Blockchain

Blockchain is special type of distributed decentralized database. It has constantly expanding number of records, which are against the unauthorized interference protected from outside and from the individual nodes of peer-to-peer network.

The typical usage of this technology is ledger for cryptocurrencies, as is the most known bitcoin. In this case it keeps the transactions that were made, by which with the help of cryptography can ensure the operations’ anonymity and avoid unauthorized transactions. Official Czech example became the “bločenka” but this term has never gotten popular.

Basic principle of blockchain

Blockchain implementation consists of two types of records, which are transactions and blocks. Transactions are the data representation, which were given into database by users, whereas blocks are records, which confirm when and under what circumstances was the transaction added to the blockchain.

Transactions create users, which use the system as database, e. g. in case of already mentioned cryptocurrencies as a ledger. Blocks are on the other hand created by i. e. miners, which use hardware and software that is created specifically for creating blocks.

Transactions, which users create, are freely transmitted from node to node based on who has just established what connections. The valid transaction definition can differ on the base of used standard, which implements most of nodes in the network.

For example, when using cryptocurrencies, the valid transaction is known by the correct electronic signature of the user, who spends money from an existing wallet, to which the user just confirmed the ownership by signature and fulfils some other conditions. Among which belong the fees for miners or the sufficient time distance from the last transaction with the piece of currency.

The miners’ effort then is the blocks’ creation, which confirms and integrates transactions to blockchain. The cryptocurrencies as example come from the miners’ motivation from two types of rewards: from predefined reward for the extracted block and from fee, which is paid to miners, which correctly confirms transaction.

Advantages of using blockchains

• Distribution of computing efficiency. Blockchain allows wide scale of computers to connect to network and so divide the computing efficiency. For example, Ethereum allows almost anyone to connect their computer to network only with the help of their software. Distribution of computing efficiency then helps to decrease the risk of manipulations, frauds and cybercrimes. Because the efficiency is distributed to many nodes, it is more complicated to attack it by brute strength.
• There is no need of trust. Blockchain allows digital transaction between sides, which doesn’t trust each other. Distribution among many nodes and the following synchronization allows sides, which don’t trust each other, to have trust in the authenticity of transaction without any central authority.
• Minimal manipulability. Once are the transactions in system confirmed, it is almost impossible to cancel, rewrite or revoke it. The difficulty gets even worse in time.
• Decentralization. Blockchain reduces centralized monopoles or mediators and decreases the costs. It increases the competition on the market by decreasing the input costs and puts more emphasis on participants to be maximally effective.

Disadvantages of using Blockchain

• Wasting. Each node repeats tasks, by which burns huge amounts of electricity and time. The calculation is way slower and more expensive than when it would go on one traditional computer.
• Speed vs. network price. Blockchain requires to have enough nodes. New networks, which haven’t got many nodes, reach higher costs, because nodes require higher rewards and also slower transactions, because nodes prioritize transactions with higher reward.??
• The blocks size. With each new transaction, which is added to the block, the database size is getting bigger and also the computing sophistication increases for each of the nodes.