Blockchain Technology consists of blocks that form a chain over a network of users. The network is governed by the rules some of which are mandatory and some can be customized based on the application. The block consists of intel regarding time and sequence of transactions, the information of previous blocks etc.
As has been shown in the above graph, the blocks consist of their own identity which is their hash value, the identity of the previous block so that the network remains intact and there is no hacking of the network and in addition all the transaction details which is a shared ledger over the blockchain network.
A blockchain is not only for the transaction of money, but it can be used for any kind of transaction that consists of information transactions as well. For a business, blockchain technology can serve as a private network where permissions can be granted for specific tasks to particular users.
So, what makes blockchain technology different than traditional transaction networks?
As we have already discussed, there are shared ledgers in the blockchain network.
In the blockchain technology, shared ledgers form the backbone of the whole network. The concept is that instead of doing double entries as is prevalent since ages, the system takes only single entry of each of the transaction but copies the details to each of the blocks for the said transaction. This way, each of the participants receives information on what is going on in the network. In private networks, the permissions to view details of the transaction can be granted or blocked to some users of the network in order to preserve security; however, the happening of the transaction is recorded in each of the blocks. This makes the whole system ultra-transparent and much easier to avoid any kind of corruption, wrong entries and delaying.
From here we come to the point of permissions.
While transactions take place for cryptocurrencies, there is an anonymous public network where all the users have complete authority to view the ledger. The system is more or less permission-less in this case, however, not all the businesses are easier to run if all the employees are able to see details of all the transactions. For example, in the banking system, not all the employees are required to know who has taken the loan amount from the bank. This could be a violation of the privacy of the users in some cases.
So, to avoid the scenario, permissions can be employed over the network and specific information can be restricted for certain employees (users). Each of the users is given rights which are linked to the unique hash identity saved in his block. The policies can be implemented within the company based on the rights of each of the hash identity. This not only avoids blocking certain users from sensitive data but also saves users from unnecessary information that is irrelevant to them.
Also, as has been stated above, the permissions do not restrict the users to know that some transactions have taken place but restrict them to know the details of that specific transaction.
When we are talking about security and preventing any attempts of the attack on the network, it is important to understand how the consensus works in a blockchain network. In a private network, there is an option where each of the transaction can be validated; however, the means of validating depends on the regulators of that particular blockchain technology. The ways by which a consensus can be brought by are:
- Keeping a stake for validating: When some stake has to be put for validating any transaction, any outsider would not be able to enter the network without permissions. Or one can say, it will be costly for a hacker to enter the network.
- Digital signatures: Digital signatures to be required at every transaction by the ones who are involved as well as of those who in charge. This can help make a consensus that the transaction is valid. And in some cases, voting can be done by the stakeholders that are involved in that particular transaction. If more than 50% approve of it, the consensus is built.
- Practical Byzantine Fault Tolerance: This is an algorithm which is used when two nodes involved in a transaction give different outputs.
The method to bring consensus can be decided based on the industry or the business working. It can be ‘as it fits’ and it is totally customizable.
Now further thinking, let’s say, there are some clauses for certain transactions, what should be there to make it easier?
Blockchain technology introduces smart contracts for the same. Smart contracts are based on a set of rules that are applied when a transaction takes place and the whole process is still automated and no additional work is to be after the rules are set in the beginning for the smart contract.
Let’s take a small example of the same.
There are a party A and a party B. Party B promises party A to bring customers every month and in exchange a commission of 20% on every transaction that Party A does with the customers that were brought by Party B. So, for this smart contract can be used and whenever a transaction takes place for Party A, the commission automatically goes to Party B.
In another example, for real estate plans, if a builder makes any delay in delivering the property possession, amount to be paid by the buyer can be automatically decreased to the pre-decided amount.
Read our previous article- Lesson 1 on Blockchain Technology For Beginners.
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