Blockchain is gaining popularity because of the recent turmoil created by popular Cryptocurrencies like Bitcoin and Ethereum in the global financial ecosystem. Even the people who are not directly connected with the I.T. and software industry are growing interest in knowing more about this impressive technology. And why they shouldn’t be? Blockchain technology has so many practical applications in major industries like Finance, Supply Chain, Healthcare, Manufacturing etc. that each and every professional of the industry would have to deal with it sooner or later.
The reason behind the vast number of use-cases of Blockchain is in its features or rather in its definition. It is difficult to define Blockchain technology because it is a technological solution that has been made by combining multiple technologies. Before getting into what is Blockchain technology, let’s just be clear what it is not!
Blockchain is not (only)
Blockchain was originally developed with the thought of being able to transfer money peer-to-peer without the need of intermediaries like Banks. The idea was to build an ecosystem where people can do transactions among themselves transparently and securely, even if they don’t trust each other.
Eventually, in 2009, Bitcoin was developed – A digital currency which works on the principals of peer-to-peer transactions and can be exchanged in a network in which each member (computer) has a copy of the database (distributed ledger). Each transaction in this network is time-stamped and its details are encrypted through cryptographic hashing. This underlying technology on which Bitcoin works is the Blockchain.
In a Blockchain network, before a transaction is processed, it needs to be validated by the members of the network (called nodes) to ensure its authenticity. It is further verified by some specialized member of the network called miners, who compete with each other to solve a mathematical puzzle in order to verify a transaction. The miner who verifies the transaction first gets incentivized.
Blockchain is based on the concept of decentralization since it utilizes distributed ledger technology. Centralization of the data makes a system more vulnerable to security attacks. A hacker is able to steal the data more easily since it is all stored in a central place. Moreover, if this central system goes down, it leads to the failure of the whole network. On the other hand, in a decentralized network, even if a single node (computer) goes down, the network continues to operate. It is more difficult to steal any information since it is distributed among the nodes of the network.
One of the main reason why Blockchain is gaining popularity is the security features it offers. But what makes it so secure?
Firstly, whenever a transaction is initiated in the network, it gets known to all the nodes in the network. So a suspicious activity can be easily pointed out and appropriate action can be taken.
Secondly, after the verification of a transaction by the miner, the details of the transaction is recorded in the form of a cryptographic hash – a specific alphanumeric string of fixed size having a time stamp. If the original information gets altered, it would produce a different hash string.
Thirdly, after a specific period of time (varies for different Blockchains), transactions are stacked together in the form of a ‘Block.’ Each of these Blocks has the address to the previous Block, thus forming a chain of Blocks (hence the name ‘Blockchain’). To alter some information in a Block, a hacker would need to alter the information of all the Blocks in the chronological order, which is practically impossible.
Not exactly! But yes, Blockchain makes stealing/altering an information so difficult that it doesn’t make sense economically for a hacker to invest so many resources. In simple words, it makes hacking unprofitable. However, if a hacker can afford buying computational power, then he might be able to bypass the security features that Blockchain offers.
Since Blockchain was originally developed for financial transactions, its implementation is most fruitful for the financial industry. Some of the use-cases are as follows:
Cryptocurrencies are not governed by any regulations (in most of the countries) or fewer regulations as compared to fiat currency. They can be transferred almost instantaneously in any part of the globe without the need of any intermediary.
Blockchain technology is not a magical solution to every problem that exists on the internet today. However, if implemented correctly, it can streamline business processes reducing cost and time involved. It is particularly effective for the businesses where centralization of the data is a major concern. However, like any other new technology, it is still going through a buggy phase and can’t be called perfect yet.