Blockchain is the technology that underpins the peer-to-peer system of the famous cryptocurrency. Bitcoin essentially is a digital distributed ledger of transactions. Commerce has relied on Ledger’s for centuries to record assets such as money and property. Central authorities have needed centralized Ledger’s and back offices to record assets and consolidate data between transacting institutions. The centralized ledger is kept by the central authority as the central source, by contrast, a distributed ledger like blockchain works like this the word distributed means that the ledger is held by and shared with all transacting participants direct in real-time.
Any changes to the ledger are reflected digitally in all copies and minutes or even seconds the accuracy and security of distributed Ledger’s records are maintained cryptographically entries can be updated by one some or all participants depending on the rules agreed by the network distributed Ledger’s may therefore be more efficient and potentially cheaper than traditional centralized alternatives moreover they can allow assets to pass from one party to another without the need for a trusted third party.
The Bitcoin blockchain provides a good example of how transactions are verified using a distributed ledger every node or computer maintains a copy of the ledger which is hosted across a distributed network every individual mode then competes to add the next block to the chain. When a transaction takes place between parties in this case when Bitcoin is transferred from one party to another that transaction is broadcast to all the nodes on the net. Each node then collects these transactions into packages this is done by creating a hash of each transaction.
A hash is a string of code which acts as a unique identifier these hashes are then paired hashed again paired again and so forth until only one hash remains. This structure is known as a Merkel tree, and the final hash is known as the Merkel route. The Merkel route is then stored in the block header each node then works on hashing the block header this is harder to do because this hash must look a certain way and fall below a certain value a piece of arbitrary data is added to the block called a nonce. Which alters the hash once a node produces the correct hash it broadcast it to the rest of the network. The node is then rewarded with new bitcoins the current block is then time-stamped and added to the check and its headers hash is stored in the next blocks header in this way all the blocks are linked together. It is not possible to alter any earlier block without altering every subsequent block and redoing all the work required to produce each block all over again.
Blockchain is often divided between permissionless and permissioned distributed Ledger’s model one shows the current systems where transactions are reconciled with a central electronic ledger.
Model two shows a public blockchain or a permissionless distributed ledger public blockchain is an open network that anybody can access is open to all and transactions can take place between parties that neither know nor trust each other transactions are verified cryptographically by users on the network the Bitcoin blockchain is a good example of a public blockchain users are awarded new Bitcoin every time they verify a new block of transactions this is known as mining.
By contrast model 3 shows a private blockchain or permission to distributed ledger these are private, and the participants will know each other transactions are still verified and collected into blocks, but this kind of ledger is governed by rules agreed in advance by the participating parties and does not rely on mining.
After understanding all different types I had a question that why do we need all of them?
But after some more diligence and brainstorming, I could understand that why we need the other two versions apart from the public one.
We require more types of blockchain because keeping such blockchains solves problems such as:
1. One no longer need to rely upon huge servers.
2. They are cost-effective and fast.
3. They reduce the need for more trusted parties because you can implement smart contracts instead of them.
4. Gives options for rights and access management while leveraging the same blockchain technology and reaping its benefits.
5. Reduces redundant work.
6. Distributed consensus between interested parties becomes fast even though you are geographically segregated.
Because of all these, I think different types of blockchain will be used for different type of industries as and when required. Where we require privacy and control, private blockchain will be a good option and where we require openness, as well as censorship resistance public blockchains, are a must need.
Now I want to hear from you: What do you think about blockchain technology? What’s your thought on different types of blockchains? Let me know in the comments below.