Unblocking the Blockchain: Centralised vs. Decentralized Databases - ToughNickel - Money
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Unblocking the Blockchain: Centralised vs. Decentralized Databases

Heng Kiong teaches Information Technology, including business analytics and management information systems, at a tertiary institute.

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Check out the full series:

Part 1: What is Blockchain?

Part 2: Centralised vs. Decentralised Databases

Part 3: Digital Signatures

Part 4: Private-key Cryptography

Part 5: Public-key Cryptography

Part 6: Cryptography and Digital Signatures

Part 7: Hashing

Disclaimer

This multi-part Blockchain guide for beginners is for general information. This article and the rest of this series do not endorse cryptocurrencies nor the technology itself. Most importantly, the articles should not be treated as investment advice.

The primary objective of this guide is to explain Blockchain, its underlying concepts and its potential applications in businesses.

Recap From Part 1

Blockchain, at a glance:

  • Encrypts data digitally in a distributed ledger (record-keeping) system
  • Is maintained by a network of many computers
  • Shows who owns what and does at any moment
  • Keeps an immutable record of every transactions across all nodes of the network
  • Has the ability to establish TRUST in a decentralised system (more about this later)
  • Allows different parties to transact without requiring a centralised third party

Blockchain Is NOT Equal to Bitcoins

While Bitcoin was the first adopter of the Blockchain technology, Blockchain is applicable to more than cryptocurrencies. Blockchain is NOT just about buying tokens and investing in ICOs (Initial Coin Offerings).

Blockchain allows businesses to transact without an intermediary. It's difficult to tamper with the transaction data or records.

Blockchain allows businesses to transact without an intermediary. It's difficult to tamper with the transaction data or records.

How Blockchain Works

A blockchain is a cryptographically secure distributed ledger. Transactions (either money or records) are validated by complex computer algorithms. Verified transactions are “Chained” together in “Blocks” using cryptography—that’s why the name Blockchain.

Data is stored in ledgers across all nodes (hence distributed) in the Blockchain network. Ledgers are updated when there are new validated transactions. Additions to the Blockchain can only be made after validation using a Consensus Mechanism. The two most popular ones being Proof-Of-Work (PoW) and Proof-Of-State (PoS). This makes it extremely difficult for anyone to tamper with the data.

Validation of transactions will be covered later.

Blockchain Is a Distributed Database

In a centralised database, the database administrator has the right to modify stored data.

In Blockchain, the ledger is not stored in any centralised server; but distributed via a network of computers. Each node sees the same set of data (transactions).

A distributed database allows value exchange between any two participants on a network, without the need for a trust or a central authority.

A centralised database: central storage.

A centralised database: central storage.

A distributed database: no need for an intermediary.

A distributed database: no need for an intermediary.

Isn’t the Existing Way of Storing Data Good Enough?

Why Distributed? Why aren't people happy with the current way of storing and managing a database? In a Centralised Database, the administrator of the Database centrally authenticates a client’s credentials before providing access to the database. This poses two challenges:

  1. Security: Anybody with sufficient access to that system can destroy or corrupt the data within.
  2. Reliability: This is highly dependent on the human organisation in which that database resides.
Characteristics of a centralised database.

Characteristics of a centralised database.

Document Shared Centrally vs. Online Collaboration

To put it into perspective, a centralised database can be explained using the analogy of a document being shared among users via emails. All owners update records on the same Master copy. All parties involved would need to wait until receiving a return copy before one can see or make other changes.

On the other hand, when multiple parties work on a shared document in the cloud, changes made at any nodes are synchronised.

In Blockchain, records are not stored in any single location. Once a record or transaction is stored on a Blockchain, it is extremely difficult to amend.

An analogy: centrally stored document vs. cloud-based collaboration.

An analogy: centrally stored document vs. cloud-based collaboration.

A blockchain is a distributed ledger not controlled by a single authority.

A blockchain is a distributed ledger not controlled by a single authority.

In Summary

A blockchain is a distributed ledger which is cryptographically secure. Each node on a Blockchain network has a verified, up-to-date and immutable history of all transactions

Participants on a Blockchain network not necessarily need to trust one another.

Once validated, transactions cannot be altered and cannot be tampered with. Data is reversible only by a subsequent transaction.

Blockchain is a distributed ledger. A Blockchain keeps an immutable history of all transactions.

Blockchain is a distributed ledger. A Blockchain keeps an immutable history of all transactions.

Previous Article

  • Unblocking the Blockchain: What Is Blockchain?
    Blockchain technologies have changed the way we see, manage and store data. A truly decentralised and robust medium for recording electronic transactions, blockchain is fast becoming a norm for all digitised businesses with business agreements being

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This article is accurate and true to the best of the author’s knowledge. Content is for informational or entertainment purposes only and does not substitute for personal counsel or professional advice in business, financial, legal, or technical matters.

© 2018 Heng Kiong Yap