How to Create a Blockchain Database: A Comprehensive Guide

As we all know, blockchain has a wide variety of applications, such as in gaming, finance, real estate, logistics and supply chains, as well as in healthcare.

The main use of it is for virtual currencies. However, there are also many applications of blockchain for data storage, sharing, and transmission. But the most interesting thing is why more and more people are starting to turn to blockchain development companies for data processing. Let’s see.

What Does the Term Blockchain Database Mean?

A blockchain database is a decentralized database that consists of several computers and stores data in a transparent, secure, and immutable way.

Blockchain databases can be installed on multiple nodes on a peer-to-peer network and do not rely on centralized servers, thus, the security of the data is ensured by cryptography algorithms.

A blockchain is therefore composed of multiple blocks, with each block including information, the time it was created and information regarding the block that came before it, thus making it exceedingly difficult to modify the contents of a block without network agreement.

Essential Features of Blockchain Databases

Blockchain scientific literature often notes unique features that distinguish blockchain databases from conventional systems and it is obvious as these features make blockchain a very attractive option of storing and decentralizing data. The interesting features of blockchain technology include:

No Centralized Control

Unlike traditional databases that rely on a central authority, blockchain databases distribute data across a network of nodes. All data within the network is shared, hence, there is no single point of failure which also helps to ensure that services are provided at all times.

Data Immobility

Data written into the blockchain cannot be changed or erased without the network’s consent. This characteristic guarantees the reliability and persistence of the data; consequently, it makes blockchain ideal for systems that need audit trails or historical accounts.

Distributed Ledger Technology

Participating users of a blockchain database are able to see and confirm every transaction conducted because the unit of the ledger is termed as a block. Although everyone is allowed to freely view the blockchain in a public blockchain, only registered users are able to access it in a private one.

Unbreakable Security

Blockchains use encryption to secure transactions as well as data using techniques such as double encryption. Without consent, changing one block automatically links it to the previous one using an encrypted key, making it impossible, thereby ensuring that the block remains unbreakable.

Consensus Mechanisms

In order to endorse and add transactions to the blockchain, various consensus mechanisms are employed, including:

• Proof of Work (PoW): Involves solving cryptographic challenges.
• Proof of Stake (PoS): Chooses the validator depending on the size of their stake (cryptocurrency) in the system.
• Delegated Proof of Stake (DPoS): Uses elected representatives to carry out the validation process.

These mechanisms guarantee acceptance by all the parties for the correctness of the transactions in question.

Distributed Ledger

Every member of the network has a copy of the ledger. Changes made to the database are updated across the network, ensuring uniformity and redundancy. This attribute renders blockchain immune to information loss as well as information corruption.

Programmability

Many blockchain networks use smart contracts, which are computer programs that execute certain functions based on the given rules. These contracts ensure that appropriate steps are taken in the business operation without any human interference.

Tokenization

Blockchain databases are used to issue and circulate digital tokens which represent economic goods, rights or a specific function within the system and other tokens. Tokenization helps to unlock new business models and change the way of asset management.

Interoperability

Increasingly, today’s blockchain databases are used in conjunction with other distributed ledger technologies and older systems. The Polkadot and Cosmos protocols are examples of efforts directed at augmenting interoperability and integration among distributed ledger technologies.

Privacy Options

Any public blockchain is completely open while in private and permissioned blockchains a degree of privacy can be set. Companies can cloak sensitive information but still preserve a decentralized structure.

Fault Tolerance

Because data is involved across various nodes of a single system, individual members or nodes cannot attack the system. In cases of single node failures, redundancy always guarantees high reliability and accessibility.

How Blockchain Databases Work

Blockchain systems operate on a model that is different from and better than traditional systems based on the centralization of control. Here’s a step-by-step explanation of the process:

Data Creation and Input

The process starts by entering new data. This could be a financial transaction, a supply chain transaction, or some other useful data. A transaction request is formatted by the application and includes the sending party attributes, receiving party details, time of transaction, and various other metadata.

Validation of Transactions

After the transaction enters the network and before it is added to the rest of the chain, it must be verified by other network participants and agreed upon according to certain rules that govern the operation of the network.

From this viewpoint, blockchain databases overcome problems of data validity by employing consensus algorithms—for instance, Proof of Work (PoW), Proof of Stake (PoS) among others.

Each node in the network has the power to approve transactions, which makes the system of approval trustless and not reliant on a single entity.

Block Formation

A block is formed once the pending transactions get validated and leaves the held state. The compositions that make a block include a record of authenticated transaction, date and time, a hash of the last block, and a unique number called nonce.

The process of clustering transactions into blocks enables the framework to have an orderly and systematic way of directing the information.

Consensus and Block Addition

In order to place a new block into the distributed ledger, the entire network should reach a consensus meaning every single node should be satisfied with the newly created block.

This is a procedure that is handled by the consensus algorithm of the blockchain, which could require running complex algorithms or putting up some resources. After consensus has been established, it becomes impossible to delete the block from the chain as it becomes added permanently.

Linking Blocks

Each block that contains information is linked to the prior one by a hashed value, thus creating an unbroken, unhackable chain of units with one leading to the other.

This linking mechanism proves that any alteration to a block would require changes to all of its successors, which in the end prohibits any impermissible changes within the decentralized network.

Data Distribution and Synchronization

Soon after the block has been included, all the nodes within the network receive the modified version of the blockchain.

This ensures that every participant owns an exact replica of the chain. Due to the decentralized characteristic of such databases and broad share of the nodes, it is likely that if some nodes cease operations it would not compromise the entire system.

Immutable Record Creation

As long as a block exists on the ledger, it will continue to exist in the state that it was written. The immutability guarantees that the data is accurate, unalterable, and can be accessed for auditing or tracking purposes.

Access and Querying

The data that is kept within the blockchain can be accessed and queried by the users of the network.

In the case of public blockchains, they can be found by all users. Private or permissioned blockchains grant access to the information stored in the chain upon request, which allows them to protect certain critical data from others.

Technical Components

The successful functioning of blockchain databases is ensured by several technical components, including:

• Cryptographic hash functions create unique identifiers for blocks and guard the data.
• Distributed ledger technology (DLT) forms the basis of the decentralized storage system.
• Smart Contracts are optional scripts which contain self-executed mechanisms when certain rules are met.
• Peer-to-Peer (P2P) Network allows the transfer of information to nodes without going through some central computer system.

Benefits of Adopting Blockchain Databases

First of all, databases are great because they’re secure. Each block in the chain is secured by complex mathematical formulas, so it is really difficult to change the content.

Additionally, a part of the data is scattered all over the network, thus there is no single point of failure, while a part is replicated across all the nodes in the network.

Another distinctive aspect is its immutability. It makes it ideal for securing data that must be 100% truthful, for example financial transactions or legal agreements.

Savings costs, to say, is also an advantage. Processes are automated, and unsophisticated barriers are eliminated, so costs are lowered with the help of blockchain.

For instance, in finance, there is no need for expensive and time-consuming verifications by other persons.

Let’s discuss reliability. Even if certain parts of the system are either turned off or attacked, the information remains intact and can be accessed later.

Finally, let it be noted that blockchain is ideal for global purposes. In maintaining goods across borders or sending payments overseas, information shortages are no longer a problem as blockchain provides all parties with access to the same and correct details regardless of their location.

Categories of Blockchain Databases

Because blockchain databases are not uniform, they range in shapes and forms and are geared towards achieving different ends. For our purposes in this discussion, let us classify them into four broad categories; public, private, consortium, and hybrid alternatives.

Public Blockchain

Of all the types of blockchains, this is the most open one as any individual can join it, see it, and take part in it. There is no one in charge—everything is put through a consensus mechanism, such as PoW or PoS.

A great example of a public blockchain is Ethereum. It’s ideal for situations that require full presence and global access, such as virtual currencies or development of decentralized applications or dApps.

But since everybody is participating, this blockchain can be slow and use a lot of energy.

Private Blockchain

Private blockchains are essentially closed communities. Only certain approved participants can see the data, as well as verify transactions, and in most cases, everything is in the control of one company.

A typical example is Hyperledger, which is widely applied in the banking, healthcare or logistics industry, where the principle of privacy and confidentiality of data is out of the question.

Consortium Blockchain

In case your project envisages several organizations to work together, then consortium blockchains are the go-to option for you. These are semi-decentralized blockchains that are administered by a number of different stakeholders.

For instance, R3 Corda is frequently mentioned in the financial domain to enable transactions amongst banks and other related institutions. However, sometimes it can be a pain to get multiple parties to coordinate together.

Hybrid Blockchain

Hybrid blockchains are a unique blend as they incorporate features of both public and private blockchains and allows you to decide what is visible to the public and what is kept only within the confines of the organization in question.

If you are looking for a balance between control and visibility, such as in worldwide commerce or supply chain management, then these are ideal.

An example is XinFin, which simplifies trading and finances, while allowing businesses to keep sensitive information safe. The downside? Due to their duality, they may be a bit complex to deal with.

Use Cases of Blockchain Databases

The potential of a blockchain technology can surely be viewed in a lot of its use cases. The implementation of blockchain in the industries that specifically deal with supply chain management can potentially help to eliminate targeted fraud by increasing the transparency of the operations made.

As for the financial services sector, blockchain technology enables virtually effortless transactions while ensuring impeccable safety. The technology allows patients to own their data in a secure environment while also sharing information across different health care providers.

Meanwhile, for voting or as a digital ledger for securing intellectual properties or real estates, the trustless nature of the blockchain eliminates the threat of fraud or simplifies transactions.

Other applications of blockchain technology involve securing digital identities or personal data, providing openness in food safety, automating the processing of insurance claims, and energy trading.

Challenges of Blockchain Databases

Blockchain databases are able to polish lots of processes. However, there are some problems to think about when implementing blockchain in a business.

The first issue is scalability. Due to the increasing popularity and booming transactions from hundreds of users, the performance of Ethereum or Bitcoin networks is not at its peak.

Once they reach a certain amount of functions or commands that users demand to be carried out, speed and expenses start to soar up.

The next crucial issue is energy consumption. Some blockchains consume a lot of energy, particularly those based on Proof of Work (PoW).

Because of the nature in which block construction is compensated for, the mining process uses a quasi-unlimited amount of electric energy which is not environmentally friendly.

Installing and setting up a blockchain-based database is not quite a simple procedure. Complexity and costs may also be an issue. Skilled blockchain developers are needed to optimize the system’s architecture.

Not to mention that the integration of a blockchain solution into an infrastructure of a business would require time and financial resources.

And do not forget the legal frameworks. Blockchain is still a somewhat unregulated field and their administration differs from location to location.

For instance, your business handles personal information; how do you implement GDPR’s “right to be forgotten” when all blockchain databases are non-editable? It is a complicated area where entrepreneurs and enterprises require to be more cautious.

How to Select the Appropriate Blockchain Database for Your Organization

Appropriately picking a blockchain for your business is quite similar to choosing the right equipment for a DIY project. There is a different solution for every problem. It offers various options, which is why it’s vital to comprehend what your requirements are before you get started.

Be Sure of What You Want

The very first question you should ask is what you actually need to use the blockchain for. Are you placing more emphasis on transparency, security, or the speed of the transactions? In cases where the requirements are to build something which everybody has access to, then it makes sense to build a public blockchain.

On the flip side, if you are more inclined towards having possession and privacy of your data, a private blockchain would suit you better.

Consider the Growth Factor

High volume transactions are poorly dealt with by certain blockchains. As an example, Bitcoin or Ethereum may become quite sluggish when there is a lot of traffic.

So if you think that your blockchain will be experiencing large volumes of users or transactions, point out that your blockchain needs to be able to scale up.

Set Parameters Regarding What You Wish to Control

How much governance do you prefer? If complete regulation is what you like then most likely a private blockchain is your match as you determine who enters the network and what occurs on it.

However, you might consider this solution less appropriate if you conduct business with other companies who will help in operating the network. In that case, you would require a consortium blockchain, where there are many parties in control of the network.

Safeguards and Insurance

If a business deals with sensitive data, such as client records or personal information, there is an aspect that requires more attention. For everyone to see any data, any existing public blockchains must be unclosed.

However, in a situation where everything needs to be kept private, a more suitable model is to use private blockchains, which grant permission to view information only to a few pre-approved individuals.

Regulatory Obligations

Depending on which field you operate in, there are certain obligations you may need to adhere to (GDPR in Europe, HIPAA in the US, or other specific industry).

Hybrids or even complete private blockchains are much less complicated when it comes to working within the legal frameworks since one can determine who can get access to the information.

Take a Look at the Community and Resources

Anticipate what tech behind your blockchain would be required and pick the blockchain that has a loyal community.

The development community will definitely assist in troubleshooting and maintenance since it is open-source. Additionally, as the community grows, finding support will become easier.

Take Into Account Your Financial Plan

Blockchain can get pricey, especially with more complicated solutions, so keep your budget in mind when using this solution.

Since there are blockchain development and continuing expenses involved when implementing a blockchain network, long term costs, such as maintenance and transaction expenses, should be factored in.

Be Practical

Finally, try to consider where your company will be a couple of years down the line. Can your business be able to use the blockchain that you choose as you expand? Consider looking out for blockchains that are improving continually and adding new tech inventions.

How to Build a Blockchain Database

It may seem complicated to construct a blockchain database. But it shouldn’t be a problem if you break it down into small, manageable tasks.

Clarify Your Requirements

It is important to establish the pain points before diving into the nitty-gritties of the tech world. For instance, which issues do you hope to overcome via the addition of a blockchain? When you have a clear understanding, it will be easier to decide what kind of blockchain you need.

Pick the Right Blockchain Platform

The next important task you have to do is choose an appropriate platform. There are a number of them available and each is used for different purposes. There are those which are good for making financial transactions, there are those that are good for corporations, and more.

Some of the more popular platforms include:

• Ethereum: Great for decentralized apps and smart contracts.
• Hyperledger: Best for business where there is a need for privacy and control.
• Corda: Mostly used for secure finance-related transactions.
• Polygon: Known for scalability and lower fees; ideal for DeFi.

Take some time to look at their features and decide which one will serve your demands best.

Plan Out the Blockchain Architecture

Now comes the major part—how your blockchain is going to work. Here, you must pay attention to the following:

• Access Control: Who joins and validates transactions? Do you want a private blockchain where you control access or something more open?
• Consensus Mechanism: This is how transactions are validated. It could be Proof of Work (PoW), Proof of Stake (PoS), or another method.
• Node Structure: How many nodes (computers/servers) will validate transactions, and who are the operators? A private blockchain means you have more control here.

Creating a decent blueprint before jumping into coding will save you a lot of time and headaches later on.

Develop and Test the Blockchain

Now that you have everything in order, it is time for the construction process. You might want to consider delegating the services to a reputable software development company to assist you in relieving the pressure that the construction timeline may exert on you. It will take all the work related to creation and testing for you.

Deploy and Monitor the Blockchain

When everything’s been tested and approved, it’s time to deploy the blockchain. Typically, you’ll launch it in stages—first on a testnet (basically a sandbox environment) to work out any last kinks, then move to the mainnet (the live, production environment).

After that, it’s necessary to watch things to make sure they’re running well. Monitor performance, transaction speeds, errors, and any potential safety breaches.

How SCAND Can Assist with Blockchain Database Systems

SCAND assists businesses in establishing a suitable model for integrating blockchain technology into their operations.

No matter if you’re starting from nothing or working with legacy systems, our team can implement a well-structured and well-run blockchain database. We take care of everything: build the blockchain infrastructure, develop smart contracts, and polish performance.

And after the launch, we are there to provide you support, regular updates, and any security checks.

By working with SCAND, you have a firm that understands how to implement the most suitable model for the management of the new chain.

In case you want to automate processes or make some operations even more open, we ensure that you will be able to maximize the potential of blockchain technology in your organization.

Wrapping Up

Blockchain databases offer a lot with their unique features. Although the challenges are there, the right knowledge and strong strategy could guide businesses to reach their best.

With SCAND by your side, you can use the potential inherent in blockchain technology, be it in supply chain management, finance, or healthcare and reap economic rewards.

FAQs

How secure are blockchain databases?

Blockchain databases are very secure, given their cryptographic algorithms and decentralized nature. However, vulnerabilities may occur via poorly designed systems or compromised private keys.

What are the best use cases for blockchain databases?

The best use cases include supply chain management, healthcare data management, financial transaction, real estate records, and vote systems.

Can blockchain databases be scaled to large enterprises?

Yes. There are already some ways being developed to solve this problem—sharding, layer-2 protocols, and advanced consensus mechanisms.

What steps do I need to take in order to embed a blockchain database within my current workings?

To integrate blockchain databases with your existing IT infrastructure involves APIs, middleware, and even custom development. This process will, of course, be less complicated if you are supported by professionals like SCAND.