Surely when it comes to Blockchain technology, you will hear a description that Blockchain is similar to a ledger that records and stores transactions made on that Blockchain.
This is a correct concept of Blockchain but still not enough to show the outstanding features of Blockchain technology.
To have a better look at Blockchain technology as well as what problems Blockchain was born to solve? Let's find out more details through this article!
What is Blockchain?
Blockchain is a technology created with the main purpose of storing data in a sustainable way and especially when data is recorded on the blockchain (which can be understood as recorded in the ledger), they will not be changed. .
Blockchain is a combination of two words Block and Chain. In there:
- Block means a block. You can imagine it as a box that is responsible for storing information (Data).
- Chain means chaining to indicate that these blocks are linked together to form an inseparable link. The creation of the chain (chain) is also the way that the Blockchain can resist the modification of data information contained in the blocks (Block).
What problem does blockchain solve?
Blockchain was originally created with the main purpose of storing data transparently and sustainably over time. To better understand the importance of blockchain in human life, let's take a look at how the change in the transaction system has taken place!
1.Agreement and papers
In the past when technology was not yet developed, the transaction between person A and person B was an agreement established based on paper. This document will then be verified by a third person and held as evidence.
=> The limitation exists because:
- It is entirely possible to be turned into a fake brother.
- Papers can deteriorate over time.
- No one can guarantee 100% third-party credibility.
Thus, at this stage, the transaction between person A and B has many risks to ensure the interests of both parties. Completely dependent on 3rd party.
2.The banking system as an intermediary
Over time, technology has helped society develop to a new level.
More specifically, computer technology has been applied in the banking and financial system. Transactions are now not recorded on paper, but instead information will be stored on a bank's server.
At this stage, technology has made the information stored in a more secure way and the security will be protected by banks and governments.
However, a major problem that still exists in these banking systems is that all data is stored on one main server. Therefore, this will be a "prey" that hackers can exploit and edit data.
⇒ The most important issue remains unresolved.
3.Blockchain was born - Difficult problem to be solved
Information is considered the key to solving problems that arise. So the question is:
- How can I store that information in the most sustainable way?
- How to keep the information safe, no one can affect it?
Through the process of changing the above transaction system, it can be seen that with the support of technology, the bank's transaction system is still not really complete. This is the reason for the next development - Blockchain.
As in the definition, I explained that Blockchain is a database that is distributed across computers. The data will be stored in blocks and these blocks will be linked together, lasting forever. In particular, no one can modify them.
(The reason why it is not possible to modify the data, I will explain in detail in the next section)
With these outstanding features, Blockchain can help the payment system solve most of the above difficult problems such as:
The data will be stored distributed on many computers ⇒ Information is kept and hacking is extremely unlikely.
Transaction information is public and transparent.
In particular, Blockchain eliminates the controlling role of the 3rd person in the transaction.
⇒ With the outstanding advantages that Blockchain brings, this helps us understand why Blockchain is expected a lot in the future.
Important Features of Blockchain
After reading through the section “What problem does blockchain solve?” Surely you have also grasped the important features that Blockchain can bring, right?
In this section, we will take a deeper look at the outstanding features of Blockchain!
Transparency in transactions
This can be considered as one of the best characteristics of a Blockchain. Why do I say that?
That's because acts of fraud and manipulation are inherently present in our lives and it will have a huge impact on those involved.
Imagine, what if our assets, when deposited in another place, are not transparent about spending or a more painful problem is that companies cheat financial statements to control their expenses. divulging dividends to shareholders or manipulating stock prices and evading taxes?
The most prominent in the past was WorldCom - The telecommunications company considered an American icon in the 21st century committed fraud in its financial statements to conceal its weakened financial position, creating a fake growth in order to raise stock prices in the market.
Up to now, the neutral audit units are still continuing to perform the work of verifying the accuracy of the financial statements of the companies.
But there is a problem: Human greed always exists ⇒ So how to make sure these 3rd party auditing firms can guarantee 100% credibility?
While the actual transactions and numbers are still not transparently public, with Blockchain, all data information will be updated on the blocks of the blockchain.
Unlike other storage systems, data is not only stored on one computer, but is distributed across different computers.
Therefore, when a computer participating in authentication on the network is damaged, the data still exists on the Blockchain and the data on the Blockchain will not be dependent or concentrated on anyone.
Can not change
For Blockchain, data after being included in the blocks in the network cannot be changed by the consensus algorithm and the tight association of blocks in the Blockchain.
The consensus algorithm is a consensus on the validity of transactions by the majority of nodes (computers) in the network to record information into blocks in the Blockchain. This process is designed to ensure reliability.
Assuming there is a case where a proposed block is changed, the process to prevent that change in the Blockchain would be as follows:
When a block has a proposal to change data, this is equivalent to the hash representing that block will be changed.
The following block compares its Previous Hash with the Hash of the preceding block.
If these two Hash codes are different, this data will be returned to the original according to the Previous Hash.
Mechanism against data change in Blockchain
However, in fact, this mechanism is still quite simple for today's computer systems. With the processing speed of thousands of Hashes per paper, computers can easily intervene in the modification process to recalculate the Hash codes accordingly so that the blocks can continue to be linked together. .
Therefore, the Blockchain has added a consensus algorithm to increase the security of the data in a block. The main consensus algorithms that we often encounter in that market are:
Proof of Work (POW)
With Proof of Work - Participating in mining with computers running 24/7, the process of initializing new blocks will be slower than Blockchain. To interfere with data modification on a block with this mechanism, the hacker would need to recalculate the entire data for subsequent blocks.
According to calculations, every 10 minutes a Bitcoin block is formed. So to modify the next blocks, it will take a long time to do even not to mention the case when block n is encrypted, then block n+1 is formed.
⇒ Modification on Blockchain with Proof of Work seems impossible.
Proof of Stake (POS)
Unlike POW, the Proof of Stake algorithm will choose the person who authenticates the transaction based on the amount of Coin they Stake (Can be understood as a deposit or a security deposit). Hence, this form is known as proof of stake.
To avoid fraud and modification in blocks, POS is designed with a punishment mechanism. Nodes participating in the validation with fraudulent behavior will lose the amount of Staked Coins.
The amount of reward that validators receive is much lower than the amount they learn Stake ⇒ It is difficult for them to accept the risk and hack the network.
In theory, POS can still be hacked by controlling 51% of the total supply of tokens in the market to take control of the network. However, this will become very difficult to happen if this coin has a large value ⇒ Hacker will have to pay a lot of money to be able to attack the network.
Let's say this person can completely buy 51% of the total supply of that coin, do they really want to hack the network?
The answer is almost certainly no. Why is that so?
That's because when they hold up to 51% of the network and hack that Blockchain network One thing is for sure, the value of the property they are holding up to 51% will no longer be valuable because no one will use it. This blockchain too.
⇒ Is that good or bad for hackers?
Blockchain mechanism of action
By reading this far, we must have understood what Blockchain is and the important characteristics that make Blockchain expected to be an essential change for the future.
In this next part, let's continue to learn how a Blockchain will work!
Stage 1: Person A makes a transaction on a Blockchain to Person B. Information will be recorded on the system in the form of a record (Record).
Stage 2: This record will be encrypted and authenticated by participating Nodes. To put data on the block. Specifically, the nodes will validate the amount of assets that person A transfers to person B put on the network to be pending and compare with the balance in the wallet if it is reasonable or not and proceed to approve the transaction.
Stage 3: Transactions are validated, data is encrypted and put into blocks.
Stage 4: After filling with data (transactions of people A and B and transactions of others), a new block is created and linked to the Blockchain blockchain.
Types of Blockchain on the Market
When participating in the Crypto market, you will usually encounter the following types of Blockchain:
1.Public Blockchain - Public Blockchain
Public Blockchains are Blockchains designed so that anyone can interact and record data on that Blockchain.
For example: Bitcoin, Ethereum, Binance Smart Chain, ... and it may come as a surprise to those who are new to the market that Dogecoin is also a Blockchain. Where DOGE is the coin used in the Dogecoin network.
2.Private Blockchain - Private Blockchain
In stark contrast to Public Blockchains, Private Blockchains do not allow everyone to participate in interacting and recording data on the network.
These Blockchains will set the rules and only authorized people can participate in activities on this Blockchain.
The use of Private Blockchain will be suitable for organizations, governments, businesses, ... for the purpose of storing personal and internal information.
3.Hybrid Blockchain - Combined Blockchain
Hybrid Blockchain is a combination of Public and Private. It allows users to take advantage of both features of these two Blockchains.
Applications of Blockchain technology
Blockchain technology is widely applied in real life. Here are the uses of blockchain:
Supply Chain: Using blockchain technology, an interoperable ecosystem built on an immutable database can bring new levels of transparency to a multitude of industries.
Video games: By choosing a blockchain-based approach, users will own their assets (in the form of exchangeable/non-tradeable tokens) and can exchange them between games or market.
Healthcare: By securely encrypting their records on the blockchain, patients maintain their privacy, while being able to share their information with any institution that can access the facility. global database.
Money Transfer: Cryptocurrencies and blockchain eliminate middlemen. That's why a host of projects are now harnessing the technology to enable fast, cheap money transfers.
Digital Identity: Currently the physical identity of everything is easily counterfeited and not available to many individuals. Thanks to the blockchain application, the so-called “ownership” will be anchored to a blockchain ledger and tied to its owner.
Internet of Things (IoT): Some argue that the growing number of internet-connected physical devices could be with blockchain technology, both in home and industrial contexts. It is assumed that the proliferation of these devices will require a new economy of payments, requiring a system capable of high throughput for small payments.
Governance: Blockchain governance ensures that all participants can participate in decision making and provides a transparent overview of what policy is being implemented.
Charity: Relying on the inherent properties of technology to ensure greater transparency, global engagement and reduce costs, accelerating speed. Thus money from convenience easily comes to those who need it quickly.
Blockchain is a permissionless system, you will not need to go through any validation process to become a participant. With Bitcoin and other cryptocurrencies, users only need to download open source software to join the network.
With quick and easy access, banning is extremely difficult and nearly impossible to take the entire network offline. Such accessibility makes them an attractive tool for all users.
While their most common applications are in financial transactions, there are many other areas where they could be deployed as useful tools in the future. These fields can be mentioned as: Automotive Technology Automotive; Make; Technology, media and telecommunications; Arts & Entertainment; Insurance; Exploit; Technical infrastructure projects,...