doesn’t require third-party intervention or central authority. This creates strong potential for the network with the most important being in the realm of collaboration, the democratisation of data and the elimination of organisational pain points that have not been successfully addressed by predecessor technologies. The future is definitely gleaming bright for blockchain, but to fully leverage it, wrapping your head around its workings, elements and use cases is key.
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