The growing popularity of cryptocurrencies and Non-Fungible Tokens (NFTs) in the past couple years has brought to light another term that interlinked with the two: blockchain technology. Both NFTs and cryptocurrencies relied upon this database structure in a way that it has become the backbone for the two digital contents.
However, what exactly is a blockchain? Is it really more secure than other database structures? How could the technology be applied in the digital era? How would it shape our future?
Simply put, a blockchain is a database distributed among the nodes of a shared computer network. According to investopedia.com, the database shared in blockchain is stored electronically and formatted as digital data. What sets them apart from other types of digital databases is that the data shared using blockchain technology guarantees fidelity and security without having to rely on a third party.
The most unique aspect of blockchain that sets them apart from other database sharing systems is the way data is structured in the network. A group of information known as blocks is held together by the blockchain. The storage capacities of each block, when filled, will close the block and connect it to other blocks, forming a chain-like array of data blocks, hence the name ‘blockchain’.
This chain like database structure, as opposed to the more traditional table like structure, essentially creates an irreversible timeline of data, especially when applied in a decentralized network. Whenever a new block is filled, it instantly joins the rest of the blocks in the chain and becomes a part of this timeline. Furthermore, each block was time stamped in the exact time it was added to the chain.
The security of blockchain has been the main selling point of the technology. The way new blocks are always stored linearly and chronologically means that new information is always located at the “end” of the chain. This way, the new block would not mess with the information stored in the older box, unless the users in the blockchain reached a consensus to do so.
Hash codes also played a major role in keeping the blockchain secure. In a hash, digital information is converted into a string of codes made up from numbers and letters. Every single block inside a blockchain contains its own hash, along with the aforementioned time stamp and hash code of the block before it. Edit the information inside the block, then the hash code changes as well.
Currently, there are four different types of blockchain network: public, private, hybrid, or consortium. While the technology behind them is basically the same, the end users of these different types of blockchain network might differ as well.
Public blockchain is the type of blockchain technology that became the basis of cryptocurrencies like Bitcoin. Public blockchain heavily utilizes distributed ledger technology (DLT), in which information is distributed across a peer-to-peer network that requires a consensus algorithm to verify the authenticity of data stored. Two of the most common consensus methods are Proof of work (PoW) and proof of stake (PoS).
Also known as permissioned or enterprise blockchain, private blockchain operates in a closed and restrictive environment as opposed to public blockchain that operates in an open-source manner. It still uses the same peer-to-peer connections and decentralization model, albeit on a much smaller scale. Private blockchains are usually deployed on a small network such as inside a company or organization.
Combining the best of two worlds, hybrid blockchain lets companies or organizations set up both permission-less public systems alongside permission-based private systems. This way, system administrators can control which information would be opened to the public as well as deciding who has access to specific information in the blockchain.
A consortium or federated blockchain also operates using features from both private and public blockchains. The difference between this and hybrid blockchain is that in the consortium platform, the nodes are divided into validator and member nodes. Validator nodes control the consensus procedures that initiates, receive, and validate transactions. Meanwhile, member nodes can only initiate or receive transactions.
Blockchain can be applied to as many as 34 real world use case scenarios. However, there are at least five applications where it's more prominent.
An NFT Marketplace itself is a blockchain-based online platform in which users, as the name suggests, can sell or purchase NFTs. The platform records, verifies, and validates each transaction. There are various NFT marketplace online today, with one of the largest being OpenSea,
Similar to NFT marketplaces, cryptocurrency exchange also utilizes blockchain to initiate, verify, and validate transactions. However, its use case is more akin to a stock exchange compared to the sort of art gallery trade nature of NFT marketplace.
The encrypted distributed ledgers of a decentralized blockchain provide trusted, real-time verification between the two corresponding parties. No need for intermediaries such as correspondent banks to verify the transaction.
Digitally storing your personal information such as social security numbers, birth certificates, or other sensitive information would always be threatened by the risk of database leak. By keeping them in a closed, decentralized blockchain ledger, it will be harder for crackers to access this personal information.
Data transparency has always been a major concern in supply chain and logistics monitoring. Blockchain ledgers may help this industry in a number of ways, one of them being providing unquestionable data transparency. Blockchain ledgers may also help with automatization, making it one of the most cost-effective solutions for the industry.
As our society move even further into digital lifestyle, the future of blockchain as one of the most secure database ledgers in existence in undoubtedly bright. As of today, general public’s perception of the technology may still be limited to NFT and cryptocurrencies. However, as more and more aspects of our life getting digitized, the more we need blockchain to secure the digitized information.
Blockchain technology might have been the backbone of NFT and cryptocurrencies today. However, as we move closer to life in a digitalized reality, blockchain might evolve to be the backbone of our very own society.