Blockchain technology has gained massive traction in recent years, with its global market size projected to reach USD163 billion by 2027, up from USD1.57 billion in 2018. However, many people still don’t understand what this technology is all about.
On that note, let’s define the blockchain and discuss its origins and the different types that exist:
What is a blockchain?
A blockchain is a digital ledger of transactions held on a network of computers.
“Simply put, it’s a way to store data in a distributed way, while ensuring that it
can’t be changed unnoticed”
Shane Deconinck, a blockchain researcher at Howest University of Applied Sciences.
However, there are some major differences between a blockchain and other technologies that may fit this description:
- Firstly, a blockchain exists on a peer-to-peer network, with no single computer being a central point of authority from which you can change the ledger.
- Secondly, blockchain events are reflected on every computer on the network such that they have the same record.
- Thirdly, blockchain records exist as a sequence of blocks linked by encrypted information such as hashes, timestamps and other transaction data. With each block having data about a previous block, a chain is formed, meaning you can’t alter one block without tampering with subsequent blocks.
And since must to attack most of the computers on the network and change their records faster than they are updated, you need a tremendous amount of processing power.
These are some of the attributes that make blockchain technology more secure than some other networks.
Origins of the blockchain
Several cryptographers have discussed concepts resembling blockchains, including David Chaum in 1982, Stuart Haber, Scott Stornetta and Dave Bayer in 1991 and 1992. However, the first real-world implementation of a decentralized blockchain was the Bitcoin blockchain in 2008, spearheaded by Satoshi Nakamoto.
The major driving factor behind early blockchains was creating a new environment where two parties could transact without needing a trusted third party.
“What’s true is that there’s a whole new structure to how we can do data management, and that is what Bitcoin proves and this is what the blockchain does.”
Sven Van de Perre, the creative director at Tropos AR
Types of blockchains
Blockchains are mainly categorized based on the kind of access they offer. The two main types are:
An open blockchain is one where anyone can participate if they log on to the network, run the blockchain application and download the relevant files to synchronize their record with other participants’ records.
Such blockchains usually incentivize participants with tokens of their native currency as rewards for validating transactions. This is done through consensus mechanisms such as Proof-of-Work, Proof-of-Stake, Proof-of-Authority and Delegated Proof-of-Stake.
These are the methods by which all participants can agree on the validity of any change. Examples of open blockchains include Bitcoin, Ethereum, Polkadot and Cardano.
These are blockchains that aren’t open to the general public but rather to one or more private entities. They are typically used by a corporation such as a bank for settlements involving another large company like an insurance provider. Participation is based on invitation by the administrators.
Private blockchains usually rely on consensus mechanisms like practical Byzantine Fault Tolerance (pBFT), Federated Byzantine Fault Tolerance (fBFT) and Istanbul Byzantine Fault Tolerance (iBFT).
These are blockchains where specific sets of functionality can be accessed by the general public, while others have restricted access. For example, a hybrid blockchain may be used when a company needs to serve customers in the general public but also relay some of their data to another service provider in the value chain.
A sidechain is a blockchain that handles some of the traffic on a parent blockchain and sends back information on completed transactions. It can run independently and may also rely on a different consensus mechanism. Sidechains are usually linked to their parent blockchains by a two-way bride.
Sidechains are commonly used to solve blockchain congestion. This quest for transaction efficiency has also manifested in the form of zero-knowledge proofs.
What is Zero-Knowledge proof?
A Zero-Knowledge proof (ZK proof) is a cryptographic approach in which the entities on either end of the process only exchange a specific value known to both. In this case, there’s no need to exchange the usual transaction information.
ZK proofs are built to offer three main properties:
Zero-Knowledge – The verifier only has the current true/false statement regarding the transaction, but not any other private or descriptive data on the parties involved.
Completeness – If the transaction statement is indicated as true, the verifier authorizes the prover’s request.
Soundness – The transaction statement’s true/false indication is absolute, and the verifier can’t act against it.
All-in-all, blockchain technology revolutionizes the way we transact, primarily regarding privacy, ownership and trust.