A blockchain is a digitized, decentralized, public ledger of all cryptocurrency transactions. Originally developed as the accounting method for the virtual currency Bitcoin, blockchains, which use what's known as distributed ledger technology (DLT), are appearing in a variety of commercial applications today. Currently, the technology is primarily used to verify transactions, within digital currencies though it is possible to digitize, code and insert practically any document into the blockchain.
Types of Blockchains
The blockchain is an incorruptible digital ledger of economic transactions that can be programmed to record not just financial transactions but virtually everything of value. Currently, there are three types of blockchain networks - public blockchains, private blockchains and consortium blockchains.
1. Public blockchains
A public blockchain has absolutely no access restrictions. Anyone with an internet connection can send transactions to it as well as become a validator (i.e., participate in the execution of a consensus protocol). Usually, such networks offer economic incentives for those who secure them and utilize some type of a Proof of Stake or Proof of Work algorithm. Some of the largest, most known public blockchains are Bitcoin and Ethereum.
2. Private blockchains
A private blockchain is permissioned. One cannot join it unless invited by the network administrators. Participant and validator access is restricted.
This type of blockchains can be considered a middle-ground for companies that are interested in the blockchain technology in general but are not comfortable with a level of control offered by public networks. Typically, they seek to incorporate blockchain into their accounting and record-keeping procedures without sacrificing autonomy and running the risk of exposing sensitive data to the public internet.
3. Consortium blockchains
A consortium blockchain is often said to be semi-decentralized. It, too, is permissioned but instead of a single organization controlling it, a number of companies might each operate a node on such a network. The administrators of a consortium chain restrict users’ reading rights as they see fit and only allow a limited set of trusted nodes to execute a consensus protocol.
Advantages of Blockchains
Blockchain's removal of almost all human involvement in processing is particularly beneficial in cross-border trades, which usually take much longer because of time-zone issues and the fact that all parties must confirm payment processing. Blockchain systems can set up smart contracts or payments triggered when certain conditions are met. The widespread adoption of DLT will bring enormous cost savings in three areas, advocates say:
(1) Electronic ledgers are much cheaper to maintain than traditional accounting systems; the employee headcount in back offices can be greatly reduced.
(2) Nearly fully automated DLT systems result in far fewer errors and the elimination of repetitive confirmation steps.
(3) Minimizing the processing delay also means less capital being held against the risks of pending transactions.
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