How many nodes can the blockchain grow

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The blockchain has the potential to become a key technology in IT. Despite some disadvantages, such as the immense power consumption, advantages such as the high level of protection against manipulation and failure prevail. This article introduces the technology behind the blockchain. After mapping the flow of a blockchain, the advantages and disadvantages of the technology are discussed. Finally, a guide is described with which one can decide whether a blockchain is really the best solution for the respective problem.

Blockchain today: Bitcoin is not everything

The technical basics for blockchain were already described around the turn of the millennium. Bitcoin and Co. only made the technology public, after which a hype about crypto currencies broke out. In the meantime, the euphoria has subsided somewhat, but the potential of blockchain technology itself continues to be a topic of conversation.

It is used in almost all areas, for example in the finance and insurance industry, the energy sector, Industry 4.0, the pharmaceutical industry and the Internet of Things (IoT), especially in the supply chain. For example, digital experts in the energy sector see blockchain as an opportunity to efficiently manage and secure the large data streams due to the energy transition. Banks are testing blockchain as a transparent accounting system that could replace intermediate instances in global trade and thus make processes faster and more efficient.

It will probably take a while until these approaches are ready for the market, and blockchain will not be the answer to all IT security questions. Nevertheless, IT managers should keep the topic on the screen and understand what the technology is and can do.

Blockchain definition

Blockchain is basically a database for storing data, information and documents. This enables transactions and complicated processes to be carried out, verified and automated.

Blockchain is made up of two terms. The term "block" stands for the transactions that are stored together and "chain" stands for the fact that the data is attached to previous chain links and the blockchain continues to grow linearly. The formation of the block and its encryption are called mining. In the case of cryptocurrencies, several miners are in competition with one another. In the case of the Bitcoin blockchain, the miner has to solve a difficult mathematical puzzle in order to get a move. Whoever has the solution first is accepted as a miner. The miner receives a financial reward in the form of a cryptocurrency such as Bitcoin for their performance.

The blockchain is implemented through a decentralized peer-to-peer network. In this network, the transactions are verified, validated and combined into blocks. The blocks are then chained together. The process is based on a chained block structure that grows linearly. The data are stored several times in this network in order to be able to cope with a failure of one or more nodes. The data that is once in the blockchain are immutable and can no longer be manipulated or deleted.

In simplified terms, blockchain can be used in three ways: as a public, private or consortium blockchain.

The public blockchain is a decentralized network without a superordinate authority - as is the case with most of the known cryptocurrencies. Every transaction is verified and synchronized by every node on the blockchain before it is written to the system. This makes this variant relatively slow and very resource-intensive, but transparent and secure.

In the private blockchain a company operates the system and is in control of the transactions. It verifies and as the only participant writes every transaction in the system. In addition, the reading rights for the transactions per user can be restricted, which allows higher data protection than the public version. Since the size of the private blockchain is limited by company boundaries, the resource requirements and computing time per transaction are also limited. However, part of the reliability is also lost if the completely decentralized approach is abandoned.

The Consortium blockchain is a kind of hybrid of private and public variant. Here a group of participants shares the decision-making power over the verification and distribution of the reading rights of transactions. This offers many advantages of the private blockchain such as efficiency and data protection of the transactions without putting the entire sovereignty in one hand.

How blockchain works simply explained

The sequence of a blockchain campaign consists of the following seven steps:

  1. Blockchain
    Blockchain will become the key technology in IT in the years to come.
  2. (1) transaction
    The transaction is the basic unit of the blockchain. Two parties exchange information with each other. This could be the transfer of money or assets, the conclusion of a contract, a medical record or a document that has been digitally stored. In principle, transactions work like sending emails.
  3. (2) verification
    The verification checks whether a party has the appropriate rights for the transaction. The check is done immediately or it is written to a queue that will run the check later. At this point, nodes, i.e. computers or servers in the network, are integrated and the transaction is verified.
  4. (3) structure
    The transactions are combined into blocks, which are encrypted with a hash function as a bit number. The blocks can be clearly identified by assigning the hash value. A block contains a header, a reference to the previous block and a group of transactions. The sequence of linked hashes creates a secure and independent chain.
  5. (4) validation
    Before the blocks are generated, the information must be validated. The most common concept for validating open source blockchains is the “proof of work” principle. This procedure usually represents the solution of a difficult mathematical problem by the user or his computer.
  6. (5) Blockchain mining
    The term mining comes from mining and means "prospecting". During this process, the block is created and hashed. To get a move, the miners have to solve a mathematical puzzle. Whoever has the solution first is accepted as a miner. The miner receives a fee in the form of cryptocurrency (Bitcoin) for his work.
  7. (6) The chain
    After the blocks have been validated and the miner has done his job, the copies of the blocks are distributed to the nodes in the network. Each node adds the block to the chain in an immutable and unmanipulable manner.
  8. (7) Defense
    If a dishonest miner tries to change a block in the chain, the hash values ​​of the block and the following blocks are also changed. The other nodes will recognize this manipulation and exclude the block from the main chain.

What are the advantages and disadvantages of the blockchain?

A blockchain is a database with two basic properties. On the one hand, it can be viewed as relatively tamper-proof due to a very complex encryption process, the so-called hash function. Second, there are a large number of copies of the database distributed throughout the network. To successfully forge a database entry, more than half of all instances would have to be changed. With today's computing technology, billions of sums would have to be invested in order to manipulate just a single entry in the blockchain. This is completely uneconomical and ultimately leads to the high level of security against manipulation of the blockchain.

An important consideration is the decentralized nature of the blockchain. If the server fails in a classic database, it can no longer be used. If some of the nodes in the blockchain fail, the other participating nodes can still work.

It is also important that the data is stored permanently and in a revision-proof manner. Classic cloud technology, for example, does not offer this. On the one hand, the public servers could be destroyed by natural disasters or similar occurrences, or the cloud could become the target of hacker attacks. In the event that the cloud provider goes bankrupt, all sensitive data is lost or no longer accessible.

Another advantage is that the blockchain does not require a large infrastructure. Blockchains can also be created for banking in countries like Africa or Asia without a bank having to exist as a central authority. A kind of land register and birth register, which does not exist in all countries, could also be mapped via a blockchain. At the company level, there is the possibility of collecting, analyzing and evaluating large amounts of data across companies. The general costs for the infrastructure are reduced and weak points in supply chains and business processes are uncovered through appropriate follow-ups. In-house reports can also be made more effective.

Blockchain generally makes processes more transparent, cheaper and safer. The technology is also considered extremely secure. The financial outlay that has to be made for the manipulation is - as described above - not in proportion to the benefit.

Like any technology, blockchain also has disadvantages. Mention should be made of the low individual scalability, the low data throughput, limited storage space and the authorization management. The blockchain cannot be implemented without fast network access. Sometimes it is not trivial to integrate the blockchain into existing IT infrastructures.

Another serious disadvantage of the Bitcoin blockchain is its great hunger for energy, which results from the proof-of-work algorithm (see mining). If half of the world's population, who currently do not have their own account, one day used blockchain technology, it would consume more electricity than is produced today. If only ten percent of the world's population relied on blockchain technology, 22.9 percent of global electricity production would be used for this.

Do i need a blockchain?

Before implementing a blockchain, it is important to carefully consider whether this technology is the right choice. The following guide is intended to help you make a decision:

(1) First, the problem to be solved must be identified. What are the possible pain points? What do the current solutions look like and what are they missing?

(2) Now it must be checked whether a blockchain is really necessary for this problem. In many cases, a single central database can potentially be more efficient than a blockchain implementation. It is advisable to carry out a cost-benefit analysis and a risk assessment. It must also be checked whether external partners need to be involved in the implementation. Another question is whether new risks will arise as a result of the implementation. As a result of the analysis, it is determined whether it is better, considering the risks, to implement a classic, central, relational database.