How does blockchain technology transform digital transactions?

In an era where financial transactions and data exchanges occur extensively through digital systems, Blockchain technology is a term that is frequently discussed and applied across various industries—from finance and supply chains to voting systems. However, a deep understanding of how this system works remains essential for investors and users alike.

How Blockchain Makes Transactions Secure and Trustworthy

Blockchain is a data transmission system that differs from traditional networks in that it does not require any intermediaries. Storing data within this system ensures high security and reliability.

The infrastructure of Blockchain consists of (Blocks) that collect data, which are then linked together in a long (Chain) using unique identifiers called Hashes. This structure creates a large network of data with a specific order.

Main Components of the Blockchain System

Hash Code - The fingerprint of each block

Each block has a unique Hash code, similar to a fingerprint or ID number. Important data within the block includes:

1) Data ( — For example, in the Bitcoin network, transaction data such as sender, receiver, and amount transferred.

2) Hash Code — A specific identifier for that block. If any data within the block changes, the Hash code will change immediately, rendering the block invalid as the original.

3) Previous Block Hash )Previous Hash( — Connects blocks in a specific sequence, establishing the chain.

Example of operation: Suppose there are 3 blocks in the Bitcoin network:

• Block 1 has Hash A24, containing data of 5 BTC transferred from Golf to Poo, with a previous hash of 000.
• Block 2 has Hash 12B, containing data of 3 BTC transferred from Poo to Mali, with a previous hash of A24.
• Block 3 has Hash 5C3, containing data of 2 BTC transferred from Mali to Faa, with a previous hash of 12B.

This system enforces a strict sequence. If someone attempts to alter data in any block, the Hash will change, causing subsequent block verification to fail. Remaining blocks will reject the change and become invalid.

) Consensus System ### - Advanced Security

Beyond Hash design, Blockchain employs a Consensus system to enhance security. For example, Bitcoin uses Proof-of-Work (PoW), which takes about 10 minutes to solve and add a new block.

To hack this system, an attacker would need to alter the Hash codes of all previous blocks in the chain before a new block is added. Given that the Bitcoin network contains hundreds of thousands of blocks, such an attack is nearly impossible.

( Peer-to-Peer Network )P2P### - Decentralization

A key feature of Blockchain is the absence of a central authority managing the system; instead, it relies on a P2P network. When users install Blockchain software, they become (Nodes).

These nodes store the entire Blockchain data and participate in verifying transactions. The process generally involves:

1( New blocks are broadcasted to all nodes or users in the network.

2. Each node verifies the block and checks for tampering.

3. Once all nodes confirm, the block is added to their own blockchain.

Summary: To successfully tamper with Blockchain data, one must )1) change every block in the chain (2) and redo the PoW process for each block (3) across many nodes, which is extremely difficult.

Blockchain Network Structures - 4 Main Types

Blockchain can be categorized based on access and management:

( 1. Public Blockchain )Public Blockchain###

Fully decentralized, open to everyone to participate, verify transactions, and reach consensus. Examples include Bitcoin, Ethereum, Solana.

Advantages: Transparency, security through decentralization, promotes collaboration.

Limitations: Transaction speed and scalability.

Use Cases: Cryptocurrency trading, DeFi fundraising, open-source projects.

( 2. Private Blockchain )Private Blockchain###

Operates within a closed network controlled by a single organization. Allows selected members to read, write, or verify transactions. Examples include Hyperledger Fabric, MultiChain.

Advantages: Privacy, high control, fast transactions.

Limitations: Risks associated with central control.

Use Cases: Internal data management, payroll, accounts, logistics, confidential record-keeping.

( 3. Hybrid Blockchain )Hybrid Blockchain###

Combines features of private and public systems. Organizations can keep critical data private while allowing transparency for certain parts. Examples include XinFin, IBM Blockchain Platform.

Use Cases: Financial systems, healthcare where some data must remain private while other parts are open.

( 4. Consortium Blockchain )Consortium Blockchain###

Controlled by a group of organizations jointly overseeing the network. Example: Corda by R3.

Advantages: Reliability, risk distribution, shared costs.

Limitations: Complex coordination among multiple organizations.

Use Cases: Supply chain management, interbank settlements, cross-industry collaborations.

Strengths of Blockchain Technology

( 1. Enhanced Security

Encrypted data stored in blocks cannot be altered, deleted, or tampered with.

) 2. Full Transparency

No single authority can control the system, ensuring complete transparency and verifiability.

3. Reduced Transaction Costs

No intermediary fees; only transaction fees on the platform.

4. Traceability

Easily trace back data to its origin.

5. High Efficiency

Saves time, reduces human errors, and makes systems faster and more efficient.

Weaknesses of Blockchain Technology

1. Scalability Issues

Current blockchain systems face challenges handling increasing data and transaction volumes, though ongoing development aims to address this.

2. Theoretical Risks

In theory, blockchain can be hacked—for example, Bitcoin could be compromised if an entity controls over 51% of the network’s computing power. However, such attacks are practically very difficult.

3. High Energy Consumption

Requires significant processing power, leading to high electricity usage.

4. Lack of Regulatory Frameworks

Blockchain currently lacks formal oversight or regulation from authorities, despite being designed to disrupt traditional systems like banks and government agencies.

Blockchain Applications Across Industries

Finance and Digital Currency

Finance is among the first sectors to adopt Blockchain. The Bank of Thailand has a project called Inthanon to implement Blockchain for digital Baht, aiming to replace the interbank Baht network. Additionally, JMART’s JFIN project uses Blockchain to manage customer data and credit scores for online lending systems.

Supply Chain

IBM has developed Food Trust Blockchain to enable consumers to trace the origin of ingredients, promoting environmental conservation. Other supply chain businesses can also record item origins for accurate, tamper-proof verification.

Voting Systems

Blockchain can be used to create efficient, fraud-resistant voting systems. Vote results are nearly impossible to alter or tamper with, ensuring transparency and verifiability, while reducing the costs associated with manual verification processes.

Summary

Blockchain technology brings a major transformation in how data is transmitted and transactions are conducted. Its high security, transparency, and decentralization make it a promising tool for improving many industries in the future. Despite some weaknesses, ongoing technological development is likely to resolve these issues soon.