Blockchain is a key mechanism for implementing a decentralized and distributed ledger of crypto-currency transactions including bitcoin.
All bitcoin transactions rely on blockchain, which is defined as the globally distributed ledger of transactions. All records of bitcoin transactions are not stored in, or controlled by, a central server; rather the transaction data is replicated across the entire peer-to-peer network consisting of thousands of bitcoin nodes. In the blockchain network, transactions get added in a group and not one at a time. The size of the group of transactions depends on the size of the storage block, which currently has a maximum space of 1 megabyte. Several businesses are now using blockchain initiatives as a catalyst for promoting and pursuing open architectures, to harness the value of networks and business ecosystems.
Even though several businesses presently are aware of the positive aspects of the blockchain, there is also much misunderstandings and confusion regarding this technology.
Let’s take a look at some unknown facts about bitcoin and blockchain.
Blockchain Is Not a Database Stored in the Cloud
A blockchain is not a general-purpose database. Conceptually it is a flat file that holds a linear list of simple transaction records. As the list is “append only”, entries are never deleted from the flat file, rather the file keeps on growing indefinitely and gets replicated in every node in the peer-to-peer network.
Blockchain Is Not Entirely Decentralized
Even though the original vision of blockchain design was creating a decentralized, and a peer-to-peer network, in actual practice, the blockchain system has become more centralized. The reality is that the number of peer-to-peer nodes present on the distributed network has dropped steadily at the rate of 15% per year. About 80% of the transactional data is stored in four mining pools, which are all based in China. Thus, any two pools out of these four can theoretically constitute a majority of the computational resources (hash power) needed for mining, and therefore it can control the updating process of the distributed ledger.
Bitcoin Cannot Be Decoupled From the Currency
The bitcoin currency is an inseparable and a key part of the blockchain. In simple terms, blockchain is a list of bitcoin-denominated transactions. Even the designing of the consensus mechanism depends on the currency that provides the incentive for miners to confirm transactions. Therefore one must remember that currency is an integral part of the blockchain.
Blockchain is a globally distributed, authoritative, and irrevocable record of events that facilitates permission-less ledgers that promote innovation in the context of digital business. These distributed ledgers and blockchain technology also help in managing fragmented, complex, and distributed supply chains, especially in the context of fraud prevention. It can also track disparate flows of goods, payments and information across organizational and geographic boundaries.
Organizations should now start making use of the blockchain technology by identifying use cases and assessing how the usage of distributed ledgers fits within their company’s existing customer experience paradigms, regulatory frameworks and jurisdictions.