Spend some time online today, and you’ll encounter some manifestation of the blockchain. Research suggests that over 80 percent of major companies already rely on blockchain technology, with many expected to follow.

Formed by Satoshi Nakamoto to facilitate transactions for the cryptocurrency system known as Bitcoin, blockchain has taken on a life of its own. While it’s still widely used for crypto transactions, it’s also a popular solution across numerous industries. It already underscores many of the transactions and routines we conduct on a daily basis, even if we’re not fully aware of its presence.

There’s no denying the usefulness of blockchain, but this revolutionary technology can be difficult to understand. For this reason, many people have been slow to embrace the array of opportunities blockchain presents. To clear up confusion and illustrate the value of blockchain in a quickly changing digital environment, we’ve compiled a guide to all aspects of this exciting technology: how it functions, where it’s used and what we can expect in the future.

What is Blockchain?

Blockchain is, at its simplest definition, a digital system for recording information and sharing it with a vast network. All transactions recorded via this method are verifiable and essentially permanent in that they are incredibly difficult to change.

Key Elements of Blockchain Technology

Blockchain consists of a distributed database in which the carefully organized list of records is always growing. While blockchain can look dramatically different from one application to the next, it nearly always includes these key elements:

  • Blocks. Individual units of data are typically referred to as blocks. When arranged alongside other blocks, these work together to form the overarching blockchain.
  • Ledger. Blockchain transactions are recorded via a ledger, which is used to document any transfers in ownership. This record is sometimes referred to as the book or encyclopedia of the blockchain,
  • Hash functions. Responsible for turning input (such as text) into fixed-length forms of output, hash functions play a vital role in identifying authentic transactions.
  • Nodes. Any device that plays a role in a larger network is known as a node. Within a blockchain, these nodes run software and validate transactions. Together, these nodes form a decentralized network.
  • Smart contracts. Both immutable and irreversible, smart contracts can be used to automate a variety of functions. They consist of programs that run upon meeting predetermined conditions.

These individual elements are important on their own, but what really makes blockchain shine is how they are interlinked in a seamless process:

  • Participants record the transaction. All parties involved in the transaction list details on this trade in a record, which incorporates a digital signature.
  • The network checks the record. The network’s nodes verify whether the transaction in question is valid.
  • The record joins a block. As soon as the records are accepted, they can be added to a block of data. These blocks contain unique hashes, plus hashes from the chain’s previous block.
  • The block joins the blockchain. The completed block takes its position within the greater blockchain, with the hashes ensuring that the blocks remain in a specific order.

Types of Blockchain Networks

Blockchain networks are far more diverse than many people realize. Most assume that a blockchain is always entirely public, but this isn’t necessarily the case. Below, we’ve described a few key blockchain categories:

Public

When you picture a ‘typical’ blockchain network, you probably imagine something entirely public in which permission is not required. This setup allows anybody to join and take part in transactions. Likewise, anybody can audit the public network’s activities.

Advocates argue that this public format represents blockchain at its best: a truly decentralized and accessible network that is fully self-governed.

Private

As its name implies, this type of blockchain limits access to a select group of users. Access is exclusively granted by the individual or entity responsible for managing the blockchain network. Administrators also have the ability to limit certain types of transactions. In short, private blockchains are distributed, but not fully decentralized.

Private setups are increasingly preferred among organizations that need to keep data protected while maintaining full compliance with strict privacy legislation. The healthcare sector, in particular, has benefited from this opportunity, with private blockchains limiting patients’ need to deal with piles of paperwork — but also ensuring that their data is protected.

Consortium

Made up of multiple private blockchains, a consortium can be formed when multiple institutions join forces to pursue shared goals via blockchain. These organizations work together to govern their respective consortiums, agreeing to share information to boost efficiency and transparency.

Consortium members are typically only allowed to join or leave these networks with permission from the other members. To succeed, the individual members of these consortiums should have similar objectives and complementary blockchain technology.

Hybrid

Combining elements of both public and private blockchains, hybrid versions can bring third parties into the equation. They can be owned by specific entities, but these owners are not capable of changing transactions. This type of blockchain acts as a middle ground, maintaining privacy when desired but also allowing a higher level of accessibility.

Blockchain for Industries

While many people primarily associate blockchain with Bitcoin and other cryptocurrencies, its reach goes far beyond these digital transactions. These days, blockchain holds the power to transform a variety of sectors, bringing transparency, accountability and efficiency where it’s needed most.

Blockchain in Healthcare

Blockchain is an increasingly vital player in the modern healthcare industry. Distributed ledgers facilitate the secure transfer of sensitive patient records while also promoting breakthroughs in medical research and even improvements to the medical supply chain. Key applications include:

  • Supply chain transparency. These days, it is increasingly difficult to confirm the authenticity of medications and medical devices. Counterfeit prescriptions are especially dangerous. Blockchain can limit these by building increased transparency into every aspect of the modern supply chain.
  • Prevent data silos. While healthcare organizations are currently capable of generating huge quantities of data, these are often siloed and rendered inaccessible. Blockchain-based record systems provide streamlined — but still secure — access to vital patient information. When patients’ records are amended, these changes are logged as blockchain transactions. The result? A comprehensive source of information that improves medical decision-making while allowing patients to retain control over their data.
  • Remote monitoring security. Today’s remote monitoring solutions measure vital signs to deliver enhanced visibility for healthcare providers. Keeping patients’ data secure can be challenging — particularly in the face of attacks that disrupt service. Blockchain solutions only grant access to permitted parties, making tampering all but impossible. This could be key for improving security as the Internet of Things (IoT) plays a greater role in the healthcare sector.

Blockchain in Finance

For years, the term ‘blockchain’ has evoked immediate associations with Bitcoin and the cryptocurrency world in general. This is understandable, as blockchain was originally created to improve crypto transactions. As we’ve mentioned, however, the inherent versatility of this system means that it has many applications above and beyond cryptocurrency.

These extend to mainstream financial institutions, which increasingly use blockchain technology — often without Bitcoin. Notable applications include:

  • Credit reporting. Data breaches are alarmingly common among conventional credit bureaus. Blockchain technology offers a more secure alternative, in which a wider variety of factors can be called on to determine credit scores.
  • Money transfers. Blockchain solutions enable faster transactions, often accompanied by far lower fees. This is a particularly exciting possibility for international transfers, which previously were time-consuming and expensive.
  • Identity verification. Financial institutions must navigate complex verification procedures to limit the potential for fraud. This can be expedited if consumer data is stored via the blockchain. In turn, customers enjoy greater control over their data, as well as swift authentication.

Advantages and Disadvantages of Blockchain

Blockchain often receives either high praise or strong criticism, but this technology is not all good or bad. Like any solution, it has distinct benefits and challenges worth addressing.

Advantages

Blockchain provides a wide range of benefits that would not be possible via traditional means of recording transactions. These advantages largely stem from blockchain holding two seemingly opposing qualities: it’s open, yet secure.

Impressive Degree of Transparency

Few solutions are as transparent as blockchain technology, which allows any network member to verify recorded data. Blockchain’s elite transparency can be especially valuable for supply chain applications, in which a variety of participants can record relevant data.

Free from Censorship

Government authorities cannot interrupt blockchain technology, freeing it from the prospect of censorship. All users have the freedom to conduct transactions as they see fit.

Some blockchain advocates believe that this technology is the only viable option for boosting privacy and avoiding censorship in the 21st century. This could have huge implications for human rights advocates, especially as they fight back against oppressive regimes that would otherwise seek to control their access to — or their ability to share — vital data.

Unmatched Versatility

Any individual or organization can make the most of blockchain. From smart contract development to crypto transactions, this versatile system offers an endless array of applications.

These are made possible, in part, by the many versions of blockchain that have emerged, such as hybrid blockchains and even consortiums. We are only in the infancy of this technology, so it’s safe to say that many exciting new opportunities will emerge as blockchain becomes commonplace.

Disadvantages

There’s a lot to love about the modern blockchain, but it’s far from perfect. Critics have raised alarm bells about possible security concerns as well as the general cost of implementing and scaling up blockchain solutions.

High Cost of Implementation

The cost of implementing blockchain can be surprisingly high, with even seemingly simple solutions starting at several thousand dollars. Blockchain developers command high rates for their in-demand services, especially as they develop smart contracts and decentralized applications. High implementation costs can be addressed, in part, by joining blockchain consortiums.

Struggles with Scalability

Scalability is one of the greatest concerns surrounding blockchain development. As the volume of transactions increases, block size expands as well. The result? It may take longer to receive information. Consistency issues can also arise, with some nodes kept more up-to-date than others.

Unfortunately, solutions to blockchain’s inherent scalability woes are not forthcoming. Limited scalability is built into the very system; any improvements in scalability are ultimately accompanied by sacrifices to decentralization or immutability — the very qualities that make blockchain unique. However, many private and hybrid blockchains have succeeded in boosting scalability because they require fewer nodes for verification.

High Energy Consumption

Environmental advocates are increasingly concerned about the energy-intensive nature of cryptocurrency mining and other blockchain-related initiatives. According to the Cambridge Bitcoin Electricity Consumption Index (CBECI), the Bitcoin network has produced a shocking 199.65 million tons of carbon dioxide equivalent since the cryptocurrency’s inception, with the vast majority of these omissions occurring after 2018. Advocates, however, believe that blockchain solutions will ultimately enable greater efficiency in the supply chain and for many other applications.

Blockchain FAQs

What is blockchain and how does it work?

Blockchain is a digital recordkeeping system that features a decentralized and distributed ledger. It consists of an ever-growing collection of data blocks that are linked via cryptographic hashes.

What is the main purpose of blockchain?

Blockchain makes it possible to securely record and distribute digital information without requiring oversight from specific government entities or other organizations. Because this solution is so versatile, it can serve many purposes, ranging from cryptocurrency to streamlining the medical supply chain.

How safe is blockchain?

Blockchain networks are built with safety and security in mind. Their distributed or decentralized nature makes them difficult to manipulate. Meanwhile, cryptography secures individual transactions. Blockchain is not foolproof, but it is widely regarded as safer and more secure than conventional data recording solutions.

Embrace the Future of Tech with a Financial Technology Degree

The future of blockchain technology is bright, especially as exciting new applications emerge in the financial and healthcare sectors. If you’re interested in joining the blockchain revolution or working in this exciting field, consider enrolling in a cutting-edge college program that equips you with vital skills.

At Keiser University, we’re pleased to provide the opportunity to earn a Master of Science in Financial Technology. Offering in-depth coverage of emerging technologies, this program will prep you for success in the exciting and quickly changing world of financial services. Contact a graduate admissions counselor today to learn more.