I know what you are thinking. Another entry in the already existing vast literature on this topic. But let me warn you, if you do not make yourself aware of this technology now, you will be that person who disregarded the internet around 25 years back. Blockchain is such a revolutionary technology that set out to change the way we operate today.
Who Invented Blockchain?
Blockchain technology was first outlined in 1991 by two mathematicians Stuart Haber and W. Scott Stornetta. They wanted to implement a system where document timestamps could not be tampered with. Until January 2009, with the launch of Bitcoin, Blockchain technology found its first real-world application. A blockchain is distributed database that is shared among the nodes of a computer network.
How does Blockchain work?
A blockchain is a distributed ledger technology. It allows participants to record a data point and store it in a peer-to-peer network. The motive of blockchain is to allow information to be recorded and distributed, but not edited.
Basically, it is the footing for immutable ledgers, or records of transactions that cannot be altered, deleted, or destroyed. After 2009, the use of blockchains has seen an exponential increase via the creation of cryptocurrencies, decentralized finance applications, non-fungible tokens (NFTs), and smart contracts.
Let’s understand the working through an example of a transaction process:
- Let’s assume a new transaction of a bitcoin is entered.
- These transactions would be transmitted to a network of computers (nodes) scattered across the world
- This network of computers then solves equations to confirm the validity of the transaction
- Once confirmed legitimacy, they are clustered together into blocks
- These blocks are then attached together creating a long history of all transactions. These entries are permanent
- Every node has its own copy of these transactions, which makes this whole system decentralized and immutable
- After all these steps, a transaction is complete on the blockchain
How are Blockchains Used?
Just to give you a perspective, there are about 10,000 cryptocurrency systems running on the blockchain. Therefore, it goes without saying that the financial domain is the main consumer of blockchain technology. But in principle, the blockchain is actually a very dependable source of storing information about other types of transactions as well.
Some major companies that have already implemented blockchain include Siemens, Unilever, AIG, Pfizer, Walmart, etc. IBM has even created the Food Trust blockchain- an application in the supply chain- to trace the journey of food products.
Banking and Finance
As stated earlier, no other industry can get more benefits out of this technology but banking. Financial institutions mostly work during specified business hours and that too just five days a week.
So, even if you deposit a check during banking hours, it would take approximately two to three working days to complete the transaction. Blockchain, on the other hand, never sleeps.
By incorporating blockchain, consumers can see their transactions go through in as little as 10 minutes. Today, this is the time required to create a block owing to current technological advancement in computing brute force. With blockchain, banks also have the advantage of speed in exchanging funds and securities between institutions.
Blockchain is the backbone of cryptocurrencies like Bitcoin, Etherium, etc. Any currency is controlled by the federal institution of that country. Under this system, a user’s data and currency are technically on the whim of their bank or government.
Imagine what would happen if that system is hacked or literally collapses (2008 financial crisis).
By distributing its operations across a network of computers, blockchain permits Bitcoin and other cryptocurrencies to operate without the need for a central authority. This not only reduces risk but also eliminates many of the processing and transaction fees.
A smart contract is a computer-generated code that can be converted into the blockchain to enable, authenticate, or negotiate a contract agreement. They operate under a set of conditions that the users agree to.
When these conditions are met, the terms of the agreement are automatically carried out.
If you have ever spent days in a government office or recorder’s office, you will know the pain and time you waste during this entire process. It is very inefficient and quite tiring, to be frank.
A physical deed must be delivered to a government employee at the local office, where this data is manually entered into the central database and public record. The risk is high if proper security measures are not undertaken.
Blockchain has the capability to replace this entire system and make this very less time-consuming. If property ownership is stored and verified on the blockchain, owners can trust that their record is permanent and accurate. In the future, this facilitates people to transfer ownership with minimal documentation and in less amount of time.
Voting is a pain point in every democracy on this planet, especially in countries with unstable geopolitical situations. This technology can be implemented to carry out legitimate and quick voting procedures. Blockchain protocol helps to maintain transparency and makes votes nearly impossible to tamper with. This has the potential to abolish election fraud and boost voter turnout. We already have a case study of the 2018 midterm elections in West Virginia.
Pros and Cons of Blockchain
The key features of blockchain are its immutability, decentralized form of record-keeping, and secrecy. There are far more applications of blockchain in various industries but there are associated risks as well.
The key thing to understand here is that Bitcoin merely uses blockchain as a means to transparently record a ledger of payments, but blockchain can, in theory, be used to immutably record any number of data points. As discussed above, this could be in the form of transactions, votes in an election, product inventories, state identifications, deeds to homes, and much more.
As we enter the third decade of blockchain technology, it’s no longer a question of adaptability- it’s a question of when. Today, we see a proliferation of NFTs and the tokenization of assets. The coming years will be playing an integral part in the development and widespread of blockchain.
In conclusion, blockchain is here to stay for a very long time, the same cannot be said for cryptocurrencies, or can it? Let us know your thoughts in the comment section below.
Cover Photo by Olya Kobruseva: https://www.pexels.com/photo/smartphone-pen-calendar-and-eyeglasses-on-flat-surface-7887800/