Key Takeaways:
- Blockchain is a technology that works by keeping information (transaction, data, etc) on their block.
- Not only for cryptocurrency, blockchain also can help cryptocurrency to operate.
- In the financial industry, blockchain can be used for automated compliance and faster settlement.
You may often see ‘blockchain’ when learning about cryptocurrency. Even though it sounds like a new technology, blockchain was actually discovered in 1991 by Stuart Haber and W Scott Stornetta and continues to be developed until now. Blockchain is not only applied in cryptocurrency, you can also use it in various industries such as financial services, communication technology, retail, and many more.
In this article, you will learn about what is blockchain and how blockchain can be a technology that can be a solution for various industries.
What is a Blockchain?
Blockchain is a protected public database technology that can store data securely. That way, the data stored on the blockchain cannot be changed, hacked, or deleted from the blockchain network.
The technology used by the blockchain is distributed ledger technology (DLT). By DLT, all the information will be distributed across a network of computer systems connected to the blockchain. Each block contains transaction information and identification codes within a certain period. The identification code is used to distinguish each block included in the chain.
A blockchain is a collection of blocks containing transaction information and a unique code arranged in a chain. Then, how does blockchain work, and how does blockchain play a role in the crypto industry?
How Blockchain Works?
Blocks are created by solving cryptographic problems. This problem-solving process is known as mining. To create a block, you need to break the cryptographic code. This process is called mining, and done by miners. The miners who succeed in creating one block in the blockchain will receive a predetermined prize.
Meanwhile, the block identification code, known as a hash, is derived from the information contained in the previous block. With hashes, nobody can falsify any data on the blockchain. Because to change the information that is already recorded on the blockchain, you have to change every block contained in the blockchain.
Types of Blockchain
There are three types of blockchain that you can find, there are:
Permissioned or Private Blockchain
A decentralized peer-to-peer network is sometimes known as a private blockchain network. In the private blockchain, one organization runs the network, deciding who can participate, running a consensus mechanism, and maintaining the shared ledger. Depending on the network and organization, this can significantly increase participant trust and confidence. A private blockchain can be run behind a corporate firewall and hosted on the company's premises. The Enterprise Ethereum blockchain is one of the examples of private blockchain.
Public Blockchain
A public blockchain is one that anyone can join and participate in, such as Bitcoin and Ethereum. With a public blockchain, no single authority can regulate how the blockchain's state evolves. Because there are no limits on new members in this blockchain, it is referred to as public.
The disadvantages could include the need for computer power and little or no transaction privacy.
Consortium Blockchain
Consortium blockchain is a blockchain that can be used by more than one organization. Multiple organizations can share the responsibilities of maintaining a blockchain. These pre-selected organizations could determine who may submit transactions or access the data. A consortium blockchain is ideal for business when all participants need to be permissioned and have a shared responsibility for the blockchain. The examples of consortium blockchain are Quorum and Hyperledger.
The Difference Between Blockchain and Crypto
When you learn about blockchain, sometimes you are confused about the difference between blockchain and cryptocurrency because both seem similar. So, what are the differences between both of them?
Blockchain is the database technology that also creates the cryptocurrency. Blockchain works as a place to keep and track the cryptocurrency transactions. For example, Ethereum (ETH) is created on the Ethereum blockchain.
Cryptocurrency is a digital asset that can be used as an investment and a payment. One of the famous cryptocurrency is Bitcoin.
The unique fact about blockchain is that they don’t really need cryptocurrency to function, except public blockchain. While cryptocurrency needs blockchain to be fully functioned.
The Advantages of Blockchain
Blockchain technology has many advantages that you can find, including:
Decentralized
Decentralization is one of the main advantages of blockchain technology. All transactions in the blockchain network are done by peer-to-peer (P2P). There is no need for a trusted third party or intermediary to validate transactions. Instead, blockchain uses a consensus mechanism to agree on the validity of transactions.
By dispensing with trust-building intermediaries, business processes can be highly automated, saving time and cost.
High Transparency
With blockchain, everyone has access to all transactional information, from the wallet address to the number of coins sent or received by the wallet. As a result, the system becomes transparent, and trust is established. This benefit of blockchain is more relevant in scenarios where personal discretion should be limited, such as the disbursement of funds or benefits.
Simplify the Network Distribution
When multiple entities maintain their own databases, data distribution can be a problem. However, because a blockchain can serve as a single shared ledger among interested parties, it has the potential to simplify the network distribution by reducing the complexity of managing each entity's separate systems with a single source distribution.
Blockchain Use Cases in Financial Sector
Actually, blockchain can be applied to various industries. However, the financial sector has great potential to adopt blockchain technology. So, what can blockchain do as a solution in the financial sector?
With the advantages of blockchain that can facilitate database distribution and speed up information processing, the use of blockchain in the financial industry can help for automated compliance and faster settlement.
