Previous Year Question
With reference to ‘Blockchain Technology’, consider the following statements.
It is a public ledger that everyone can inspect, but which no single user controls.
The structure and design of blockchain is such that all the data in it are about cryptocurrency only.
Applications that depend on basic features of blockchain can be developed without anybody’s permission.
Which of the statements given above is/are correct?
Only 1
1 and 2
Only 2
1 and 3
Correct Answer: D
Detailed Solution
A blockchain is a form of Distributed Ledger Technology (DLT) in which transactions or other records are stored in the form of blocks. Each new block is connected to the previous block through a cryptographic hash, creating an ordered chain of blocks.
Statement 1 is correct. In a public blockchain, copies of the ledger are maintained by multiple nodes in the network, and no single user exercises complete control over it. Network participants can inspect transactions recorded on the blockchain and verify them according to the prescribed consensus mechanism.
However, every blockchain is not public. In a private or permissioned blockchain, network access and the authority to validate transactions may be restricted to selected entities. The statement in the question refers to the public and permissionless model of blockchain.
Statement 2 is incorrect. A blockchain does not record only data relating to cryptocurrency. It can be used for several types of records and transactions, including land records, educational certificates, supply-chain tracking, digital identity, healthcare records, insurance, smart contracts and asset ownership.
Instead of storing an actual document or a large file on a blockchain, its cryptographic hash and necessary metadata may be recorded. The document’s hash can subsequently be generated again to verify whether it has been altered.
Statement 3 is correct. On a public permissionless blockchain, a developer can create an application or Decentralised Application (DApp) using the basic features of the blockchain without obtaining prior permission from a network administrator. Smart contracts can automatically execute transactions or processes when prescribed conditions are fulfilled.
Nevertheless, describing a blockchain as completely immutable would be a technical simplification. Altering an old record is extremely difficult because subsequent blocks and distributed copies would also be affected, and network consensus would be required. Its security depends on network design, the consensus mechanism, cryptography and the distribution of participants.