Blockchain Basics Quick Start - A Step by Step Definition and Visual Comparison
The 2021 global blockchain technology market size was USD 5.92 billion. Analysts expect the market to grow at a (CAGR) of 85.9% 😳from 2022 to 2030. Increased venture capital funding 😎 in blockchain technology companies is a major factor in the forecast.
Even the normally understated Big Blue IBM blog says, “Blockchain presents a tremendous opportunity for software development.”🤓
Let’s define the basic blockchain concept because it enables most of the innovations people refer to when they talk about Web3. 💫
Blockchain Basics 💫🤖
People describe a blockchain as a transparent distributed ledger of immutable transactions. 🤯
Here we go, step by step:
A ledger records transactions, but then you knew that. 🤗
A distributed ledger is when a peer-to-peer network of computers all store a copy of the ledger. Instead of one central database, the ledger is “distributed” among the network. 🤔 All the nodes verify each transaction.
The transactions are immutable because they cannot be changed. First of all, they are difficult to alter because they are encrypted, which also can protect privacy 🤫.
Blockchain Network Transparency
Anyone with access to the blockchain may see the ledger to verify transactions. This introduces another level of trust and eliminates the need for a third party to validate or reconcile transactions.
Secondly, since the transaction is copied on all the network nodes, to change one transaction you would have to change them all. While difficult, it's theoretically possible. The key is it is impossible to do so secretly. This introduces one level of confidence in peer-to-peer transactions.👯♀️👯♀️
All network participants have access to the ledger to verify transactions. This introduces another level of trust and eliminates the need for an intermediary (like a bank) to validate or reconcile transactions.
Decentralization on the Blockchain
Depending upon the use case, the blockchain may also have varying degrees of decentralization. Unlike distributed, which refers to geographic distribution, decentralized refers to shared control and governance. No one person or group controls what happens on the network, all participants have a say, depending upon the rules the community put in place. 🙋🏽🙋🏾♂️🙋🏼♀️🙋🏾♀️
In reality, the degree of decentralization depends upon the purpose. For a Defi blockchain with lots of users who don’t know each other, decentralization is very important for trust in the network.
A corporate supply chain blockchain has limited transparency for outsiders and less decentralization because the users have a pre-existing relationship and are vetted for access.
Visuals are the best way to quickly understand comparisons of blockchain vs. traditional financial ledger transactions. The authors of this article from the Harvard Business Review walk you through the simple comparison of the transaction steps captured by the blockchain vs. financial ledgers that don't record each action. The key here is the "blind party" column.
Those blind spots and uncaptured steps can be sources of hidden errors or inefficiencies in traditional ERP systems. Fascinating, right?
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By Kala Philo