What Is Blockchain? How Its Rise Is Transforming Industries

What Is Blockchain

Keeping track of every transaction, invoice, and shipment, all while ensuring the accuracy and security of sensitive information, makes me dizzy just thinking of it. I can only imagine the headaches all of you business owners get when dealing with business records on a daily/weekly basis.

But what if there was something that kept track of everything, couldn’t be tampered with, and was always up-to-date? That’s blockchain for ya’.

Put plainly, blockchain is an immutable digital ledger of transactions that records information in a secure, transparent, and efficient way. On top of that, it’s shared by every user at the same time, which means everyone has open access 24/7.

In the next 10 or so minutes, I’m hoping to do a good job of explaining how blockchain can simplify your business management while protecting sensitive data. You’ll have to be the judge of my work, so keep on reading!

The Basics of Blockchain

You’ll routinely stumble upon a “blockchain is a decentralized and distributed ledger” definition, but to the uninitiated, that doesn’t say much — if anything.

The decentralized part refers to the eliminated need for a central authority, like a bank or a financial regulator, to oversee the transactions. This is due to the blockchain’s structure, which consists of blocks, chains, and cryptographic links.

Within the ledger, each page with recorded transactions is a block, linked to a previous page. This creates a chain (hence the name) that is accessible to everyone for verification and requires a consensus for modification. Thus, you don’t need centralized management (or higher authority, if you like) to tell you everything is kosher since the rest of the network guarantees it.

Modern blockchain technology was first laid out in a paper written under the pseudonym Satoshi Nakamoto in 2008. However, the concept can be traced all the way back to 1982!

At the same time, information is spread across the network, with each node (participating computer) holding a copy. This is the distributed part, which differs from the traditional distribution where information is stored in a single location.

You might read that a blockchain is a “distributed information processing technique,” a “data exchange policy” with distinct rules for validating data, or some other needlessly technical jargon. All of those are true, as the fundamentals are the same — transparent information sharing within a network.

How Blockchain Works

So, you have a ledger, and you write/type down some information in it. In blockchain, everything is recorded in an organized fashion (block) with a set of transactions verified by the participating computers in the network, called nodes. Every transaction contains information about the sender, receiver, and amount in question.

At some point, a block will reach a maximum number of transactions, dependent on the specific blockchain (there are various types) and its block size limit. In that case, a block will be verified, sealed, and linked to the previously verified blocks.

This generates a chain, connected by a string of random characters called a hash. It’s created by applying a cryptographic hash function to the code of both the newly completed and previous block.

As the addition of blocks repeats, it forms a hash with each go. All this hashing creates a chain of encoded files that can’t be modified in any way without changing the hash first. But you can’t alter the hash just like that, as each file is stored across the network.

One of the major benefits of blockchain technology is its ability to create a nearly indelible record of transactions.

It compares every file with what it has stored and accepts them based on their hashes. If one file doesn’t reproduce a matching hash, the network rejects it.

That would be the simplified version of all that’s going on in the background. However, I’d be doing a poor job if I didn’t mention consensus mechanisms upon which blockchain functions. These are protocols that make sure all nodes in a blockchain network agree vis-à-vis the order and validity of transactions.

There are quite a few consensus mechanisms in blockchain networks, but for this exercise, we’ll stick to the three most popular and widely used:

  • Proof of Work (PoW): I’ve mentioned that every node on the network needs to verify the transaction before it adds it to the block. It does so via mining, which is all about solving a complex math equation (because, of course, it’s math). The PoW mechanism revolves around this process, where the first node to solve the equation gets to add a new block to the blockchain. In return, it receives a cryptocurrency as a form of reward.
  • Proof of Stake (PoS): Instead of miners, at the center are validators who stake (also lock or “vest”) some of their crypto assets in designated wallets to support blockchain operations and security. Once again, they are rewarded, either in the form of a newly minted cryptocurrency or a percentage of transaction fees. Staking sees to it that only genuine data and transactions are added to a blockchain, since validators act in their best interest.
  • Delegated Proof of Stake (DPoS): A more beginner-friendly option, since you can delegate your staking power to a validator and let them do the business. For their trouble, you split the rewards with them.

Different blockchains employ different consensus mechanisms due to their specific advantages. Overall, they represent a pillar of blockchain technology that makes it decentralized, transparent, and ultimately, secure.

Key Features of Blockchain

Rarely can you say with certainty that a technology is unique, but blockchain is undoubtedly one of those instances. Its uniqueness largely lies in these four distinctive characteristics:

Decentralization

Decentralization

What makes blockchain different from traditional systems is the fact that it’s literally all over the place.

Instead of relying on a central authority and being held in a single location, blockchain is distributed across a vast network where numerous nodes work jointly to verify and validate transactions.

This distributed nature ensures data integrity and security, making it virtually impossible for a single party to alter or take control of.

Any attempt to modify a record would be immediately detected and rejected by the network.

And because there are no human calculations whatsoever going on in the background, the blockchain network is fault-tolerant.

Transparency

Transparency

The inherent decentralization directly correlates to, dare I say, unprecedented transparency in the online sphere.

I mean, you’ll be hard-pressed to find tech that allows open access to transaction records for every network participant.

A blockchain ledger is public and, in most cases, completely open source, so you can access and view every transaction (and its code).

Thus, it makes each blockchain transaction fully transparent and, by proxy, the entire system fraud- and corruption-free.

Immutability

Immutability

In the same spirit of transparency, a validated record can’t be modified or reversed in any way.

It’s virtually impossible for anyone to edit or delete it after it’s timestamped (the moment when a transaction took place) to the ledger, since you need the approval of a majority (or a supermajority, in some cases) of nodes.

As a result, the transactions are permanent and tamper-proof, ensuring the security and integrity of the blockchain and shielding it from fraud and malicious activity.

However, it’s worth noting that there are some scenarios where modification might seem possible — though these are by and large theoretical and attack-related.

Security

Security

In addition to the major roles of decentralization and immutability, what makes blockchain secure are cryptographic functions such as hashing that make records encrypted separately.

This encryption provides an extra layer of protection, as each record has a unique identity on the network.

Furthermore, new blocks are always stored at the proverbial end of the blockchain in a linear and sequential fashion.

To modify the data, you’d have to alter all the hash IDs — a Sisyphean task, to say the least. Hence, cryptographic linking is key in making certain that the data’s integrity is 100% at all times.

Types of Blockchain

Different types have specific pros and cons that generally dictate their ideal use cases — and just might reveal the one that best suits your needs. These are:

Public Blockchains

These are fully decentralized networks that are open to all who want to read and write on the blockchain. Typically permissionless and open source, they rely on PoW and PoS consensus mechanisms to allow participants to verify transactions and contribute to the network.

Picture of stylized coins next to stock tracker for Ethereum blockchain.
Ethereum (ETH) is one of the most widely used blockchains, handling everything from cryptocurrency to NFTs.

As examples of public blockchains go, Bitcoin and Ethereum stand as the prime ones.

Private Blockchains

Offering a more controlled environment, private blockchains aren’t open to the public and are typically operated by a single entity. They implement permissioned access and a bit of centralization (even though they are distributed across multiple nodes) to make sure only authorized individuals can view and modify data. As such, private blockchains are being steadily adopted by enterprises to address specific needs.

Consortium Blockchains

This is the “best of both worlds” scenario, since consortium blockchains borrow a bit from their public and private counterparts: the high level of trust of the former and the safety and decentralization of the latter. They offer a collaborative approach, where a select group of organizations governs the network and shares the responsibility for maintaining the blockchain and defining data access rights.

Applications of Blockchain Technology

We’ve come to the fun part of the article, in which we take a look at where and how blockchain is being implemented. Though the tech is still in its early days of widespread adoption, it’s managed to find its place in numerous industries.

Financial Sector

Obviously, blockchain is the foundation for cryptocurrencies but also for decentralized finance (DeFi), a peer-to-peer financial model that allows direct transactions between people or entities.

Bitcoin (BTC), the first cryptocurrency, launched in 2009. It would first be used as currency in 2010, when a user paid someone 10,000 BTC to order them two pizzas. By 2024, 1 BTC was worth approximately $100,000 USD!

It’s designed to move away from the traditional financial go-betweens with smart contracts — self-executing contracts that have terms written directly into the code. Hence, you gain more control over your assets.

Moreover, blockchain technology goes hand in hand with finance because it operates in near real time. It allows for easier and faster cross-border payments and remittances because it circumvents all the fallacies of a distributed network while operating worldwide, 24/7.

In other words, there are no waiting times for a central authority to process and give the go-ahead for a transaction, nor are there issues with time zones.

Supply Chain Management

For a good five or six years now, blockchain has been used to outline all transactions within a supply chain (to create a ledger, if you will). Having an immutable and transparent record on, well, record, improves transparency and traceability.

Case in point: the food industry is tracking packages back to the distributor and the original supplier to better handle food recalls or isolate contaminated food.

Leveraging blockchain in financial reporting reduces the level of fraud, since businesses can’t tweak their financials to look more successful than they actually are. Not only that, but it also boosts efficiency as it’s fairly easy to identify inefficiencies within the supply chain almost instantly and get a closer look into how some items perform.

Healthcare

In industries like healthcare, where there is an abundance of confidential data and related regulations, blockchain offers a secure way to store medical records. Once they are generated, they can be written onto the blockchain, providing patients and medical staff with peace of mind that the data is logged and immutable.

Doctor checking a patients health records during video call.
One proposed use of blockchain technology is for creating a shared database of medical records.

By recording medical records on a blockchain, healthcare providers achieve a number of goals: ensure data integrity, protect patient privacy, and streamline information sharing between their peers. This leads to better patient care, reduced administrative costs, and enhanced data security.

Voting and Governance

In a blockchain-powered election, the technology acts as a distributed ballot box, storing the cast ballots. Thanks to its immutability and decentralization, the voting process would yield a tamper-proof record of every vote cast. Each citizen would get a token as a form of voter verification, which they would then deposit to a candidate’s unique wallet address.

Besides making it all the more difficult for fraudsters to do their bidding, incorporating blockchain would raise trust in governance systems. Because it’s easily traceable and overly transparent, blockchain would put a stop to human vote counting and eliminate the possibility of physically interfering with ballots.

Various governments around the world have engaged in experimental trials in the past years, though certain technical challenges remain — not to mention that some people aren’t sold on the idea of blockchain-based e-voting.

Other Applications

Blockchain technology ushers in the new era of a more secure and trustworthy digital world through the creation of secure digital identities. These can be used to authenticate your identity online and protect your personal information.

In real estate, it can support fractional real estate ownership via tokenization (converting real-world assets into digital tokens on a blockchain), allowing smaller investors to participate in a market that is usually reserved for those with deeper pockets.

Benefits of Blockchain

Let’s begin with greater trust due to a system that produces accurate data based on approvals from thousands of computers. Each transaction is securely recorded on a public ledger, visible to all participants, which reduces the chances of disputes or manipulation — and you get to share records only with the network members you wish.

Blockchain eliminates the need for intermediaries like banks or brokers, enabling direct peer-to-peer interactions. That’s why, for instance, in supply chain management, you can track the journey of products from origin to consumer, making sure of authenticity and quality.

How about enhanced security? The cryptographic algorithms and distributed ledger system make blockchain extremely safe and resistant to attacks, including hacks or fraud. Transactions are verified and encrypted using advanced algorithms, and once added to the blockchain, data can’t be changed or deleted.

Blockchain is highly resistant to attack, since records are distributed across multiple nodes. However, it can be almost impossible to recover data and assets if you lose access to your wallet. Keep those passwords safe!

This inherent security can help prevent malicious attempts, data breaches, and cyberattacks as it ensures the integrity of records, reducing the risk of unauthorized changes.

In addition, blockchain can considerably improve efficiency and reduce operational expenses by automating processes and eliminating manual tasks through smart contracts and embedded self-executing agreements.

Put in layman’s terms, it reduces the need for manual intervention, speeds up transactions, and minimizes errors.

Challenges and Limitations

Arguably the biggest bee in the blockchain’s bonnet is its scalability and the difficulties that come with it. With the number of users and transactions increasing, the network’s capacity to process transactions efficiently diminishes. This is especially true for large blockchains like Bitcoin and Ethereum.

All of that can lead to slower transaction times and higher fees, hindering the widespread adoption of blockchain for real-world applications.

Then, there’s high energy consumption in some consensus mechanisms, like PoW. Blockchain technology is infamous for its energy drain, which raises concerns about its environmental impact and long-term sustainability — to the point that some critics are arguing that the carbon footprint of PoW blockchains undermines their potential benefits.

The technology’s rapid evolution has outpaced regulatory frameworks, leading to a fair share of uncertainty and legal challenges. Regulatory bodies worldwide are grappling with how to classify and regulate cryptocurrencies and blockchain-based assets.

Blockchain transactions aren’t regulated or insured, leaving victims of fraud and theft with little recourse.

This lack of clarity discourages companies from adopting blockchain technologies, fearing compliance risks or future penalties. In addition, the cross-border nature of blockchain transactions poses challenges in terms of tax laws, anti-money laundering regulations, and other legal frameworks.

It doesn’t do blockchain any favors that despite its sizable benefits, there is still a lack of widespread understanding and adoption among the public and businesses. The complex technical know-how of blockchain presents a barrier that is still to be overcome, and en masse at that.

But hey, that’s what articles like this one are for, right?

Future Trends in Blockchain

With technology this potent, there is no shortage of use cases we’ll likely see in the near future.

Emerging Trends

For starters, Layer 2 solutions — technologies built on top of existing blockchains (Layer 1) — are gaining momentum as they look to alleviate scalability issues and reduce transaction fees on major blockchains.

By processing transactions off-chain and then committing them to the main chain, Layer 2 solutions enhance the overall performance and capacity of blockchain networks.

Then, we have interoperability. As different blockchains continue to proliferate, the ability to seamlessly transfer assets and data between them becomes more and more important. Interoperability solutions enable cross-chain communication and collaboration, unlocking new possibilities for decentralized applications and services.

A person presenting an airline ticket on their phone to a gate agent.
Digital ticketing is one proposed use of blockchain technology.

Another facet of blockchain that’s gaining traction is sustainability-oriented chains. With a hefty environmental impact due to high energy consumption in some instances, sustainable blockchains have emerged as a new focus.

Through energy-efficient consensus algorithms such as PoS, these are bound to explore renewable energy sources to minimize the tech’s carbon footprint.

Web3 and the Decentralized Internet

Being the next iteration of the World Wide Web (although the concept goes a decade back), Web3 aims to bring a more open, secure, and user-centric internet to the masses. In that regard, we’ll probably see more of:

  • Decentralized Finance: DeFi protocols enable users to access financial services without intermediaries, offering innovative solutions for lending, borrowing, trading, and more.
  • Decentralized Autonomous Organizations (DAOs): Organizations governed by rules encoded as computer programs. They enable decentralized decision-making and community-driven governance models.

Let’s not forget the growing role of tokenization in enabling new economic models, as digital assets, including NFTs and cryptocurrencies are at the very core of Web3 principles.

Blockchain Adoption in Other Industries

When all is said and done, blockchain is a fairly cumbersome technology that isn’t easily applicable across the spectrum. So, future use cases will likely hang on specific integrations, and the entertainment industry springs to mind first.

Blockchain can help eliminate ticket fraud, and provide an immutable record of ownership. The tech can make certain that the tickets can’t be counterfeited or duplicated. It can also facilitate fair pricing, direct artist revenue, and simply better fan engagement. We’re already seeing this in action to some extent through NFTs.

(Block)chain Reaction

It took entrepreneurs a few years to realize that blockchain is not their silver bullet. It’s not a piece of technology that can be applied to anything and everything. I’d argue that most industries can’t benefit from it at all.

But those that can and do are witnessing outstanding practical applications. It’s just a matter of finding the niche it can impact.