Blockchain technology has emerged as one of the most important developments in the field of modern information technology. So what is Blockchain ? In this article, let's explore with 1C Vietnam the outstanding features of blockchain along with its role and practical applications to create significant changes in the way different industries operate.

1. What is Blockchain?

Blockchain is a technology that stores data in a chain of blocks, providing the ability to transmit information securely through a complex encryption system. Similar to an online accounting ledger, this technology tracks and records every transaction on a distributed network.

Each block in the chain not only contains information about the time it was created, but is also linked to the previous block with a timestamp and transaction data. Data cannot be changed or tampered with once it has been confirmed by the network. Blockchain is designed to ensure the integrity of information and prevent fraud or data manipulation.

2. The role of blockchain

After learning about what Blockchain technology is, let's take a look at the role of Blockchain. In traditional database systems, recording financial transactions often faces many challenges.

For example, when making a property transaction, the transfer of ownership between seller and buyer can be difficult due to the lack of independent verification. Both parties may record the transaction unreliably; the seller may claim not to have received the money when it has, and the buyer may claim to have paid when it has not.

To address potential legal issues, a third-party intermediary is often needed to monitor and validate transactions. However, relying on this central authority not only increases the complexity of the transaction, but also creates security vulnerabilities. If the central database is compromised, both parties can suffer losses.

Blockchain technology was developed to solve these problems through a decentralized and tamper-proof system. The salient features of blockchain include:

• Create separate ledgers for each party: In asset transactions, both the seller and the buyer have separate ledgers that are automatically updated in real-time.
• Consensus required: Transactions must be approved by both parties before being recorded in the ledger.
• Data Integrity Protection: Any errors in previous transactions will distort the entire ledger, thus ensuring accuracy and transparency.

Thanks to these characteristics, blockchain technology has been widely applied in many fields, including the development of digital currencies such as Bitcoin.

3. Blockchain Classification

Blockchain can be classified into three main types, each with its own distinct characteristics and applications:

• Public Blockchain: This is an open blockchain that allows anyone to participate, verify, and make transactions. Typical examples of this type include Bitcoin and Ethereum. In Public Blockchain, all transactions are public and transparent, and no one has the right to control or change the data recorded on the blockchain. This provides high security but can also lead to difficult data management.
• Private Blockchain: In contrast to Public Blockchain, Private Blockchain only allows a designated group of users to participate. This type of blockchain is often used in organizations or businesses to tightly control access and perform transactions. Private Blockchain helps increase security and efficient management compared to Public Blockchain, because it limits the number of participants and better controls access.
• Permissioned Blockchain: This is a variation of Private Blockchain where access and transaction rights are managed by a third party. Permissioned Blockchain is often used in enterprise environments where flexibility, high control over access and privileges are required. This classification provides the ability to tailor access rights to the specific needs of the organization or business.

4. Outstanding features of Blockchain

Blockchain technology offers many outstanding advantages, especially in protecting and managing data. Here are 5 characteristics of Blockchain:

• Secure and unforgeable: Blockchain offers an extremely high level of security. In theory, only quantum computers can decode the data strings of Blockchain. Furthermore, this technology would no longer work if the entire global Internet system were to be disconnected, making the data extremely secure and difficult to hack or tamper with.
• Immutability: When we learn about Blockchain, we see that data on Blockchain cannot be modified without leaving a trace. Information that has been recorded on the chain will be stored permanently. Although modifications can be made, these changes will always be recorded and easily tracked, ensuring accuracy and transparency in the data.
• Absolute security: Information and data in Blockchain are distributed across many different nodes in the network, ensuring safety and minimizing risks. This distributed system helps protect data from attacks and intrusions.
• Transparency: Blockchain overview allows people to track and verify data from one address to another. Users can view the entire transaction history on a particular address, providing transparency and clarity in tracking transactions.
• Smart Contracts: Smart contracts are digital programs encoded into the Blockchain in the form of if-this-then-that (IFTTT). This system is capable of automatically executing programmed conditions without the need for third-party intervention, helping to automate and optimize transaction processes.

5. What are the main components of Blockchain?

The architecture of Blockchain technology includes the following main components:

5.1 Distributed ledger

A distributed ledger is a shared database that stores all transactions in a blockchain network. It acts as a shared file that all members can access and view.

However, unlike conventional shared files, entries on a distributed ledger cannot be deleted or edited once recorded. The process of recording and modifying data must follow strict rules to ensure the integrity of the information.

5.2 Smart Contracts

Smart contracts are programs that automatically execute pre-programmed conditions without the intervention of a third party. The contracts are stored on the Blockchain system and execute transactions when if-then conditions are met.

For example, a shipping company could use smart contracts to automatically make payments when goods arrive at their expected destination without needing confirmation from other parties.

5.3 Public key encryption

Public key cryptography is an important security technique in Blockchain, which helps identify and authenticate members of the network. Each member possesses two keys: a public key (which can be shared with all members of the network) and a private key (which is known only to the owner). The public key and the private key work together to secure and authenticate transactions.

6. Blockchain Operation Process

In addition to understanding what Blockchain is , businesses also need to understand how Blockchain works. Although the mechanism of Blockchain operation can be quite complex, here is an overview of the basic process with the automation of blockchain software in the main steps:

6.1 Step 1: Record the transaction

Each transaction on the Blockchain represents the transfer of assets, be it physical or digital, from one party to another in the network. The transaction is recorded as a block of data with the following details:

• Parties involved: Who are the sender and receiver in the transaction?
• Transaction Content: What happened during the transaction?
• Transaction Time: When was the transaction made?
• Transaction Location: Where does the transaction take place?
• Transaction Purpose: Why is the transaction being made?
• Asset Amount: What is the total amount of assets being exchanged?
• Prerequisites: What conditions must be met in the transaction?

6.2 Step 2: Comply with consensus

For a transaction to be recorded on the Blockchain, members of the distributed network must agree that the transaction is valid. The consensus process can vary depending on the type of network, but is usually established early on to ensure uniformity in transaction confirmation.

6.3 Step 3: Linking blocks and chains

Once consensus is reached, transactions are recorded in blocks, similar to adding a new page to the ledger. Each block contains not only information about the transaction, but also a cryptographic hash. This hash acts as a link between the current block and the previous block, forming a chain. Any change to the contents of the block will result in a change in the hash value, which helps detect tampering or falsification of data.

6.4 Step 4: Share the ledger

Once a new block is confirmed and linked, the system distributes an updated copy of the ledger to all members of the network. This ensures that all participants have a synchronized and accurate copy of the data, maintaining transparency and consistency of information across the network.

7. Advantages of applying Blockchain technology in business

Blockchain technology is gradually becoming an important tool for Vietnamese businesses, bringing many significant advantages. Below are the highlights when implementing Blockchain in businesses:

7.1 Building trust with users

The application of Blockchain helps businesses build strong trust with customers by allowing them to track and verify transaction information transparently. All transactions recorded in the blockchain are closely linked and confirmed by members in the network, ensuring accurate information as well as minimizing the risk of fraud or scam.

7.2 Privacy Policy

Blockchain features provide superior security by encrypting data end-to-end, creating immutable transaction records. This not only enhances security but also reduces the possibility of fraud. Data in Blockchain is stored on a distributed network of computers, making it more difficult for hackers or viruses to attack than traditional storage systems. Moreover, Blockchain's anonymity and limited access effectively protect users' privacy.

7.3 Cost savings

Blockchain helps businesses save costs by reducing manual work and optimizing transaction processes. The system reduces the need for data aggregation and information processing, while simplifying reporting and auditing processes. By eliminating the need for intermediaries and third parties, businesses can significantly reduce related costs, thereby improving operational efficiency and saving resources.

8. Field of Blockchain technology application

Blockchain technology, with its security and transparency features, is creating significant changes in many fields. Here are some of the innovative ways Blockchain is being applied in different industries:

• Energy: Blockchain platforms allow individuals to trade excess solar energy from panels with transactions automated and recorded on the blockchain.
• Finance: Singapore Exchange Limited uses Blockchain to improve interbank payment systems, process thousands of financial transactions more efficiently and reduce manual reconciliation procedures.
• Media and Entertainment: Sony Music Entertainment Japan applies Blockchain to digital rights management, helping to improve processes and reduce copyright processing costs, while ensuring artists receive fair remuneration.

• Retail: Amazon has developed a Blockchain system to track and verify goods on its platform, allowing stakeholders from manufacturers to consumers to add events to the ledger, ensuring the trustworthiness of goods.

9. Some related questions

Blockchain technology is becoming more and more widely used, but there are still many questions related to how Blockchain works and how it differs from other technologies. Below are frequently asked questions with detailed answers:

9.1 What is the difference between database and Blockchain?

Bitcoin and Blockchain are often confused because Bitcoin is the first application of Blockchain. Bitcoin is a digital currency without centralized control, while Blockchain is the technology platform that supports Bitcoin and many other applications.

• Bitcoin operates on a public ledger that global servers store and continuously update, much like banks keep records of transactions.
• Bitcoin mining involves solving equations to create new blocks, which requires a lot of computing resources. Miners record transactions and receive rewards in Bitcoin.
• The Bitcoin network uses cryptographic technology to reach consensus on ownership of the currency, ensuring the accuracy of transactions.

9.2 What is Blockchain as a Service?

Blockchain as a Service (BaaS): A cloud-based blockchain management service provided by a third party. BaaS enables blockchain application development without worrying about infrastructure or building tools, accelerating blockchain technology adoption.

9.3 What are the risks and challenges of using Blockchain?

Here are some risks and challenges when applying Blockchain in practice:

• Scalability: Blockchain needs to handle large transaction volumes, requiring robust infrastructure and scalability to meet the growing demand.
• Security: Although Blockchain provides a high level of security, the system is not completely immune to attacks, such as “51% Attack” that can compromise the system.
• Lack of regulation: The lack of legal regulations slows down the adoption and development of Blockchain technology, especially in areas such as cryptocurrencies and smart contracts.
• Privacy Risks: While Blockchain increases transparency, this openness can create privacy risks if data is misused.
• Adoption: Blockchain adoption requires a change in mindset and organizational structure, which can be difficult for many businesses.

Hopefully, through the above article, your business has understood what Blockchain is and the positive effects this technology is creating. Although there are still many problems to be solved, Blockchain technology is still opening up new opportunities for development and innovation in the digital world, while promoting improvement and adaptation to suit future technology trends. If you have any questions related to Blockchain as well as the field of digital transformation, please contact 1C Vietnam immediately.