Last Updated on October 13, 2023 by IS Back Office
Blockchain is a Distributed Ledger Technology (DLT). DLT is a broader term that encompasses technologies like blockchain. DLT refers to a digital system for recording and storing data across multiple computer systems in a decentralized and distributed manner.
The term “ledger” stems from traditional accounting terms and the word “ledger”, hence, DLT records transactions. However, it’s not limited to just financial transactions; it can record various types of data and information.
You’ve heard of Bitcoin? Of course you have. The Blockchain DLT underlies cryptocurrencies like Bitcoin. However, blockchain has many other potential applications.
It is a decentralized and immutable digital ledger that records transactions across multiple computers in a way that ensures the security, transparency, and integrity of the data it contains.
Key features of Distributed Ledger Technology include:
- Decentralization: DLT systems operate on a network of computers (nodes), where each node has a copy of the ledger. This decentralization eliminates the need for a central authority or intermediary to maintain and validate the ledger.
- Immutable and Tamper-Resistant: DLT ensures the integrity and security of data through cryptographic techniques. Once data is recorded, it becomes difficult to alter or delete, making it highly resistant to tampering.
- Transparency: Many DLT systems provide transparency, allowing all participants to view the data and transaction history. This transparency can help build trust among users.
- Security: DLT systems use cryptographic methods to secure data, making it challenging for unauthorized parties to access or manipulate the information.
- Consensus Mechanisms: DLT relies on consensus mechanisms to validate and add new data to the ledger. Consensus mechanisms ensure that all participants in the network agree on the state of the ledger.
Blockchain is a Specific Type of DLT
While DLT is a more general term, “blockchain” is a specific type of DLT. Blockchain is a chain of blocks containing data, linked together in a linear, chronological order. Each block contains a list of transactions, and these blocks are connected using “cryptographic hashes“.
What Are Cryptographic Hashes
A cryptographic hash, or simply a hash, is a mathematical function that takes an input (or “message”) and returns a fixed-size string of characters, which is typically a hexadecimal number. This output is typically a seemingly random sequence of characters, and it’s also called the “digest.” Cryptographic hashes have several important characteristics:
- Deterministic: For a given input, a cryptographic hash function will always produce the same hash value.
- Fixed Length: The hash output is a fixed length, regardless of the size of the input data.
- Efficient: Hash functions are designed to be computationally efficient, meaning they can quickly produce the hash value for any given input.
- Pre-image Resistance: It should be computationally infeasible to reverse a hash value to find the original input data. In other words, you shouldn’t be able to determine the input just by looking at the hash.
- Collision Resistance: It should be highly unlikely for two different inputs to produce the same hash value. In practical terms, this means that even a small change in the input data should result in a substantially different hash.
- Avalanche Effect: A small change in the input data should result in a significantly different hash value. This property ensures that similar inputs produce completely different hash values.
- Non-reversible: Cryptographic hash functions are designed to be non-reversible, meaning you can’t go from the hash value back to the original input (except through a brute-force search, which should be computationally infeasible).
Cryptographic hashes are widely used in computer security and cryptography for various purposes, including:
- Data Integrity: Hashes are used to verify that data has not been tampered with during transmission or storage. By comparing the hash of the received data with the original hash, you can detect changes.
- Password Storage: Storing plaintext passwords in databases is a security risk. Instead, systems often store the hash of a password. When a user logs in, the system hashes the entered password and compares it to the stored hash.
- Digital Signatures: Hashes are used in digital signatures to verify the authenticity and integrity of a message or document. The hash of the message is signed with a private key, and others can verify it with the corresponding public key.
- Blockchain: In blockchain technology, each block contains a hash of the previous block, creating a chain of blocks. This ensures the integrity and security of the entire blockchain.
Common cryptographic hash functions include SHA-256 (for example, as used in Bitcoin’s blockchain), MD5, and SHA-3, among others. It’s important to use secure and well-established cryptographic hash functions for any application involving security or data integrity, as weak hash functions can be vulnerable to various attacks.
Other Forms of DLT
Other forms of DLT may not use a chain of blocks and may have different structures and consensus mechanisms. For example, Directed Acyclic Graph (DAG) and Hashgraph are alternative DLT structures.
DLT has various applications beyond cryptocurrencies and can be used in supply chain management, healthcare, identity verification, voting systems, and more.
It provides a way to enhance data security, transparency, and trust in a wide range of industries by eliminating the need for a central authority to oversee and verify transactions or information.
Blockchain Business Models
If you have made it to here, you understand more than most. Now, let’s look at how Blockchain technology has given rise to various business models, some of which leverage the unique features of blockchain, such as decentralization, security, and transparency, to create innovative solutions.
Here are some common blockchain business models:
- Cryptocurrencies and Tokens: Creating and managing cryptocurrencies or tokens is one of the most straightforward blockchain business models. Companies issue their own digital currencies or tokens for various purposes, such as as a medium of exchange, utility tokens within their platforms, or security tokens representing ownership in an asset.
- Crypto Exchanges: Cryptocurrency exchanges facilitate the trading of digital assets. They generate revenue through trading fees, withdrawal fees, and listing fees for new cryptocurrencies. Examples include Coinbase and Binance.
- Wallet Services: Companies can offer cryptocurrency wallet services, which store and manage digital assets for users. These wallets can be hardware-based, software-based, or web-based. Some wallet services generate income through transaction fees or subscription models.
- Blockchain-as-a-Service (BaaS): BaaS platforms provide infrastructure and tools for businesses to build, deploy, and manage blockchain applications without the complexity of setting up and maintaining their own blockchain networks. Examples include Microsoft Azure Blockchain and IBM Blockchain Platform.
- Smart Contracts Development: Developing smart contracts for specific use cases can be a profitable business. Smart contracts are self-executing agreements with the terms directly written into code. Companies can charge for creating, auditing, and maintaining smart contracts.
- Supply Chain Management: Blockchain can be used to track and verify the origin and journey of products within a supply chain. Companies can offer supply chain blockchain solutions that provide transparency and traceability to improve efficiency and reduce fraud.
- Identity Verification: Blockchain can be used for secure identity verification and management. Companies can offer identity services, allowing users to control their digital identities and share them securely when needed.
- Tokenization of Assets: Tokenization involves converting physical or digital assets into blockchain-based tokens. This can include real estate, art, or even company stocks. Businesses can profit from facilitating the creation and trading of these tokenized assets.
- Blockchain Gaming: The gaming industry is exploring blockchain for in-game assets, unique non-fungible tokens (NFTs), and decentralized gaming platforms. Companies can build and operate blockchain-based games and marketplaces for virtual assets.
- Decentralized Finance (DeFi): DeFi platforms use blockchain technology to create financial services, such as lending, borrowing, and trading, without traditional intermediaries. Companies can generate revenue from fees on DeFi transactions and services.
- Non-Fungible Tokens (NFTs): NFTs represent unique digital or physical assets and have gained popularity in art, collectibles, and entertainment. Businesses can create NFT marketplaces, collaborate with artists, and earn commissions on NFT sales.
- Blockchain Consulting and Development: Companies specializing in blockchain consulting and development services help other businesses adopt and implement blockchain solutions, including custom blockchain development, integration, and training.
- Blockchain Analytics and Security: Businesses can offer blockchain analytics and security services, helping clients track transactions, investigate fraud, and enhance the security of their blockchain networks.
- Web3 Streaming Platforms: These platforms leverage blockchain and decentralized technologies to provide new ways of sharing and consuming content, including videos, audio, and live streaming. They aim to address issues related to content ownership, monetization, and censorship resistance.
These are just a few examples of blockchain-based business models. The blockchain space is continually evolving, and new opportunities are emerging as the technology matures and gains broader adoption across various industries. Check out our Business Services if you need help with your business!