Blockchain is the fundamental technology behind most cryptocurrencies. Many companies are trying to explore opportunities to find new use cases for blockchain technology. In this article we are discussing its fundamentals.
It started with Bitcoin
The blockchain was invented as the public ledger of the Bitcoin network. It is a list of blocks that contain records, most of them are transactions. While a simple list could be easily manipulated the blocks are linked using cryptography. This way they are resistant to modification of the recorded data. Once something has been written on the blockchain it cannot be changed.
A block holds valid transactions that are hashed and encoded into a Merkle tree. Each of these blocks is linked to his predecessor using a cryptographic hash, forming an unbreakable chain. Should a block not contain the right hash it is considered invalid as well as all transactions that are recorded in the block.
Types of Blockchains
There are basically four types of blockchains. The first ones are public blockchains, they are considered to be open to anybody. Bitcoin is one example of such a blockchain. Private blockchains on the other hand are permissioned, meaning that only selected people or companies have access. Hyperledger from Microsoft is an example for a permissioned blockchain.
Sidechains are meant to interact with existing blockchains. Most of the times these sidechains have different use cases than the original blockchain that they are referring to. While a sidechain is linked it is worth to note that they operate independently.
Last but not least there are so-called hybrid chains. These blockchains combine aspects of decentralized and centralized blockchains. Therefore, they are somewhere in between of a public and a permissioned network.
Crypto are only one use case of blockchain technology. Depending on what type of blockchain there are different fields that can be covered. One of the most successful use cases are smart contracts, which are programmable agreements that are written and executed on the blockchain.
A number of organizations are working to use blockchain technology for supply chain management, since each entry in the ledger is immutable. This makes data more consistent and offers certain advantages in tracking goods.
Other use cases might involve voting or governance, decentralized finance or simply managing domain names. While there is a large and growing number of use cases, critics have pointed out that not all of them are looking promising, because the quality of blockchain technology isn’t necessary in every field.