Initially, the Internet aimed to decentralise both information and value exchange. However, the first "version" couldn't effectively handle the direct transfer of valuable items, such as digital assets, property records, and medical information, between peers.

The familiar internet we navigate daily, sharing information and communicating, represents the first version, the Internet of Information.

To fulfil this earlier plan, there was a need to invent a new internet, the Internet of Value. This led to the emergence of the second variant: blockchain technology. It facilitates decentralisation, allowing the direct transfer of value without the need for intermediaries.

This piece delves into the intricacies of blockchain: its functionality, applications, diverse blockchain types, and more.

Understanding Blockchain

Conventional institutions, like banks, maintain centralized databases, recording transactions exclusively within their domain. In contrast, blockchain functions as a distributed database upheld by a network of computers, or nodes.

These nodes input data into this database, ensuring no single node can manipulate the information. The interconnectedness of these blocks through cryptography forges an unchangeable chain of data.

An analogy commonly used likens it to a substantial notebook representing the ledger, individual pages as blocks, and cryptography acting as binders holding these pages together.

The fundamental objective of blockchain is to distribute value among peers.

In simpler terms, blockchain arose to strip centralized entities of their authority over data, enabling direct peer-to-peer data transfer without external interference.

The Genesis of Blockchain

The necessity for blockchain emerged from dissatisfaction with powerful centralized entities handling sensitive information, the sluggishness of their transaction processes due to protocols, and their vulnerability to attacks as singular points of failure.

These entities, such as social networks and banks, collect and exploit individual data for commercial purposes without compensating the data owners. This breach of privacy prompted individuals to reclaim control of their data, eliminating middlemen.

Additionally, the sluggish and costly nature of centralised systems also contributed to the need for a trustless, efficient system—now recognized as blockchain.

Blockchain transforms systems by eliminating intermediaries, empowering individuals to manage their affairs, opening the system for public scrutiny, securing transactions, and processing information faster than traditional centralized entities.

Blockchain and Bitcoin

Discussing blockchain remains incomplete without mentioning Bitcoin. Bitcoin represents the first successful implementation of digital currency utilising blockchain technology.

Bitcoin operates within the blockchain ecosystem, allowing the transfer of value from person to person.

Suppose John wishes to send Bitcoin to Charles using the Bitcoin blockchain. John broadcasts this intent across the Bitcoin network. Simultaneously, all nodes connected to the network receive and record this information since no central authority, like banks, oversees the transactions.

Each node verifies John's Bitcoin balance and records the transaction in its block, forming a collection of various transactions. Once a block reaches its capacity, it gets connected to others using cryptography, forming a continuous chain—the blockchain.

Securing Blockchain

One might assume collusion within the network could manipulate records in favour of a specific party. However, blockchain's security relies on decentralisation and consensus mechanisms.

For a block to be added to the blockchain, more than half of the nodes (51%) must agree on its acceptance. Manipulating this decentralised network requires controlling a significant majority of the nodes—an almost impossible feat due to resource requirements.

Consensus mechanisms like Proof of Work (PoW) secure blockchains by incentivizing nodes to act honestly through rewards. Cryptography, utilising digital fingerprints called hashes, ensures immutability by linking blocks in a way that any alteration in one disrupts subsequent blocks.

Types of Blockchains

Blockchains vary in type—public, private, hybrid, and consortium—each serving distinct purposes based on openness and permissions.

Public blockchains like Bitcoin and Ethereum are open to everyone.
Private blockchains restrict access to selected groups.
Hybrid blockchains blend elements of both public and private blockchains.
Consortium blockchains are jointly owned and used by multiple organisations.

Applications of Blockchain

Blockchain's attributes—decentralisation, security, and speed—make it applicable across different fields. It has found success in finance, art tokenization (NFTs), decentralised finance (DeFi), and smart contracts, and holds potential in agriculture, voting, medical records, and more.

The Bottomline

Blockchain stands as a revolutionary force reshaping value exchange and accessibility. In the years ahead, it's prepared to integrate into our daily lives just as the internet.