Blockchain Technology – Key Features, Application, Pros And Cons
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Blockchain technology makes virtual digital assets (VDAs) like cryptocurrencies operate uninterruptedly.
Accessing information online or sending mail is only possible with the internet. In the same way, the functioning of cryptocurrencies is only feasible with blockchains.
A blockchain is considered to be a ‘backbone’ of crypto assets. It is an online public ledger which tracks assets and records transactions.
Each block has a history of independent transactions of every verified member on the platform.
These blockchains are protected from unauthorized access by means of cryptography.
The concept of the working of blockchains is termed ‘blockchain technology’.
What's Blockchain Technology?
A blockchain stores data in blocks which are chronologically linked by means of chains.
This data is immutable and cannot be modified or changed without the owner's consent.
Blockchain technology offers an unalterable ledger. It tracks transactions, orders, accounts and other important payments.
This system is powered by consistent visibility of data. It also has a built-in mechanism which prevents unauthorized transactions.
Being 'doled out' and 'immutable' are a blockchain's two most important fundamental properties.
An immutable ledger implies that the information is accurate. There is no room for modification or any undesirable change in the history of transactions.
This accounts for immutability. The data associated with each transaction is distributed in different 'blocks'.
And then, each block is interconnected through 'chains'. This chain of transactions describes the term "Blockchain Technology".
Different types of Blockchains in Blockchain Technology
- Public Blockchains- This is a permissionless, non-restrictive ledger. Anybody with the internet can have access to public blockchains. The users can access previous and recent records for ease of joining and regulating the transactions. In layman's terms, it is a decentralised network of computers open for anybody to access.
- Private Blockchains- This is a centralized system of networks governed by a single entity. These blockchains are not open to anybody with an internet connection. Access to private blockchains comes with certain restrictions. The people who have official permission from the administrator of the system can access the private blockchains. It is more secure and can be used for the purpose of supply chain management and tracking or verification of assets.
- Hybrid Blockchains- A hybrid blockchain is a combination of private as well as public blockchains. It offers both decentralised and centralised features. It allows a firm to use technology to construct a permissionless decentralised system. A centralised private network for everybody to access also comes along. It permits them to sort the data accordingly.
- Sidechains- A sidechain is nothing but a blockchain which runs parallel to the principal chain. This lets the user transfer digital assets between two blockchains. Thus, it ensures great efficiency and scalability.
Key Features of Blockchain Technology
- Decentralisation or Publicly distributed Ledger
A public distributed ledger is a set of digital data which is replicated and shared across different locations and organisations. It makes the blockchain accessible for everybody with login credentials. Everybody connected in the ledger could witness the changes that somebody makes from any corner of the world. The tampering of data can be avoided using this.
- Increase in Capacity
This is an important feature of blockchain technology. A connection of many computers in the network offers great power to the system. It is better than a centralised approach where the reachability is limited.
- Hash Encryption
Blockchains are protected from unauthorised access by means of cryptography. Cryptography encrypts and secures the communication between the sender and recipient with advanced mathematical algorithms. Encryption of data is essential to prevent privacy and security issues. It ensures the integrity of data and also protects from threats like breaches.
- Immutability
One of the main features of blockchain technology comes from immutable ledgers. No one on the network can alter the transactional data. A new transaction is only added to the ledger if most network stakeholders approve its validity. This eliminates the need for a third-party intermediate; hence, the database is secured from threats.
- No room for corruption
The existence of blockchain technology promotes transparency. The copies of the digital ledger are distributed to each node in the network. A change in the data is only accepted if most members validate it. Thus, no corruption is possible with this system.
Applications of Blockchain Technology
The application of blockchain technology is not just limited to cryptocurrencies. This can be used widely for different purposes, such as-
- Finance
Blockchain technology has served in innovative ways in the field of finance. It provides an automated system for simplifying the management of payments and assets. There is no need for a broker or a third-party organisation to administer transactional data. Thus, it brings transparency.
- Healthcare Industry
Blockchains play an important role in the health sector by providing a secure and private healthcare data exchange. The people associated get access to this data by means of blockchain technology. It also provides automated real-time updates of the patient's condition and requirements. Most importantly, a person not involved can have no access to this data.
- Electronic Voting System
Blockchains provide features like end-to-end verification. It produces an electronic system for voting by providing decentralised nodes. It ensures the immutability of data with a transparent and secure procedure. Additionally, it prevents tampering with votes where no person can vote twice. The data fed on a ledger cannot be altered. It also helps in preventing voting fraud.
- Money Transfer
This is the original application associated with the development of blockchain technology. It has revolutionised the process of cross-border transactions. The sluggish and expensive approach now works on the basis of a click. Also, the transactions are secured by cryptography. Hence, you do not have to worry about theft and data leaks.
- Secured Data Storage
The personal information of millions of people is available on a public ledger. It is important for the sake of identification online. But it is important to protect this information from breaching. It is possible by using blockchain technology. The decentralisation of data offers great integrity to the system. Hacking and wiping off data on a huge network is far more difficult in comparison to a centralised system.
Pros and Cons of Blockchain Technology
The advantages of blockchain technology are-
- Lesser cost of operation
No central authority controls the transactions linked with blockchains. There is no extra fee for processing or making payments. Thus, blockchain technology reduces the overhead cost. Being a cost-effective approach, it is on its way to replacing manual methods for making payments.
- No Point of Failure
The system of blockchains is decentralised. It means that your data is distributed in a large network. Moreover, you can protect it with passwords up to 100 characters long. Hackers can intrude with centralised systems. But, blockchain technology does not allow anyone out of the network to access or view data.
- Quick and transparent
You can make quick transactions across borders. The manual methods take long hours with fear of data breach. But, the case is not parallel with blockchain technology. Also, each transaction is recorded and witnessed by all the members. This ensures transparency and security.
- Reduced Frauds
The data is stored in different blocks in blockchain technology. These blocks are interlinked, forming long chains of data. Nobody can alter the financial information stored in these blocks. If any attempt is made, the blockchain rejects any modification from the previous block. Thus, no fraudulent activity is possible to conduct.
- Ease of Access
A blockchain allows each member to access data with an internet connection. All you need is a key to access. Every node has equal access to the available information. No single entity controls anything in this technology. The validated modifications are updated in real-time. This allows each member to record and observe the transactions.
The disadvantages of blockchain technology are-
- Increased Competition
There is a lot of hype about blockchains in today’s scenario. Organisations are shifting from traditional methods to blockchain technology. This, in turn, wastes time and money. A lot of assets are wasted just to cope with the unnecessary competition.
- Not feasible for Retail Market
Blockchain technology is good for virtual digital assets. But, if we talk about daily life needs, it will fail to do justice. The speed of transactions is much lesser than UPIs and credit cards. Also, the system is so complicated that we cannot use it for usual payments.
- Complicated Payouts
It is not very easy to understand complicated algorithms. The miners need to deal with complex math problems to initiate a payout.
- Privacy
The transactions are private and secured. But, a distributed public ledger can invite unknown visitors to monitor your wallet. This is something most people would prefer to avoid.
- Other Issues
Blockchain technology works on advanced algorithms. It requires enormous energy to operate the systems. Ordinary computers need to perform this task properly. An ample amount of electricity input is needed for the functioning of the systems. The requirement for power is huge. This adds up to other issues like increased carbon footprints. Technological advancements are indeed necessary today. But the destruction of nature is irreversible. No matter how much technology grows, you can still not produce something "equivalent" to a tree.
Read More,
What is Cryptocurrency And How It Works
Reverse Charge Mechanism Under GST
Money Changer License - Eligibility & Application Procedure
Conclusion
We have discussed blockchain technology in detail. The incredible features of blockchain technology are still developing.
The applications are not just limited to cryptocurrencies. Above in the blog, we have read about its widespread applications in different industries.
Additionally, there are a lot of benefits linked with its usage. Quick transactions and ease of access are the major factors that attract people.
High security makes everything great. But, cons are associated with each tool. As discussed, there are certain areas which need improvement.
However, blockchain technology is a revolution in the concept of payments.
FAQ’s Related to Blockchain Technology
1. What is Blockchain Technology?
A blockchain stores data in blocks which are chronologically linked by means of chains. A technology that accounts for this data's access and monitoring is termed "Blockchain Technology".
2. Is data alteration possible with blockchains?
The blockchains are immutable. No alteration of data is possible with them.
3. Can blockchain technology replace traditional modes of payment?
It has a long way to grow and develop. Some transactions are easy and secure with blockchain technology. But, replacing credit and debit cards from common people is a big statement to make.
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