Blockchain: The technology of the future that will change the digital world

Blockchain technology is one of the most significant innovations of the 21st century for the digital finance industry. Investors and users worldwide are highly interested in this revolutionary transaction system. This article will clarify the core concepts and configuration of blockchain technology to help readers understand its power and how to apply it in real-world scenarios.

Blockchain is a revolutionary data storage system for transactions

In reality, blockchain is not entirely a new technology but a combination of cryptographic systems, decentralized networks, and data verification mechanisms. This technology allows users to transmit data and value without relying on intermediaries such as banks or financial institutions. The idea behind blockchain is to sequence data into blocks and connect these blocks in a long chain that is securely stored and protected against tampering.

The components of blockchain include blocks containing data, block identifiers (hashes), and links between blocks via unique identifiers. This system makes any single point of data modification affect the entire chain, creating difficulty for forgery.

Financial mechanisms: a three-layer security approach

To understand how secure blockchain technology is, consider the three protective mechanisms working together to create an almost unbreakable system:

Hash encryption system: a unique digital fingerprint

Each block has a specific identifier called a hash value, generated by processing the block’s data through a cryptographic mathematical function. Even a tiny change in the data will completely alter the hash. To illustrate, consider a Bitcoin transaction:

• Transaction 1: Sender A transfers 5 Bitcoin to receiver B, with hash X1Y2, linked to the previous transaction with identifier 000.
• Transaction 2: Sender B transfers 3 Bitcoin to receiver C, with hash A3B4, linked to the previous hash X1Y2.
• Transaction 3: Sender C transfers 2 Bitcoin to receiver D, with hash 5Z6W, linked to the previous hash A3B4.

This structure creates what is called a “chain,” where each participant in the network has a copy. If someone attempts to modify Transaction 1, the hash will change, disrupting the links to Transactions 2 and 3, making forgery impossible.

Consensus mechanism: majority rule

Beyond cryptography, blockchain uses a mechanism called “consensus” to approve new blocks. For Bitcoin, the system used is Proof-of-Work, which requires about 10 minutes to solve complex mathematical problems and create a new block.

Attacking the Bitcoin system would require altering the entire chain from the genesis block to the current block. With hundreds of thousands of blocks, recalculating and solving all mathematical problems demands enormous computational power, making such an attack practically impossible.

Peer-to-peer network: the power of decentralization

The final mechanism is the Peer-to-Peer network, which distributes data to all participating nodes. When a new block is created, it is broadcast to all nodes(, which are the users participating in the network. These nodes verify the validity and compare it with their own copies.

Controlling the blockchain network requires controlling the majority of nodes. In Bitcoin, to control the system, one would need to control over 51% of the nodes and monitor their operations and decision-making power. However, given the vast number of nodes spread worldwide, such control is virtually impossible.

Types of blockchain: choose the right type for your needs

Blockchain is not a one-size-fits-all technology; there are various types designed for different purposes.

) Public blockchain: transparent but often slow

This type allows anyone to participate, verify transactions, and contribute to decision-making. Examples include Bitcoin, Ethereum, and Solana. The advantages are high transparency and security from central control. The downside is that, although transparency is high, transaction speed can be slow, often leading to issues with handling large volumes of transactions.

Private blockchain: confidential but efficient

This type permits only authorized members to participate, controlled by a single organization or entity. Examples include Hyperledger Fabric. Its strengths are high speed and efficiency, but its privacy features may lead to centralized control.

Hybrid blockchain: a balance between the two

This combines features of both open and closed blockchains. Organizations can control sensitive data while maintaining transparency in certain areas. Examples include XinFin and IBM Blockchain platform.

Consortium blockchain: collaborative governance

Controlled by a group of organizations working together, this type helps distribute risk and build trust within the network. Examples include R3’s Corda. While advantageous, coordinating among multiple organizations can be complex.

Strengths and weaknesses that need addressing

Strengths of blockchain

Significantly enhanced security: When data is encrypted and stored in blocks, it cannot be altered, deleted, or modified. This system offers better data protection than traditional storage methods.

Transparency and auditability: Since no single institution has ultimate authority, blockchain systems are transparent, and everyone can verify data.

Cost and fee reduction: Without intermediaries, users do not need to pay middlemen, only transaction fees on the platform.

Traceability: Blockchain can trace data back to its origin, enabling reliable audit trails.

Efficiency and speed: Automated data processing reduces human errors and improves data management efficiency.

Weaknesses still to be addressed

Scalability limitations: Current blockchain systems often struggle with handling large volumes of transactions simultaneously. However, ongoing technological developments may resolve this soon.

Theoretical risks: In theory, controlling over 51% of nodes could allow system control. In practice, this is highly unlikely.

High energy consumption: Cryptographic and processing activities, especially Proof-of-Work, require substantial energy, impacting the environment.

Lack of legal regulation: Blockchain remains largely unregulated by government agencies or relevant organizations, creating legal uncertainty.

Blockchain applications across industries

Finance: widespread adoption

Financial companies have integrated blockchain into clearing, transfer systems, and digital currencies. The Bank of Thailand has initiated the Inthanon project to develop a digital Baht using blockchain. It is expected to replace the PromptPay system for interbank transfers in the future. Additionally, e-commerce firms use blockchain to store customer data and credit scores.

Supply chain: transparency and traceability

Blockchain enables consumers to trace the origin of products. IBM has developed the Food Trust Blockchain system, allowing consumers to trace food sources. This system also promotes environmental conservation and combats counterfeiting by managing products from source to consumer via blockchain.

Voting and decision-making systems: fraud prevention

Blockchain helps create fair and transparent voting systems, as it is difficult to cheat or alter results once votes are recorded on the blockchain. This system also reduces the high costs associated with manual verification.

Summary

Blockchain is a transformative technology that changes how data and transactions are managed. Its features—security, transparency, and decentralization—have led to widespread adoption across various industries. Despite some weaknesses, such as scalability and energy consumption, ongoing development continues to improve the technology. Understanding blockchain is essential for anyone interested in digital currencies and cryptocurrency investments.