A blockchain is a database - i.e. a set/group of ordered data - distributed and shared across a network of computers (called, in bloackchain jargon, 'nodes').
Blockchain is mostly used in cryptocurrency systems; this is because it is able to create a secure and decentralised register of transactions. The great innovation guaranteed by this type of system is the high percentage of fidelity and security during transitions and internal movements, without the need for a third party to control everything.
But why is it cheaper to use blockchain than a traditional database?
The main difference between the two is that blockchain collects and divides information into groups, so-called 'blocks', and thus structures the data differently from a traditional database. These blocks create a chain - called blockchain itself - made up of interlinked groupings of information. As a result, any data that is added later will be placed in the next block, which in turn will be added to the chain, and so on. The blockchain can be defined as an irreversible timeline; in fact, each of these blocks has a time stamp, marking the precise date and time of the exact moment of connection to the chain.
But let's look more specifically at how it works on the network and other specifications.
How this works
To better understand how the blockchain works, we will give a practical example of how this technology verifies and records Bitcoin transactions.
- Initially, the consumer buys Bitcoin and the transaction data of the sale is sent through the decentralised network of nodes, i.e. servers around the world owned by Bitcoin;
- At this point, when all nodes have validated the transaction, it is grouped with others to form a block. This block is then added to a chain of blocks containing other transactions.
The real innovation lies in the fact that the completed block is encrypted and the record - i.e. the history - of the transaction is permanent; this means that it cannot be removed or altered on the blockchain.
Blockchains can be both private and public. Bitcoin's blockchain is public, so anyone who owns Bitcoin can see the transaction record. The private ones are designed with confidentiality, so that the owner can limit any changes or additions of blocks to the chain.
Nevertheless, the security of blockchain remains very high: it is important to remember that all data stored within the database use the same encryption methods.
Several companies have started using blockchain in recent years because they were intrigued by this new digital methodology. The transparency of chains and blocks makes it possible to solve problems such as poor security and data appropriation that are very common nowadays.
The 3 key elements
There are three key concepts that characterise a blockchain and make it such. Let's see them together.
- Immutable records: no participant can change or tamper with a transaction after it has been recorded in the ledger. If by chance a transaction includes an error, a new one must be added to reverse the error; all this is visible to all and makes a blockchain completely transparent;
- Distributed ledger technology: thanks to its policies, all participants have free access to the network and its transaction register. This 'shared ledger' allows transactions to be recorded only once, eliminating duplicates and differentiating it from traditional commercial databases;
- Smart Contracts or Smart Contracts: created to speed up transitions, smart contracts establish a set of rules that is stored on the blockchain and executed automatically. These contracts define the conditions for business obligation transfers and are used by DAOs (Decentralised Autonomous Organisations) as they have much higher security than traditional contracts.
Blockchain: some market numbers
The global blockchain technology market is growing exponentially year on year; in 2020 it was $4,19 billion and today - 2022 - it is $11,54 billion.
In Italy, estimated spending on blockchain technologies has reached €92 million in 2020. It is also expected to grow further, reaching $94,89 billion in total revenue in 2026.
As mentioned above, many companies are moving to upgrade their transactions and transfer them to blockchain. A survey by NetConsulting cube reveals that 33% of the fashion and luxury sector in Italy appreciate this technology and think it is a good opportunity for their business. [full report]
Why is blockchain important?
One of the most sought-after qualities of today's businesses is the speed of information transfer. In this case, Blockchain technology provides immediate, shared and fully transparent information that is stored on a ledger and can only be accessed by authorised members. Moreover, the latter can see all the details of a transaction from start to finish.
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