The ABC of Blockchain Technology and How It Can Shape the Future
Vishal Agrawal | May 24, 2019
Blockchain is a revolutionary, potentially groundbreaking, and disruptive technology of the 21st century. It is a distributed open ledger, which keeps an end-to-end digital record of any given transaction. As per the term, it is a block of one or more transactions, and these blocks form a chain. Blockchain is:
public, but at the same time provides anonymity to the parties involved in the transaction.
immutable and unalterable.
decentralized and requires consensus for any change.
a system to preserve the transaction history.
Bitcoins and Cryptocurrencies
Blockchain is a framework for managing distributed ledger, while Bitcoin is a Cryptocurrency, which is built on Blockchain technology. Other common cryptocurrencies inlcude Ethereum, Ripple, and Litecoin among others.
Satoshi Nakamoto (pseudo-name) invented Blockchain and Bitcoin in 2008-2009 when the world’s financial institutions and banks were undergoing turmoil and were falling apart. Bitcoin is a digital currency, which is not owned by any central bank. It can be transferred from a user to another without the need for intermediaries.
Left – Transaction processing with Central Bank (clearing house) | Right – Transaction processing in a distributed network, where each has a copy of the ledger
Lets’ assume a network of 10 parties, and we need to perform a transaction between two parties. When this transaction is posted on the network, other parties compete to create a solid mathematical proof of that transaction. Transactions are verified by network nodes through Cryptography and recorded in a distributed ledger. Blockchain uses public-private keys for signing the content transferred over the network and hashing to check whether the contents are transferred without compromise. To achieve independent verification of the chain of ownership, each network node stores its own copy of the Blockchain ledger. The Blockchain architecture allows a distributed network of computers to reach a consensus without the need for central authority or intermediaries.
In a P2P (peer-to-peer) Bitcoin network, participants working on creating Blockchain distributed ledger are often called miners. They are rewarded with Bitcoins for their contribution to computing power for validating the transaction and forming a block. This comes in the form of both newly issued Bitcoins and from the transaction fees included in the transactions. The share of the reward depends on the computing power miners contribute. In most countries, Bitcoin mining is legal. In early days miners were able to use the computer CPU or high-speed video processor card. Today, custom Bitcoin ASIC chips offer performance up to 100x the capability and are available on the Amazon marketplace.
The Future of Blockchain Technology
“Blockchain will do for transactions what the internet did for information,” is a famous quote by the CEO of IBM, Ginni Rometty. We all know the impact of the internet on the information, which was earlier in silos and difficult to get access. Therefore, it might not be wrong to say that what we are seeing in terms of Blockchain technology currently is just the beginning.
Blockchain-based cryptocurrency is gaining traction around the world. Many organizations and individuals have started transacting using this digital currency. A Cryptocurrency Exchange is a digital marketplace where traders buy and sell cryptocurrency using US Dollar (or any other government-issued currency). Some of these exchanges have also set up a derivatives trading platform for trading futures and options in digital currency.
Blockchain technology helps in gaining transparency, speed in connecting diverse endpoints, and ease of reconciliations, and many organizations around the world are betting big on it. They are working on Blockchain-based applications to showcase POV (Proof of Value).
Some of the potential use cases which can utilize Blockchain in future:
Blockchain for Finance – When we buy/sell a stock, it takes a few seconds and shows transaction is complete. However, the settlement of the transaction takes multiple days. With Blockchain, the settlement time can be significantly reduced.
Blockchain for IoT – We currently have 7 billion IOT connected devices. As per the latest trends, we will have 22 billion connected devices by 2025. These devices generate a massive amount of data, which are currently stored in silos, and organizations have no clue on how to use the data. Applications can be built using Blockchain for sharing the data across organizations.
Blockchain for Supply Chain/Logistics – The problem with supply chain companies is of trust. Do we know the product being sold is ethically sourced? We have to count on the brand and the brand promise. Each SKU (Stock Keeping Unit) in the supply chain goes through multiple cycles before it is consumed by the end-user. Blockchain applications can help in tracing the provenance (origin) of the SKU.
Blockchain for Smart Contracts – When we enter into a contract with someone, we need an intermediary for the formalization and enforcement of the contract. Blockchain helps in automating this transaction and guarantee a greater degree of security.
Blockchain for Healthcare – Drug Traceability using Blockchain can help in fighting counterfeit drugs. It is estimated that 10% to 30% of drugs sold in developing countries are counterfeit. On the other hand, large groups of people are involved in clinical trials, and a significant amount of data is produced. This data is often altered or modified, and Blockchain helps in eliminating this.
Many believe that Blockchain may be in the throes of the technology’s hype cycle, but it also has the potential to transform every aspect of society. Blockchain will remove intermediaries from information exchanges and will help in sharing valuable data in a secure, tamper-proof way.