What is Blockchain
- Blockchain is a distributed database or ledger which is then shared to nodes of computer networks. Since it is shared to many networks, blockchain is not controlled by a single body or institution, which makes it mainly used as a decentralized network.
- Data in blockchain is organized in a single group called block, which has a certain capacity. When it is filled, it is then verified and chained according to the time they are verified. This process of chaining blocks is why it is called blockchain.
- Verified blocks means that they are already checked by miners and validators from double spending and fraudulency.
- Since blockchain is chained chronologically, it is impossible to change past records in the chain, which means that transaction history in blockchain is immutable.
- But, it is possible to view the record in the chain for everyone, which means that transaction history in blockchain is transparent to the general public
Applications of Blockchain
- There are many applications of blockchain in the real world, such as in healthcare, cross-border transaction, digital ID, etc.
- Another well-known application of blockchain is in cryptocurrency. Cryptocurrency is virtual currency running on blockchain technology as its network’s source of truth. Blockchain allows cryptocurrency to operate without a bank as central authority.
- While blockchain technology just recently went as base for Web3, it has already existed in Web2 for a long time. Most of its early implementations are in the healthcare industry. This is because patient’s health record is a private information that needs to be easily available when needed
- The impossible trinity, or trilemma, of blockchain means that a blockchain can only provide two guarantees while sacrificing the third. The impossible trinity of blockchain are: scalability, decentralization, and security.
- Scalability in blockchain refers to the blockchain’s ability to support its growth and adoption. This means that a highly scalable blockchain’s performance won’t suffer when the usage increases.
- Decentralization is one of the core concepts in blockchain. It refers to the ability for blockchains to operate without any intermediary. In decentralized blockchain there is no central authority to control and censor transactions. But, more decentralized networks usually work slower since there are more miners working on securing the network.
- Security means how secure a blockchain network is from malicious attacks. Usually network security relies on miners' hash rate since one of the most well known attacks is 51% attack which needs 51% of the network's hash rate.
Blockchain in Crypto:
- Layer 1 in blockchain refers to the main network of a blockchain ecosystem that works as the source of truth. Layer 1 can validate and finalize transactions on its own, but it is hard to improve scalability of layer 1.
- Some examples of layer 1 networks are Bitcoin and Ethereum, which sacrifice scalability to provide decentralization and security.
- Layer 2 refers to the secondary network of a blockchain that helps layer 1 in its works. Layer 2 blockchains typically execute transactions, and then post the results to Layer 1.
- For example, Layer 1 like Ethereum acts as a settlement layer for Layer 2 to verify validity proofs (e.g., ZK) or settle disputes (e.g., Optimism). This is the final step, after which the transactions will be added to the main blockchain, which is immutable and final.
- This makes layer 2 solution not as the source of truth, but as a help to provide scalability for layer 1. Some examples of layer 2 are Bitcoin Lightning Network and Ethereum Plasma.
- Layer zero is the first layer among blockchain protocols which facilitates cross-chain interoperability and communication. Layer zero connects other protocols to provide a more robust alternative to smart contracts.