Overview of Blockchain Technology

Overview of Blockchain Technology

Introduction

Revolutionary interventions are increasingly enabling human beings to overcome some of the challenges induced by their governance, such as human error, security, data privacy, voting, and food safety. One of the technologies devised to ameliorate these challenges is the blockchain technology. Blockchain technology was brought about by the invention of Bitcoin cryptocurrency. It enabled easy deployment of the cryptocurrency, necessitate seamless authentication, serves as prevention security from attacks, and general self-maintenance of an organization (Andreev et al., 2018). Blockchain is simply an open, decentralized, and distributed digital ledger system that documents the transactions between computers in an efficiently permanent and verifiable method. Blockchain records data permanently because any alteration made causes a resultant alteration in the subsequent blocks; hence, information cannot be retroactively altered (Iansiti & Lakhani, 2017).

The paper seeks to address the general information regarding blockchain development, examine the different types of blockchains and their benefits, and finally discuss the future of blockchains as a service for enterprises and developers. Bitcoin development demands the use of blockchain technology to hold and track balances of the cryptocurrency wallet, stored in different currencies. Blockchain technology makes it serve as one of the best security for the storage of data. Further advancements to blockchain technology are in the prediction of the trading market and other financial tools in a decentralized network. Most blockchain protocols are produced through open-source coding hence the reason why blockchain is open and decentralized (Zhen et al., 2017).

Blockchains can be produced as either public or private chains, though they are both developed using open source code. The ledger on which blockchain records transactions is always a shared platform and can never be fully owned by a single entity; it is referred to as a distributed ledger because the developers or participants usually share it in the blockchain. The blockchain transaction has made transactions efficient and lowered transaction costs by eliminating the need to have a third party, such as a bank, in the transaction process. Once the parties reach an agreement, the transaction is made and gets recorded in a ledger in the blockchain. These transactions’ records in the ledger in the blockchain cannot change because of any alteration results to alteration of the subsequent blockchains. Hence, blockchain technology provides a valid means that stores data in a safe and secure permanent environment. Blockchains are acclaimed to have better transparency that has improved efficiency in the speed of transactions and reduction of transaction costs. This is due to its boosted security that comes from the enhanced traceability. Blockchain technology is increasingly becoming popular with the banking and finance industry, governance, supply chain management, health services, education, market monitoring, copyright protection as well as internet of things (IoT) (Swan, 2015).

Types of Blockchain

The internet has paved the way for smooth transactions of several things in our daily lives, by enabling interconnection and providing a platform for interactions and automation of specific tasks. The introduction of bitcoin was a breakthrough in changing the mode of transaction and launching of a cryptocurrency that will revolutionize how transactions get done on the internet. However, many countries and organizations were skeptical about the complexity and volatility in the mode of operation of bitcoin in its earlier form, restraining its development at some point. However, blockchain, which is the underlying technology for bitcoin cryptocurrency, received increasing interest from researchers. Distributed ledger technology (DLT) is the most commonly used term to refer to technologies developed from the bitcoin blockchain. Blockchains exist in three main categories; public blockchains, private blockchains, and hybrid blockchains (Underwood, 2016).

1. Public Blockchains

Public blockchains are developed blockchains that are accessible to the public. Public blockchains are open with no restriction to anyone willing to participate in its development. Public blockchains have no one as a single entity who has full control over the blockchain network. This feature is what makes public blockchains very secure in storing and enhances the privacy of data because it means no single person can make alterations and manipulate the functioning of the blockchain. However, the authorizations to each node of the blockchain network are evenly distributed to participants. Hence the term fully distributed used to describe public blockchain. No one grants authority over another participant for them to interact with the public blockchain protocol; it is no stratified permissions (Pilkington, 2016).

Public blockchains are recognized as very secure and uphold the privacy because, inasmuch as the transaction information is accessible, only a small description of the data is viewable such as the date, the amount, and the wallet number. Additionally, the ability to leave it open to the public means that the general population can read, write, audit, and make amends to the blockchain’s code. This gives the public blockchain a characteristic trait of self-governance and an increased sense of data security. The security of data is enhanced through the ledger that records all transaction information by each node. This immutable property makes it difficult to tamper or hack the public blockchain network since hackers cannot only target one site, but it includes having to affect hundreds or thousands of other interlinked sites. Public blockchain networks inspire users to be decent and upright in using the system. The best feature is a direct peer-to-peer transaction where people from different countries can directly conduct a transaction at any time but at high speed without any third parties. Public blockchains are mostly developed for cryptocurrencies, such as Bitcoin, Litecoin, and Ethereum (Pilkington, 2016).

Bitcoin

Bitcoin is a public blockchain that is open and very secure. Bitcoin is the most popularly known cryptocurrency in the market. Bitcoin enables transactions online using digital monetary currency rates without third-party intermediaries like banks.  The mode of operation and transaction using bitcoin has been simplified and made safe in a smooth running decentralized public blockchain network. The ledger recording the bitcoin transactions is usually open, audited, and editable by the public using the Blockchain Explorer on the internet. Transactions are generally validated and verified using blockchain mining to avoid fraudulent activities in the blockchain (Lin & Liao, 2017). After verification and validation, the transactions are then it gets passed to the blockchain block from which the recipient to whom the transaction is sent to receive the bitcoin. For a transaction to occur, the public blockchain needs only two parties of the transaction, the sender and the receiver, with the receiver acting as the validator to the transaction (Underwood, 2016).

Bitcoins have public blockchain protocols that have a decentralized network. Hence the computers/ users using the system are usually distributed in several nodes regardless of the geographic location, age, and income level of the participants. It would be very cumbersome to successfully hack bitcoin public blockchain network, as it would need a lot of time and resources that usually provide economically challenging to hack into the bitcoin (Pilkington, 2016).

LiteCoin

Litecoin was first established in 2011 by inventor Charles Lee, with much support from the bitcoin’s developing community. Litecoing, just like bitcoin, is also based on peer-to-peer protocol network used by bitcoin and is sometimes described as the leading rival of bitcoin in terms of features. However, litecoin has specific characteristics that make it distinguishably different from bitcoin. These differences include the use of scrypt as the basic proof-of-work algorithm and have considerably quite faster transactions’ confirmation time. Bitcoin processes each block every 10 minutes while litecoin is estimated to take 2.5 minutes to process a similar block.  This makes litecoin convenient in making faster transactions, especially in time-bound situations (Iansiti & Lakhani, 2017).

Ethereum

Ethereum is a technology that has to accumulate significant relevance and awareness from many developers. Ethereum is a decentralized blockchain network that is developed by its Turing-complete coding language. With ethereum, the blockchain documents the scripts or transactions made by each participating node, which is then activated through ‘ether’ cryptocurrency. Ethereum uses a simple application that is in a shared but decentralized state of operation but acts individually. This provides ethereum with a plurality of resources where, while in a distinct state, it can still interact as a passage for messages from other blocks (Pilkington, 2016).

Ethereum mining is the dedication of work to create a series of transactions which form a block having a potential competitor’s block creation in mind. It helps to enhance security cryptographically. The proof-of-work paradigm for ethereum mining is calculated as follows

(1) σt+1 ≡ Π(σt, B)
(2) B ≡ (…, (T0; T1;…))
(3) Π(σ, B) ≡ Ω(B; Υ(Υ(σ; T0); T1)…)

Ω represents the block-finalization state transition function. This serves in rewarding a nominated party; B represents the usable block, exhibiting several transactions amongst other elements, and Π represents the block-level state transition function (Lin & Liao, 2017).

1. Private Blockchains

A private blockchain is a developed blockchain that features restrictions on parties that can access it as well as the participants allowed to be part of the transaction’s validation and verification process. With private blockchain, only the preselected entities can be granted access and permission to the blockchain. This has led to private blockchain technology to be commonly referred to as permissioned blockchain due to its multilayered security access control. The access control is given by respective authority that must be well defined from the beginning, enabling the private blockchain developers to develop and grant permission levels while building the blockchain network. The network administrators ideally have the overall administrative permission that enables them to solve network protocol issues that may come up during development and implementation (Pilkington, 2016).

Private Blockchains are essentially used in private enterprises to mainly store critical data and information that is exclusively available to particular members of the organization. Unlike public blockchains that are open, transparent, and immutable to the public, private blockchains operate in a reserved closed loop of development and implementation within the private organization and are not accessible to the general public. Private Blockchains are developed mostly for internal auditing with a specifically dedicated cryptography development, which is mainly accessible by users who are verified. Private blockchains usually comprise of a central authorization system that enables the recording and validation of transactions in the network while also determining who can be granted access to read the transactions (Lin & Liao, 2017).

Additionally, the central authority determines who possesses the mining rights and can modify or override records made in the private blockchain ledger, unlike public blockchain, where data cannot be altered or deleted. Private blockchain functions like an exclusively sealed access ledger using the cryptography technology to secure data and maintain privacy. The users are not capable of running nodes like the public blockchain bitcoin; the activities of the private blockchain network are dispensed through layers of permissions that define the accessibility level of certain parties in the private blockchain (Peters & Panayi, 2016).

Therefore, private blockchains need to conduct proper tests and assessments on the efficiency of the developed network, before it is actually set to begin operation to make any necessary corrections and improvements in the system to run smoothly without bugs. The system is not made public for collaborative development like the public blockchain. Private blockchains enable entities to have full control in the activities, roles, and participants of the network through the use of restrictions and permissions. Most of the time, members using private blockchain are usually well known to each other (Lin & Liao, 2017).

The four main elements of a private blockchain include controlled access, structured visibility, reliable storage, and permissible execution of tasks. Private blockchains present more efficient and faster transactions within the organization. However, private blockchains are not as strongly secure as public blockchains. This is because the authorization is centered on a single party with an extension to a select few who can control or access the network and data. Therefore, while private blockchains have cryptographic security, it does not match the distributed model of security that public blockchains have, and as such, the ledger is prone to manipulation. Some examples of private blockchains include Hyperledger and R3 Corda (Peters & Panayi, 2016).

Hyperledger

Hyperledger Fabric is a private blockchain with controlled permission levels, which is commonly used by private organizations to deploy in their private networks. The network operates such that participants can only gain rights and accessibility to participate only through an invitation to join the network. Even so, the participants’ level of access is dependent on the permissions granted by the central authorization control. While the participants in the network engage in a decentralized manner, the central authority has full control and overriding administrative rights over all parties in the private blockchain. As a case example, Hyperledger fabric was used by Walmart partnering with IBM to track the processing of food from the original farm source up to it being packaged and sold on the shelf. It enabled customers, retailers, farmers, and distributors to participate in the private Hyperledger blockchain to have controlled access to the informational data on the food products (Cachin, 2016).

Hybrid/Consortium Blockchain

Hybrid Blockchain operates through a mechanism of combining both public and private blockchains. Hybrid blockchain is also referred to as consortium or federated blockchain. It can be described as a public blockchain because it is shared by several nodes, while it can also be described as a private blockchain because it implements restrictive access to the various nodes operating in the network. Hence, it has a combination of properties from both public and private blockchains.  A consortium blockchain has two levels of users. Some users operate the control access and decide the permissions of who is to access the developed blockchain network. Secondly, some users are solely meant to have only access to no administrative rights (Anjum et al., 2017).

The hybrid blockchain is suitable for enterprises that are willing to share their blockchain network with the public but still want to restrict the permission of particular data access reserved only to themselves or a select few. A hybrid blockchain is semi-public but controlled by preselected nodes. They utilize a higher degree of cryptography security and auditing mechanisms because of the complex nature of the operation (Peters & Panayi, 2016). Unlike a private blockchain, control over a hybrid blockchain is dedicated to several approved users, not just one central authority, as is the case with a private blockchain. Hybrid blockchains display a mix of centralization and decentralization features. Some particular nodes sign off on each transaction to gain access or verification while some nodes are pre-approved to have control over the network. Hence consortium/ hybrid blockchains mirror some of the benefits of a private blockchain such as efficiency, privacy, and speed of transaction, as well as some benefits similar to public blockchains like partial transparency and openness (Anjum et al., 2017).

Benefits of Blockchain

Blockchain technology has several benefits to the society being a continuously improved tool of administration in organizations and aiding the growth of business’ potential. Blockchain technology is being adopted across various enterprises such as the banking and financial industry, supply chain management, improvement of healthcare services, civil governance, and administration, among many other industries. Blockchain technology has brought a revolution to transform the modes of operation of traditional business models. Thus, it brings with it several significant benefits such as improved transparency, security enhancement, better efficiency, and traceability as well as improved transaction speed and lower cost of the transaction (Niranjanamurthy et al., 2018).

Blockchain technology has improved the sense of transparency in the business world. The openness of the technology and its ability to have verification systems easily tested has made it improve the level of integrity by transacting business parties. Blockchain technology has added a unique layer of accountability in organizations through its distributed ledger technology. This transparency makes data in the blockchain more accurate and consistent. Everyone has to be on board in case of any modification or alterations on stored data. Even with permissioned access, it gives liberty to authoritative figures who are exclusively liable to the organization’s direction to determine the responsibility of different parties on the network, hence having a structure that promotes accountability and responsibility at all levels. Hence, participants who want to make changes or alterations in any recorded data need subsequent approval and systematic collusion across the entire blockchain network to effect such changes (Niranjanamurthy et al., 2018).

Blockchain technology has enhanced the level of security to record-keeping systems, eliminating the chances for tampering with data, especially sensitive data such as digital currency in financial services, healthcare records, and the government data systems. Blockchain reduces the chances of fraudulent activities and unauthorized alterations since security is multilayered, and data transaction is made permanent. A change in one block causes a resultant change in the subsequent blocks of data in blockchain technology. This feature gives the blockchain technology a means to validate and verify any action that is made as a record (Niranjanamurthy et al., 2018).

The efficiency of transactions has also improved through blockchain technology by eliminating the need to have third parties in a transaction between two parties. This has ultimately lowered the cost of the transaction that was initially higher because of involving third party services. The direction transaction between parties has enabled faster transactions through digital currencies such as bitcoin at any time and any place, so long as the two parties have reached an agreement and make the terms clear before making a record in the blockchain.

Verifiable authenticity of transactions, products, and services is one of the major benefits of blockchain technology. Blockchain has made verification and traceability to be easier in the modern world. Hence, the reason why blockchain technology is having a growing interest in the financial sector and government activities. Blockchain has an easy historical trail of transactions that can be easily audited to prevent fraud and enhance the security in a transaction of valuable assets or tracking of product movement from a source such as manufacturers to the destination point (Niranjanamurthy et al., 2018).

Cost reduction in any business transaction is always a welcome gesture to any investment. Blockchains have reduced the need to use the traditional paper lauded practices, with time-consuming physical processes that are prone to errors even with the use of third-parties. Blockchains have initiated a streamlined process of a transaction with automated features that hasten transactions in more efficient ways. Its automated services have removed the need to make reconciliations of multiple information from ledgers physically, an error-prone process, to a quicker and more accurate settlement of transactions done chronologically with time-stamped actions (Niranjanamurthy et al., 2018).

Blockchain as the Future

Blockchain is a sophisticated system to adopt, which needs a well-versed technical team to understand and apply the use of this system in an organization. This has led to cropping up of companies that specifically help other businesses to integrate blockchain technology into their operations, without any disruptions. These companies are referred to as blockchain-as-a-service companies (BaaS), a new spectrum of business that is brought about with the integration of blockchain technology in the corporate world (Anjum et al., 2017).

Some businesses are still apprehensive about making large sums of investment into blockchain technology because it is considered disruptive. Blockchain is yet to create a tangible platform that makes it uniquely different in the market and achieve the confidence of business people to adopt it in their projects. BaaS is believed to aid in bridging that gap by exploiting its potential for many uses and moving the technology from disruptive to mainstream use. Modern businesses intend to conduct blockchain’s viability and feasibility in incorporating it to their businesses as a proof-of-concept. Blockchain is also being explored in multi-asset liquidity and investment in brokerage technology in the financial and technological industry (Anjum et al., 2017).

Blockchain in the banking sector is continuously developed and trusted in data security and privacy. Blockchain is being explored in banking restriction of access and enabling of inter-transaction between different banks. The blockchain used in banking is a hybrid type with shared access to several nodes but sustaining restricted access to particular trusted nodes (Peters & Panayi, 2016).

Conclusion

The application of blockchain technology started as an exploitation of digital currency but has now extended into various other industries including finance, health sector, marketing, supply chain management, copyright protection as well as administrative governance. When it started, many organizations and countries were skeptical of its high volatility in the growth and complexity of the operation. However, blockchain technology’s progressive process has grown from cryptology and open distributed ledger that was only witnessed in digital currency application; to a largely beneficial tamper-proof, open, and transparent platform, that has extended application in other fields.

Research is still ongoing to further enhance the security and efficiency of the underlying blockchain technology in elements such as peer-to-peer networking, decentralized storage, augmented algorithms, as well as the development of smart contracts. Governments and legal researchers are also working on developing various regulations and policy frameworks that will govern blockchain-related technology.

The potential of blockchain technology has grown over the years, providing a platform for hosting and developing several application programs as well as developing the basis for incorporating various infrastructure in an organization. Blockchain promotes better resource management with a secure and efficient communication channel. Blockchain technology has increased the trust and reliability of transactions, especially over the internet between parties when conducting financial transactions, since it has reduced the chances of fraud with permanency in the recording of transactions and activities between the sender and the receiver.

Blockchain technology has a greater opportunity for growth because of its application in the industry. The growth of the internet has seen unprecedented growth in cybercrimes, privacy infringements, loss of data through hacking, identity theft, amongst many vices. Blockchain seems to offer a valid solution to these challenges, coming with better security and safety of data, improved trust and speed in the transaction between parties, as well as verification and validation measures in controlled access. Hence, with continued research and investment in blockchain technology, it will result in a revolution in transforming the future of data protection and enhanced definition of control access.

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