These four concepts will help you understand blockchains
By Sathvik Vishwanath
Below are four key terms you need to know to better understand how blockchains provide these features
and how they apply in a business context.
- External connectivity enables new applications.
For blockchains to be useful, or to create any of the advanced applications listed above, access to
external data. One of the most important aspects to remember about blockchains is that they are not
intrinsically linked to something outside of them. Blockchains are purpose-built this way for higher levels
of security, but a closed blockchain system is like a computer without the internet – interesting and useful,
but not nearly as much as being connected to the internet.
The introduction of external data can compromise the security of the blockchain. While blockchains
themselves are highly secure, connecting a smart contract to external data presents a new attack vector,
means that a malicious actor does not need to overcome the blockchain’s security architecture to exploit
smart contracts; they just need to manipulate the data source and run the smart contract in a way that
benefits them.
However, Oracle Network securely connects blockchains to real-world data, which in turn enables
advanced applications that users demand. Instead of getting information from a single source – say,
USD price of Ether (Ethereum’s original blockchain cryptocurrency) – oracle decentralized network which
Chainlink aggregates several different sources to smooth out errors and protect against manipulation.
When smart contract developers obtain data through the Oracle network, attackers cannot abuse
system by manipulating a single data source. They must target as many data sources simultaneously (be that as it may
five, ten or more) as the smart contract requires input to execute the command, which is very difficult
unrealistic as networks become more decentralized.
Also, without an oracle network, developers wouldn’t need to use blockchain for use cases that involve
interact with the real world, as there is no guarantee that the data that triggers smart contracts is
correct. Although not an inherent property of blockchains, oracle networks are critical to powering it more broadly
adopt blockchain technology. The realization of the blockchain’s full potential is conditioned by
the successful development of a new generation of applications powered by Oracle networks. - Decentralization ensures uptime and security
As mentioned above, a blockchain network consists of hundreds, or even thousands of nodes, each of them
which has an identical copy of all information ever recorded on the chain. Blockchain architecture is
decentralized — no single centralized identity is responsible for record keeping or control of the system.
This design has several advantages. First, redundancy helps guarantee uptime. If a node goes
down, there are many other nodes with identical information to keep operations going. In addition,
malicious actors cannot compromise a blockchain by attacking one node. They must succeed
control most of the network, which is extremely expensive and resource-intensive, and constitutes a
significant challenge for even sophisticated attackers while automatically weeding out low-effort exploits
attempt. - Immutability promotes transparency and accountability
Blockchains are also immutable, meaning that once something is added to the blockchain, it cannot be
reversed or deleted. Changes to existing information are recorded by adding new data blocks that show
the changes that have been made. Even if the data changes, each network participant has an overview of the original state
of the information.
This setting creates a trusted system. People operating individual nodes do not need to trust each other,
because the real state of information is available to all participants with high barriers to manipulation.
Bitcoin’s implementation of the trustless exchange of value was transformative because for the first time
in history, complete strangers could reliably exchange value without an intermediary such as a bank
absorb some of the funds and create inefficiencies. Since all participants work with the same thing
information, there is no way for a party to manipulate transactions or breach the contract. With everything
information and changes visible in the chain, the system provides unparalleled visibility. For example,
companies looking for better traceability in their supply chain can use blockchain to explore an entire product
lifecycle, using IoT sensors to provide information on location, date, quality, certifications and more
in the chain. - Smart power automation contracts
Blockchain-based applications or decentralized applications (dApps) are essentially collections of smart
contracts. Developers approach dApps with the same guarantees that blockchains provide, included
increased security, immutability and decentralization. Ethereum was the first blockchain to offer widely
available smart contract functionality that enables the development of dApps. Without smart contracts,
blockchains are usually only useful for minting and moving tokens.
When connected externally, smart contracts can be used to automate business processes by acting as
highly reliable and secure forms of digital agreements. This is where real efficiency and cost savings start
happen. Take the example of rain insurance: an individual agent no longer needs to confirm it
eligible conditions are met to approve a payout. Rather, the funds are held in custody as
part of a smart contract, and when IoT sensors indicate that not enough rainfall has fallen in a certain area
within a predetermined time frame, the farmer is paid automatically. Because the contract is linked to
real data sourced directly from the region and verified by organizations such as National
Oceanic and Atmospheric Administration, the insurance company does not have to worry that funds have been
inappropriately distributed. This system also reduces insurance fraud, ensures faster payments for
farmers, and expands market opportunities for providers who can reduce costs with automated policies.
Although most business decision makers may not understand all the technical aspects of blockchain,
Understanding these four basic elements can help organizations decide how blockchain
technology can serve them best. By moving business functions to the blockchain, significant automation
and cost-saving benefits can be achieved, and leading organizations are already making the transition.
As more and more organizations seek to incorporate blockchain technology, they too can benefit
of middleware solutions such as Chainlink to ease the transition. Chainlink enables businesses to connect
older backend systems as well as external data to blockchains. With these characteristics, organizations can
not only connect the off-chain data they need to develop advanced applications, but also seamlessly
leverage the decentralization, immutability and automation of blockchains in line with their existing
systems.
By understanding the underlying principles of blockchain technology and assessing their approach to
by integrating their existing processes with the smart contract economy, business leaders can position their
companies to take full advantage of the value that Web3 represents.
The author is the co-founder and CEO, Unocoin
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