Applications of blockchain in practice show promise
A few years ago, everyone started to buzz about the blockchain – it wasn’t really clear what is it and what are the possible applications of blockchain.
Be it as it may, this technology has undergone significant development in terms of how many industries are able to trial and adopt blockchain use cases.
Already there are numerous examples of companies utilizing blockchain in industries going from financial services to energy distribution and supply chain management.
Still, we have to make a basic distinction between public and private blockchains and their cons and pros for businesses.
Not all blockchains are created equal – Public Blockchains
The name says it all - public blockchains can be used by anyone.
What’s important though, is that the two most popular cryptocurrencies, Bitcoin and Ethereum, both use public blockchains.
Public blockchains are permissionless, meaning anyone can just hop in and join the consensus used to keep the network safe.
However, this also signifies, that anyone is enabled to check the stored data and shows the whole thing has a high level of transparency.
Still, even though it can be seen, data cannot be changed by anyone on the network since public blockchains are also immutable. That means once the data is on the distributable ledger, it cannot be changed or removed.
Public blockchains are completely decentralized, meaning there is no single entity that’s controlling the network.
However, this also means that any hacker can join the network with malicious plans. Dubbed a 51% attack, it’s a situation where 51% of hashing power on a network is taken over by cyber hackers who then can interrupt the recording of new blocks by preventing other miners from completing blocks.
PoW Vs. PoS
There are public blockchains, that are powered by Proof-of-Work (PoW), and then we have those who use Proof-of-Stake solutions.
What is a Proof of Work?
It is practically impossible to spend the same physical cash (fiat) amount more than once. However, when talking about digital money; so-called ‘double-spend’ can occur since digital money is only existing data.
A double-spend problem means that there is a risk of spending a unit of digital currency in two places at the same time and having one of them bounce like a sort of an invalid check.
Usually, when paying for some service online, a double-spend problem is fixed by clearing all transactions through the central database of an intermediary such as a bank or credit card company. In some situations, solving these contracts takes hours, days, and sometimes, even weeks.
To solve the double-spend problem without the need for the intermediary, in 2008, Bitcoin White Paper alleged creator Satoshi Nakamoto introduced a consensus mechanism by leveraging cryptography with an existing distributed P2P network.
On the Bitcoin blockchain, the network eliminates a double-spend by checking the exact time of the first transaction of a particular token and vetoing consequent spending on the same token.
Those who run fully operating Bitcoin nodes a.k.a. miners, put all recent transactions in the form of a block of data and repeat the process every ten minutes (so-called Poisson process). Each block must refer to the previous block to become legit. After a block is mined, it is not visible right away, and until they find out about it, miners are competing against the new block instead of adding to it.
The Bitcoin network uses a proof of work (PoW) mechanism to achieve the mentioned consensus.
What is Proof of Stake?
Popularized back in 2011, the Proof of Stake consensus algorithm was presented as the solution for all the problems Proof of Work might have had.
The PoS consensus mechanism eliminates the high computational and energy requirements of the PoW. This upgrade in the consensus mechanism has been dubbed Ethereum 2.0 as it enables Ethereum network nodes to comply with the state of all previously recorded information on the Ethereum blockchain and avoid possible economic attacks.
Proof of stake demands that miners invest in and hold on to some store of value without the immediate need for spending energy in order to vote.
The PoS algorithm uses a pseudo-random selection process to choose a node that will validate the following block regarding various factors such as the staking age, randomization, and the node's wealth.
While most cryptocurrency is created as rewards for miners in Proof of Work-based systems, the Proof-of-Stake system tends to use transaction fees as a reward.
Private Blockchains Needs Authorization
Private blockchains are used for safely storing data making sure, at the same time that these can be accessed only by authorized entities.
The access itself has to be approved before accessing any data or taking part in the consensus process.
Network administrator is the one who grants all accesses and asks for validation.
Rarely you can see private blockchain being used within crypto sector. More of it is angled towards some internal companies’ networks such as IBM, who has humongous blockchain network for its clients.
Still, private blockchains are not totally centralized, since there is an entity which controls the ledger and integrates with the blockchain. The ledger isn't completely immutable, and private blockchains do not need a native token.
Even though public blockchain are more popular, private blockchains are more efficient, the amount of data that needs authentication is lower, they don’t need a lot of computational power to work and are, therefore, more eco-friendly.
A slightly ‘negative’ characteristics of private blockchains show up when it comes to anonymity. The real nodes’ identity on a private blockchain is always known by the central authority since it’s needed in order to get access to the network.
Also, when talking about security, one should be aware that private blockchains are not completely decentralized. That means that the creator can change the block data and somehow “bend” the whole system to work in their favour.
Blockchain Use Cases
Blockchain technology is important for companies since its implementation insures revenue expansion, decreased costs and better efficiency. For example, the fashion consortium LVMH chose to combat fake products by tracking them through a blockchain.
In the medical industry, blockchain network is used to search for and exchange patients’ data, track pharmaceuticals or even disclose the pharma black market. In the law sector, blockchain technology can be used to create smart contracts for legal processes. It also can be used to approve and validate some courtroom evidence and improve efficiency in the criminal justice system.
When talking about the food supply, blockchain can accelerate food recall and enhance the efficiency of food supply chain management.
In the real-estate sector, blockchain technology can authorize the tracking and buying of real estate through digital real estate tokens.
Blockchain can also be used within the governmental sector. One of the most important features of blockchain-based solutions is providing transparency of voting processes and public decision-making.
Author: Teuta Franjkovic
A sincere writer with a strong will to share knowledge on all things blockchain, crypto, metaverse and DeFi. Starting out as a writer with Cosmopolitan, Teuta has risen through the ranks of business journalism, editing newspapers and websites within the fintech industry for over 15 years. She holds a double MA in Public Politics and Entrepreneurship.