Blockchain for Dummies: The Tech Explained
Confused by cryptocurrency tech? You need a Blockchain for Dummies guide. The way blockchain records data makes it difficult or impossible to hack, change, or cheat the system. The decentralised database, controlled by various participants, is known as Distributed Ledger Technology (DLT).
It is a distributed digital log of transactions that is duplicated and distributed throughout the blockchain's entire network of computer systems. Every transaction is recorded in every participant's ledger, and each block in the chain comprises numerous transactions. The block of data keeps any information needed, including what, when, who, where, the cost involved, the state of a shipment, and variables such as the temperature.
As an asset proceeds between locations or the owner changes, the respective blocks form a data chain. The blocks confirm the order and time of transactions, and they are firmly tied together to stop any block from being changed or placed between the two current blocks.
All network participants can access the distributed ledger and its immutable record of transactions. With this shared ledger, transactions are recorded just once, reducing the duplication of effort that is frequent in traditional commercial networks. Each additional block strengthens the previous block's verification and thus the entire blockchain. This makes the blockchain tamper-evident, providing the critical strength of immutability.
This removes the risk of bad actor manipulation — and establishes a trustworthy record of transactions for you and other network users.
No participant may edit or tamper with a transaction after it has been logged into the shared ledger. If a transaction record contains a mistake, a new transaction must be recorded to remedy the issue, and both transactions are then visible.
This implies that if one block in a chain is altered, it is evident that it has been tampered with. Hackers would need to modify every block in the chain across all distributed copies of the chain to destroy a blockchain system.
A smart contract is a compilation of rules stored on the blockchain and carried out automatically to quicken the speed of transactions. A smart contract can specify the terms of corporate bond transfers and the payment of travel insurance, among other things. Blockchains are distributed ledger systems that record transactions with an immutable cryptographic signature known as a hash.
Continuing our blockchain for dummies guide, let us remind you that blockchains are constantly expanding as new blocks are added to the chain, increasing the ledger's security.
The overarching issue is trust. How can we believe that if someone establishes new money called the Y dollar, they will not award themselves millions of Y dollars or perhaps take your Y dollars?
It was this issue that Bitcoin was created to address, using a special database known as a blockchain. Most conventional databases, such as SQL databases, have someone in charge who can update the entries. Blockchain is unique because no one is in control; it is run by the individuals who utilise it. Furthermore, Bitcoins cannot be counterfeit, hacked, or double-spent — thus, anyone who holds this money may be confident that it has some worth.
A blockchain network can track orders, payments, accounts, production, and other things. And, since members share a single view of the truth, you can see all the complexities of a transaction, giving you greater confidence as well as new efficiencies and opportunities.
Benefits of Blockchain for Dummies?
Currently, operations frequently waste time and resources on duplicate record keeping and third-party validations. Fraud and cyberattacks can exploit record-keeping systems. A lack of transparency can slow data verification. And since the introduction of IoT, transaction volumes have surged. All of this slows commerce, depletes the bottom line, and suggests that a different method is required. Here comes blockchain.
You may be sure that as a member of a members-only network, you are receiving accurate and timely data, and that your confidential blockchain records will be shared only with members of the network to whom you have authorised access.
Because confirmed transactions are permanently stored, all network participants must agree on data veracity. Nobody, not even the system administrator, can erase a transaction.
Time-consuming record reconciliations are removed with a distributed ledger shared across network participants. A collection of rules, known as a smart contract, may also be placed on the blockchain and implemented automatically to speed up transactions.
Types of Blockchain Networks for Dummies
Blockchain public networks
A public blockchain is one that anybody may join and participate in. Bitcoin is an example. Significant processing power may be required, as well as little or no transaction privacy and inadequate security. These are critical concerns for the application of blockchain in the corporate world.
Blockchain private networks
Like a public blockchain network, a private blockchain network is a decentralised peer-to-peer network. A single organisation governs the network, controlling who may participate, implements a consensus procedure, and maintains the shared ledger. Depending on the application, this can increase participant trust and confidence. A private blockchain can be hosted on-premises or behind a corporate security system.
Blockchain networks with permissions
Businesses that create a private blockchain create a permissioned blockchain network. It is worth noting that public blockchain networks may be permissioned as well. This limits who is permitted to join the network and what transactions are made. To participate, you must have an invitation or permission
The upkeep of a blockchain may be shared across many companies. These pre-selected organisations control who may submit transactions and access data. A consortium blockchain is appropriate for business circumstances where all stakeholders must be approved and share ownership of the blockchain.
Blockchain Security for Dummies
When developing an enterprise blockchain application, it is critical to have a complete security plan that employs cybersecurity frameworks, assurance services, and best practices to decrease the risk of attacks and fraud.
While blockchain technology creates a tamper-proof transaction ledger, blockchain networks are vulnerable to cyberattacks and fraud. Those with malicious intent can exploit known weaknesses in blockchain technology and have been successful in various hacks and frauds throughout the years. Here are a couple of such examples:
Exploitation of code
Through code exploitation, the Decentralized Autonomous Organization (DAO), a venture capital fund based on a decentralised blockchain inspired by Bitcoin, was plundered of more than USD 60 million in ether digital currency – almost one-third of its value.
The loss of roughly USD 73 million in client Bitcoins from Hong Kong-based Bitfinex, one of the world's largest cryptocurrency exchanges, revealed that the currency remains a substantial danger. The reason was the theft of private keys, which are personal digital signatures.
Employee computer hacked
When Bithumb, one of the major Ethereum and Bitcoin cryptocurrency exchanges, was recently attacked, hackers accessed the data of 30,000 customers and stole USD 870,000 in Bitcoin. Even though it was an employee's PC that was hacked rather than the main servers, the incident prompted concerns about general security.
When creating a private blockchain, ensure it is implemented in a secure, robust architecture. Poorly chosen underlying technology for company goals and operations might expose data to security threats due to vulnerabilities. Consider the dangers to business and governance. Financial repercussions, reputational considerations, and regulatory hazards are all examples of business risks. Governance issues stem from the decentralised nature of blockchain systems, which necessitate strict controls over decision criteria, governing policies, identification, and access management.
Understanding and controlling blockchain network risks are important to blockchain security. A blockchain security model comprises the strategy to deploy security to these controls. Create a blockchain security model to verify that all security safeguards for your blockchain solutions are in place.
Administrators must create a risk model that addresses all business, governance, technological, and process concerns to execute a blockchain solution security model. They must next assess the dangers to the blockchain solution and develop a threat model. Then, administrators must create the security measures that will reduce the risks and threats based on the three categories listed below:
Implement blockchain-specific security mechanisms.
Use standard security controls.
Implement blockchain business controls. How Does Blockchain Operate in the Business World?
Blockchain for business is useful for entities that do transactions with one another. Permissioned users may access the same information simultaneously using distributed ledger technology, improving efficiency, removing friction, and building trust. Blockchain technology can also enable a solution to grow and scale quickly. Many solutions can be customised to do many jobs across sectors.
What Role Does Blockchain Play in Environmental Protection?
Blockchain technology may enable new change models, expand knowledge, and assist social groups in creating common systems of record that meet the needs of corporate donors. Blockchain guarantees that production processes and environmental effects may be recorded, audited, and reported.
So, to summarise for dummies, blockchain technology enables operational, regulatory, increased visibility, and traceability verification efficiencies. This technology also functions as a robust database that can be readily coupled with big data. Blockchain has the potential to reduce costs and make many services more competitive.
Author: Emmanuel Baiden
7 years experience within the financial services sector most notably in Sales, Trading, research and writing articles within the crypto space. I have a bachelor's degree in International Business and a Master's in Investment and Risk Finance . I am also an associate member of the Chartered Institute for Securities and Investment.