There are many ways in which blockchain technology achieves its goal of decentralized security and trust. To begin, the order and timing of when blocks are added to the system are strictly maintained. That is, they are consistently appended to the “end” of the blockchain. Once a new block is added to the end of the blockchain, it cannot be altered without affecting the entire blockchain.
When information in a block is altered, the hash of that block also changes. Each block stores the hash of the prior block, therefore if one block was altered, the subsequent blocks would also be affected. Because the hashes wouldn’t match, the network wouldn’t accept a modified block.
However, not every blockchain system is completely secure. Distributed ledgers rely on computer code to achieve their renown for safety. It is possible to take advantage of flaws in the code if there are any.
Imagine, for instance, that a malicious actor controls a node on the blockchain and intends to steal Bitcoin by forging new blocks. They would have to persuade the other nodes that their updated copy was the correct one.
To accomplish this, they would need to inject it at the optimal time and control the majority of the network. A 51% attack is so named because it requires more than half of the network’s resources to be compromised.
In this form of attack, timing is key because the network will have already passed the blocks the hacker was trying to change by the time he or she takes any action. This is due to the extremely high hash rates of these networks; on April 21, 2023, the Bitcoin network hashed at a rate of 348.1 exahashes per second (18 zeros).
Comparison of Blockchain and Bitcoin
In 1991, Stuart Haber and W. Scott Stornetta, researchers seeking to create a system in which document timestamps could not be altered, outlined the first steps toward what would become blockchain technology. Almost two decades later, in January 2009, Bitcoin became the first practical use of blockchain technology.
A blockchain is the foundation of the Bitcoin protocol. Digital currency Bitcoin was introduced in a white paper by its enigmatic creator, Satoshi Nakamoto, who called it “a new electronic cash system that’s fully peer-to-peer, with no trusted third party.”
What’s most important to grasp is that Bitcoin uses blockchain technology to record a transparent ledger of payments and other transactions between participants.
Blockchain
Any amount of data points can be recorded permanently using blockchain technology. All sorts of things need to be recorded, from purchases to ballots to stockpiles to driver’s licenses to property documents.
Tens of thousands of initiatives are currently looking to incorporate blockchains in many ways to aid society beyond just documenting transactions, such as providing a safe means of voting in democratic elections.
Blockchain’s immutability makes it much harder for fraudulent voting to occur. A voting system in which inhabitants of each country are individually given a single coin or token would look something like this.
Candidates would be assigned unique wallet addresses, and voters would send tokens or cryptocurrency to the designated addresses. Blockchain’s immutability and auditability would make it unnecessary to have humans count votes or worry about ballots being tampered with.
A Comparison of Blockchain and Financial Institutions
Blockchains have been praised as a game-changing technology for the banking and payment industries. But centralized financial institutions and decentralized blockchains are very different.
Let’s look at the banking system in comparison to Bitcoin’s blockchain to understand how it differs from blockchain.
The Blockchain: What Can It Do?
We now know that Bitcoin transactions are recorded in blocks on the blockchain. There are currently over 23,000 different cryptocurrencies all operating on a blockchain. However, it has been shown that blockchain is also a trustworthy method of recording information about other kinds of transactions.
Walmart, Pfizer, AIG, Siemens, and Unilever, among others, are among the businesses exploring blockchain technology. IBM’s Food Trust blockchain, for instance, tracks where food items have been and how they got there.4
What’s the point? Countless incidences of E. coli, salmonella, and listeria have plagued the food sector, and in certain cases, dangerous materials have been inadvertently incorporated into foods. Finding the cause of food-related illness outbreaks used to take weeks of investigation.
Blockchain technology enables companies to monitor their food’s journey from production to final consumption. In addition, businesses can now see everything else it has interacted with, enabling the problem to be identified far sooner and perhaps saving lives. There are numerous other ways to put blockchain technology into practice, but this is only one example.
Money and Banking
Perhaps no other sector stands to gain as much as the banking industry from adopting blockchain technology. Banks are closed on the weekend and are only open during regular business hours Monday through Friday. The funds from a check deposited on a Friday evening at 6:00 p.m. might not show up in your account until Monday morning.
Due to the high volume of transactions that banks must settle, even if you make your deposit during business hours, the verification process can take anywhere from one to three days. In contrast, blockchain technology operates around the clock.
Banks could execute customer transactions in minutes or seconds (the time it takes to add a block to the blockchain), regardless of holidays or the day of the week, if blockchain technology were used. Blockchain technology also allows for the safer and more efficient transfer of funds across financial organizations. Banks face substantial expenses and hazards during the short period of time when the money is in transit due to the large amounts involved.
Traders’ funds and shares are held in escrow for at least three days (or longer for international trades) while the settlement and clearing process is completed. Blockchain technology may greatly shorten that waiting period.
Currency
Blockchain is the underlying technology that supports digital currencies like Bitcoin. The Federal Reserve establishes the value of the U.S. dollar. Users’ personal information and money are essentially at the mercy of their government or bank under this centralized system. Client’s financial data is vulnerable to theft if their bank is compromised.
Currency values may be at risk if the client is located in a country with an unstable government or if their bank goes bankrupt. In 2008, the government stepped in to rescue a number of struggling financial institutions. Bitcoin was created as a solution to this kind of concern.
Blockchain technology also has the potential to provide a more stable financial system and currency to people living in countries with weak or nonexistent financial infrastructures. They could connect with more people and organizations, both locally and globally, for commercial opportunities.
Blockchain is the technology behind Bitcoin and other decentralized digital currencies because it eliminates the requirement for a trusted third party to verify transactions. This lowers costs all around, from processing to transaction fees to potential danger.
People without state identification can benefit greatly from using cryptocurrency wallets as savings accounts or a means of payment. It’s possible that some countries are in the midst of a conflict or that their government doesn’t have a reliable system of establishing citizens’ identities. It’s possible that people living in these countries have no easy method to put money down for the future.
Healthcare
Blockchain technology can be used by healthcare professionals to safely preserve patients’ medical records. Patients can have faith that their records are secure when they are written into the blockchain once they have been generated and signed. These medical files might be encrypted and securely kept on the blockchain using a private key, allowing for restricted access only to authorized users.