It has been undeniably one of the most ingenious inventions of this modern era. A technology that has ended up being the backbone of a new type of internet by allowing digital content to be distributed but not copied. The identity of the creator of this technology still remains a mystery and the only thing known about this individual or group of individuals is that they are known by the alias Satoshi Nakamoto. Originally it was devise for the birth of the digital currency era with the creation of Bitcoin but since its inception, the tech world has found other ways to fully utilize the technology and it has evolved into something greater but the question that has railed people up to this day is what blockchain really is and what the benefits of embracing it are.
A blockchain is a time-stamped series of immutable record of data that is managed by a cluster of computers that are not owned by any single entity. Each of these blocks are secured and bound to each other using cryptographic principles (i.e. chain).One thing the world needs to understand is how it works in order to embrace the properties that make it so important and ingenious. According to Don & Alex Tapscott, authors of Blockchain Revolution (2016),”The blockchain is an incorruptible digital ledger of economic transactions that can be programmed to record not just financial transactions but virtually everything of value.”
Imagine a spreadsheet that is duplicated thousands of times across a network of computers. Then envision that this network is designed to regularly update this spreadsheet and you’ll have a basic understanding of the blockchain. Information held on a blockchain exists as a shared and continually reconciled database.
- A blockchain network has no central authority in other wards it’s a decentralized system.
- Since it is a shared and immutable ledger, the content in it is open for anyone and everyone to see hence anything that is built on the blockchain structure is by nature transparent and everyone involved is accountable for their actions.
- A blockchain carries an infrastructure cost but has no transaction cost. It’s a smart way of securing content flow from A to B in a fully automated and safe manner.
- Once a party to a transaction initiates the process of creating a block, it’s verified by thousands and millions of computers distributed on the network.
- The verified block is added to a chain which is stored across the net creating not just a unique record but a unique record with a unique history. Falsifying a single record would mean falsifying the entire chain in millions of instances. Bitcoin uses this model for monetary transactions but it can be modified to serve other purposes.
- Blockchain transfer is free and can store money. It replaces all processes and business models which rely on charging a small fee for a transaction. You can charge for anything in any amount without worrying about third parties cutting into your profits.
Once the merits of a safe ledger without transaction fees is widely interpreted and implemented, financial institutions will go bankrupt and be forced to adapt fundamentally after all, the financial entities are built on taking a small cut of the client’s funds for the privilege of facilitating a transaction.
Currently, there are at least four types of blockchain networks, public blockchains, private blockchains, consortium blockchains and hybrid blockchains.
A public blockchain has absolutely no access restrictions. Anyone with an internet connection can send transactions to it as well as become a validator (i.e., participate in the execution of a consensus protocol). Usually, such networks offer economic incentives for those who secure them and utilize some type of a Proof of Stake or Proof of Work or algorithm.
Some of the largest, most known public blockchains are the bitcoin blockchain and the Ethereum blockchain.
A private blockchain is permissioned. One cannot join it unless invited by the network administrators. Participant and validator access is restricted.
Why should business entities embrace blockchain services in the first place?
- First and foremost since blockchain is decentralized, data isn’t stored in one spot because everyone on the network owns the information which makes it such a hard target for potential hackers.
- When centralized systems like the one that traditional financial institutions run go through a software upgrade, the whole system comes to a halt which isn’t the same with blockchain in which case the system keeps operating even when under a software upgrade.
- With blockchain since the information is shared across the network, it’s always accessible which isn’t the case with the centralized entities which make it hard to access information when they shut down for whichever reason.
- In scenarios where individual entities want to interact, it’s very possible without having to go through a third party. You and you alone are in charge of your money. In other terms, you can send your money to anyone without having to go through the bank.
- Security measures are reinforced. A person’s identity is hidden via complex cryptography and represented only by their public address so in cases where people look up for people’s transaction history, one would only find an address i.e. “1mfykujfm7890 sent 1BTC.It also works two ways. If you know your company’s address, it’s easy to see the transactions that they engage in which makes it easy to monitor.
- Blockchain technology can be used to create a permanent, public, transparent ledger system for compiling data on sales, tracking digital use and payments to content creators, such as wireless users.
- Blockchain content is immutable meaning that once entered into the blockchain, it cannot be tampered with. Imagine how this could be a relief for financial institutes. Embezzlement cases would be solved in a jiffy if people were unable to “cook the books” and fiddle around the company accounts. This is achieved by the cryptography hash function which means taking an input string of any length and giving out an output of a fixed length.
- The potential for added efficiency in share settlement makes a strong use case for blockchains in stock trading. Initially there are always three days for clearances in these sectors but with the elimination of intermediaries, it becomes instantaneous.
In conclusion, most financial institutions have recognized the value of blockchain technology and some have even started implementing it.
Companies especially in the entertainment sector are using for protection of intellectual property for example digital information. Smart contracts have been developed off the back bone of blockchain to protect copyright and automate the sale of creative works online eliminating the risk of file copying and distribution. All in all companies world-wide need to embrace the need for blockchain technology and contemplate about the merits of implementing it.