What is Blockchain? How to use Blockchain?

The word Blockchain was first mentioned in Satoshi Nakamoto’s Bitcoin white paper published in 2008. Although blockchain is not mentioned with its name, it is mentioned as a technology and cryptographically chained consecutive data block underlying the cryptocurrencies.

Blockchain is a distributed database that has a chain structure consisting of blocks and provides encrypted transaction tracking. In money transfers in blockchain technology, each stage forms a block. For example, the Bitcoin blockchain can be viewed as a physical ledger containing records of approximately ten minutes of transactions with Bitcoin virtual currency in each block.

The blocks created in transfer operations are encrypted and unalterable. These encrypted blocks are distributed to users on the whole network, and everyone has the same encrypted information. The principle of a decentralized system of the blockchain has emerged with this technology. The information contained in the block can only be processed by the buyer and seller. Blockchain technology also has a transparent structure. Anyone can review the processed blocks so far.

Bitcoin is seen as the first application of blockchain technology. It is one of the biggest factors in the spread of blockchain technology. However, blockchain technology can be applied in many fields, not only in cryptocurrency production. Blockchain technology, with its wide control mechanism, is also used in many different areas such as storage and management.

The blockchain system created a structure that excludes the third party and connects the receiver and sender. Perfect transaction history ensures the validity of each virtual currency. All virtual currencies take on a traceable structure after they are created. Blockchain technology prevents transposition of valid records by providing transparency. This eliminates supervisory bodies such as management, providing low-cost operations.

Blockchain Features

Distributed Database

Blockchain technology has a distributed database structure. The database is scattered across nodes. Nodes in the blockchain technology system can access the entire database. Every new record (transactions) in the blockchain is validated by all nodes in the system, without intermediary condition.

End to End Communication

Instead of using a random structure that provides communication between the buyer and the seller, personal nodes store the information by transmitting it directly to each other in a peer-to-peer (P2P) network. In the blockchain system, centrality is not needed due to the unity between the nodes. The blockchain acts as a digital logbook that records all transactions so everyone on the network can see it. Each node stores a copy of the blockchain and compares it to other nodes to prove the accuracy of the data. Malicious acts are rejected by the network.

Transparency

Transparency feature in blockchain technology is realized by giving access to blocks in the network to see all transactions. This feature indicates that it is much more transparent than a central system managed by a third party. After many researches, the owner of blockchain technology is still unknown. According to Satoshi Nakamoto, blockchain is just a nickname.

All transactions in the blockchain system are associated with a unique account. Each user on the network has a unique address. Transactions are made through these addresses. In blockchain technology, users also have anonymity thanks to these unique addresses.

Irreversible Records

Blockchain technology uses computational approaches and algorithms to make the process of storing records irreversible. In the Bitcoin white paper published by Satoshi Nakamoto, he stated that “the conversion is not practical for calculation”. The blockchain has stored all transactions on the blockchain so far. There is no way to change the information in an old block without breaking the chain. Therefore, if the data is corrupted, it is made visible in all nodes.

Blockchain Limitations

Blockchain technology has some limitations. The list of technical challenges of blockchain technology is as follows: latency, size and bandwidth, security, availability, version, hard forks, throughput, resource consumption, multiple chains and privacy. Blockchain technology imposes some limitations due to such technical difficulties. However, the technology has the infrastructure to overcome these limitations. The limitations unearthed by Yli-Huumo and his colleagues are thought to cause suspicion in the expansion policy of blockchain technology. Limitations were detected predominantly through the Bitcoin application.

Throughput: The existing blockchain technology can perform seven transactions per second, while VISA, the electronic banking transaction, provides 2000 transactions per second.

Latency: Bitcoin’s process of generating a new block can vary depending on the congestion of the network, and takes about 10 minutes. This period is considered to be a long time for transactions in financial systems.

Size and Bandwidth: The blockchain size in the entire Bitcoin network is around 100 GB. This means that each block is approximately 1 MB in size. (December 2019) Assuming that a block is added to the Bitcoin network every 10 minutes, the existing bandwidth infrastructure limits the total processing capacity.

Security: Blockchain is likely to impose restrictions during a 51% attack, that is, an attack that takes over the majority in the network.

Resource Consumption: Because Bitcoin works with PoW (Proof of Work), the mining process spends a large amount of energy to prevent database inconsistency.

Usability: Bitcoin apps are not developer-friendly apps like other programming interfaces. Therefore, they are difficult to use.

Difficult Forks and Multiple Chains: Different nodes are nodes that can work in different versions of the source code. This situation reveals major problems. If the community in the network demands to return a past transaction date to a certain date, a rather difficult fork occurs.

Confidentiality: The unsupervised structure of the blockchain may be shaken. By analyzing metadata and transactions, it may be possible to reach IP addresses with Bitcoin blockchain addresses.

Leaving aside technical limitations, there are cultural, behavioral and organizational doubts in sociological terms. The researchers divided these doubts into three classes as cultural adaptation, organizational policy and administrative support to the blockchain.

Types of Blockchain

Blockchain is divided into three types: general blockchains, permitted blockchains and special blockchains.

General (Open) Blockchain: General blockchain is the name given to networks with wide distribution area such as Bitcoin. Public blockchain is a type of network that anyone can join. Open source codes are open to everyone.

Permitted Blockchains: People who want to join the permitted blockchains pass the systems whose permissions are checked for the transactions they can perform in the network. There is a situation of open source code that varies from structure to structure. Ripple is an example of such blockchain types.

Special Blockchain: Special blockchain is one of the blockchain type which has smaller structures than other blockchain. It is used by organizations that contain confidential information in the network.