Blockchain is the technology behind bitcoin and other cryptocurrencies. The credit for conceptualising and implementing blockchain traditionally goes to Satoshi Nakamato, who may be an individual or a pseudonym for a group of developers nobody knows! Nevertheless, blockchain technology has been instrumental in development of cryptocurrencies. It is also finding new uses in sectors like healthcare, intellectual property rights, real estate, commodity trading and even digital kittens!

Types of Blockchain

There are two main types of blockchain:

  1. Permissioned or Private Blockchain:
    An access control layer governs the network access and is restricted to certain nodes which are identified and verified. In other words, it is useful for organization-specific uses. For example, a company may decide to use a private blockchain to validate the identity of its employees with modifications to the blockchain can only being made by certain users in the HR department.
  2. Permissionless or Public Blockchain:
    Also known as ‘open’ blockchain. These blockchains are completely open and any user can join the network. An incentivisation mechanism is required to encourage participation because public blockchains use more computational power than a private blockchains due to the ledger being distributed on a much larger scale.

    Both public and private blockchains are being used to eliminate the need of a central trusted authority for authorizing transactions. They act as a notarised ledger and reduce the risk of fraud considerably and have revolutionized the way business is done by making existing processes more streamlined and secure.

How does Blockchain work?

Blockchain is a secure, distributed database which acts as an open ledger.

As the name suggests, a blockchain comprises of a chain of blocks (of data). The chain starts from a genesis block (the very first) and continues to the current block.

Every data block holds information about transactions that have been validated but not yet added to the chain. This information is hashed and encrypted to make it secure.

Hashing converts data of an arbitrary length and gives an output of a fixed length. In the context of Bitcoin, any size of transaction(s) are taken as input and run through the SHA-256 algorithm which gives a fixed-length output (256 bits long). So, now, instead of having to ‘remember’ the input data, which could be enormous, the system just needs to remember the hash.

Each block, apart from containing recent transactions also refers to the earlier block for authentication. The successive block contains a digital fingerprint, or hash, of the preceding block.  These linked blocks form a continuous immutable chain. The sequence cannot be modified as it is time stamped. New blocks are added by miners after confirming the sequence and authenticity of the blockchain.

Blockchain Applications

Blockchain is finding new applications daily, sectors like insurance, banking, retail and healthcare have already participated in the revolution and many other industries are exploring how permissioned and permissionless blockchains can be used to for secure authorization and authentication of business information.