The first study on blockchain technology was described in 1991 by Stuart Haber and W. Scott Stornetta. They wanted to implement a system where timestamped documents could not be falsified or altered. In 1992, Bayer, Haber, and Stornetta incorporated the Merkle tree concept into the system, which improved its efficiency by allowing multiple documents to be assembled in a single block at once. The first blockchain was conceptualized by the name known as Satoshi Nakamoto in 2008 in his whitepaper. It was implemented the following year by himself as the main component of bitcoin, where it serves as a public registry to all transactions on the network.
A blockchain is, by definition, information storage, and transmission technology without a centralized control organ. Technically, it is a distributed database whose information sent by users and internal links to the database is checked and grouped at regular time intervals into blocks, forming a chain. The whole chain is secured by cryptography. By extension, a blockchain is a distributed database that maintains a list of records protected from falsification or modification by storage nodes; it is, therefore, a distributed and secure register of all the transactions made since the start of the distributed system.
How does it work?
Any public blockchain necessarily works with a currency or a programmable token. Bitcoin is an example of a programmable currency. Transactions between network users are grouped into blocks. Each block is validated by the nodes of the network. In short, the "miners", according to techniques that depend on the type of blockchain are the main actors of the system. In the bitcoin blockchain, this technique is called "Proof-of-Work" and consists in solving algorithmic problems with energy-consuming equipments such as mining rigs. Once the block is validated, it is time-stamped and added to the blockchain. The transaction is then visible to the receiver as well as the entire network.
There are public blockchains, open to all, and private blockchains, whose access and use are limited to a certain number of actors. A public blockchain can therefore be likened to a large public accounting book, anonymous and unfalsifiable. In short, a blockchain is a very large registry, which everyone can read freely and easily, on which everyone can write, but which is impossible to erase and indestructible.
Permissionless Blockchain (Public)
A permissionless blockchain is often defined as public and comes closest to the original definition brought with the arrival of the blockchain for the general public. No permission is required to join the network and actively contribute to it. In theory, any person or entity can take part in this public network without compensation. As anyone can join a permissionless blockchain, they tend to be far more decentralized than a permissioned system. The only drawback is that public blockchains are often much slower than private blockchain because of the number of actors present on it. With no third parties to regulate the network, the system relies on a public consensus to ensure the long-term sustainability of this solution.
Permissioned Blockchain (Private)
Permissioned (or private) blockchains, on the other hand, are at the opposite of the principle of distributed registry technology because they require permission to participate. The owner of a permissioned blockchain can determine and choose who can or cannot become part of its network. This control can mean the blockchain owner can: dictate the network’s structure, issue software updates, and control everything that takes place on their blockchain. With this type of chain, it is impossible to speak of decentralization in the sense that each of the decisions relating to the chain is controlled and administered by a centralized entity or group. The information on a permissioned blockchains is validated only by approved members of that blockchain. The owner can also choose to offer the possibility to consult or not the information on the chain.
Advantages and Drawbacks
A decentralized system
In a majority of blockchains, the public ones, the system is completely decentralized with no central authority to take control on it. The core value of blockchain is, it enables a database to be directly shareable without a central administrator across the world. Blockchain can eliminate the cost of hiring expert people to prevent or to stop the attacks on the system by using the secured nature of cryptography.
A transparent system
Any data in the blockchain is viewable for anyone, wherever and whenever they are and offer the possibility to consult blockchain changes. Every transaction is recorded and viewable by the whole network.
The notion of public-key (also, more generally, called asymmetric key) cryptography in which two different but mathematically related keys are used : a public key and a private key. A public key system is so constructed that calculation of one key (private key) is computationally infeasible from the other (public key), even though they are necessarily related. Instead, both keys are generated secretly, as an interrelated pair. The underlying nature of cryptography coupled with asymmetric system ensures a high standard of security to protect the data stored on the chain.
Faster and Cost Effective
In our modern society, sometimes transfers between banks can take days and be quite expensive to process. With the utilization of blockchain transactions, a user can send money to anywhere and to anyone in the world almost instantly and at unprecedent rates. In general, and depending on the blockchain used, transactions can take much longer than expected but still remain cheaper than traditional banking transfer system.
An immutable system
Unlike regular databases, blockchains contain every single block of information, from the beginning of time until the last moment and last forever. It is therefore almost impossible to alter or change that particular data into the blockchain compared to traditional company databases.
A complex solution
The blockchain is not as simple as it looks like, non-techie or old generation people cannot understand this technology easily and therefore general adoption is taking more time to take place worldwide. The numerous types of blockchain doesn’t simplify the process.
Control of data and funds
By erasing the third parties from the equation, users need to keep control of their data at any moment. The system ensures complete security if the specific user has control of the private key associated with these data. As the access is granted through Private Key, if that information is lost then it is almost impossible to access the network or recover the funds, so this technology needs more accuracy than any system. In traditional systems, companies ensure various backups and high security for their users. In blockchain systems, users are fully responsible of their data.
The potential of blockchain
The decentralized nature of a blockchain, coupled with its security and transparency, promises much broader applications than the monetary domain worldwide. Blockchain can be used for the transfer of assets (monetary use, but not only: securities, votes, shares, bonds ...) or as a registry to ensure better traceability of products and assets. Furthermore, smart contracts are a great addition and act as stand-alone programs that automatically execute the terms and conditions of a contract, without requiring human intervention once started. The possibilities with blockchain are infinite and can be implemented in various modern industry sectors.