What Makes Blockchain Technology Unique?
Blockchain keeps being implemented into many industries, providing innovative use cases and unique solutions. Why do companies choose decentralized technology, what unusual means of solving problems does it offer, and why is it considered to be so distinctive? Let’s discover DLT’s unusual features.
What is blockchain?
To understand how DLT stands out from the traditional technologies, let’s first pay attention to its definition, which already makes it unique. Blockchain is the distributed ledger, where records of information are connected together by cryptography.
In this case, distributed equals decentralized, so the information is not under control of one person or one organization. Actually, it is kept on many computers of the network – nodes – at once.
The ledger can enlarge and expand when new transactions are completed and get added to previous ones in chronological order.
How does it work?
The way how technology functions is also unique and non-standard – DLT is working with the help of three other technologies, which constitute blockchain together. These technology’s components are:
• cryptography of private key;
• distributed network;
• means of servicing transactions.
Every person taking part in the process of making transactions has a pair of keys – private and public ones. Putting them together, the user gets his digital identity generated, therefore, the possibility of signing documents digitally appears. Digital signature is needed to confirm the transaction’s ownership and control the process.
After that, this element gets connected with the distributed network, meaning that it is possible to interact digitally – validate and confirm transactions.
When money transfers are confirmed and completed, new blocks are distributed between all the nodes participating in the network – they will act as validators.
DLT unique offers
The technology is considered revolutionary and tradition-breaking. The reason for that is distinctive possibilities of the technology. Moreover, it is a pioneer in resolving problems which have been lacking the solution before.
Double-spending problem solved
Although the problem of double-spending is not taking place in every transaction, it is still a typical problem of digital money. However, validation of transactions by the network nodes ensures that coins are not spent twice at the same point of time. For solving the issue, DLT enables the record of the transactions history – it helps to easily access and check all the information.
Consensus problem solved
Double-spending problems are commonly prevented by the consensus mechanisms. Blockchain provides several consensus algorithms which make the technology work in a unique way. Three most popular ones are:
1. Proof of Work (PoW)
The PoW is the most commonly used consensus method. Its distinctive feature is that to reach a consensus, it does not require all the nodes from the network to agree on the decision. Hard mathematical problems are solved by only one network participant, where others have to just verify the solution – confirm the correct one or reject false information.
PoW is used in many cryptocurrencies, for instance, in BTC. The process of verifying valid hashes is called BTC mining.
2. Proof of Stake (PoS)
PoS mechanism utilizes algorithms instead of computations, which makes the system more cost-efficient. In this case, the ownership is proved by digital signatures, while the user for transactions verification is chosen by the system – the more stakes user has, the higher the probability of being chosen.
3. Delegated Proof of Stake (DPoS)
DPoS is improved system where participants vote for user, who will verify transactions. This chosen user, in his turn, share the received coins with voters. This system reaches consensus faster than PoS and PoW, having a small pool of delegates.
The outstanding offer of DLT which helps its implementation into various industries apart finances, is smart contracts. It is a special software located on the blockchain which presents digital protocols similar to traditional paper contracts.
The main benefit they provide is that they are self-executing, or automatic. What is also important, they work only in case all conditions are respected, so the possibility of making mistakes or lying is eliminated.
The unusual thing is that these contracts also enable agreements without the participation of third parties.
The combination of innovative way of DLT’s work and its non-traditional offers enables several other elements which make blockchain stand out.
DLT provides the high level of security, as the data is stored in the decentralized way. It makes the digital attacks almost impossible for hackers willing to break the system, steal money or alter any recorded information. As the data cannot be changed, any agreements on blockchain cannot be altered as well.
The information contained in the block, is accessible to all participants of the network. As the data is public and easy-to-check, the whole blockchain network is transparent. It prevents the appearance of corruption, hiding information and doing criminal activities.
The technology also makes all the processes much faster and efficient. For instance, the process of transferring money takes less time and transactions are easier to conduct in general. Apart from financial sphere, the efficiency is improving in all the sectors where DLT is applied. For instance, the elimination of paper documents plays a big role in improving the delivery and transportation processes.
The attractive feature of DLT is also the reduced costs. The fees taken for financial operations are significantly lower than the ones existing within the traditional processes of transferring money. More than that, getting rid of the mediatory parties allows to save money during various processes as well.
What makes blockchain so unique and revolutionary is the decentralization that it enables. The possibility of working in a distributed way provides even more features which have not been developed in other technologies before.
DLT, its innovative applications and unique potential will be discussed by the top crypto experts at the Blockchain & Bitcoin Conference Stockholm.
More details about the event and registration – on the official website of the conference