There was quite a buzz regarding cryptocurrencies like Bitcoin last year and probably for the first time we heard the name of Blockchain. Most of the people misinterpret Blockchain technology being same as Bitcoin. But the fact is, the underlying technology behind Bitcoin is Blockchain. In other words, Bitcoin is just one of the applications of Blockchain, not the whole of it. In order to understand why there is so much hype about this technology, we must learn what it is exactly?
Blockchain is a shared, decentralized (or, distributed) ledger that runs on smart contracts and has the potential to track and trade almost anything, tangible or intangible. By distributed ledger we mean a database which is shared, replicated and can be synchronised across multiple places at a time consensually. This leads to shedding of cost and vulnerability that are involved in current processes. In simpler terms, it records transactions in Blocks and each transaction is recorded using a Hash function (a bit of cryptographic math that makes the links between blocks virtually unbreakable) which is unique for every transaction. Each consecutive block created, records the transaction of the preceding block, thus joining the two. Thus, the authenticity and verification of the preceding block is ensured. Furthermore, the preceding blocks cannot be altered in any way in a blockchain as the transactions are verified by the consensus of the relevant stakeholders/participants (also called as NODES).
SOURCE: Financial Times
The blockchain is made up of these networks of nodes. Node is a computer connected to the blockchain network which gets a copy of the blockchain and then gets automatically downloaded upon joining the network. The existing participants can see everything that is available as per the needs. Since the transactions are recorded in blocks and are linked together forming a chain, hence the name Blockchain.
As most of the people believe, Satoshi Nakamoto, primarily developed this technology to cater to the need for an efficient, secure, cost-effective and reliable system for various monetary transactions by the way of BITCOIN as it has the capability to address complexities like long time to settle a transaction and the increasing volumes of transactions. But there is a lot more than what meets the eye.
Since this technology is mostly an open source, any user can modify it as per his/her needs and because there are many users logged in, altering data can be extremely tough thus making it a secure technology.
Decreased transaction costs
Any Intermediaries (usually a bank) are eliminated which reduces the cost to the users or businesses. Moreover, it will mark the end of duplication as the required participants can easily access the shared ledger.
Rapid transaction settlements
As compared to traditional banks, where transactions take a lot of time to settle (due to less working hours, different time zones and the protocols involved), blockchain technology works continuously 24*7*365 thereby increasing the speed with negligible error.
The nature of blockchain technology is a revolution and it would not be wrong to say that it could be used for a variety of other purposes like as follows:
Blockchain technology can be used to track the movement of goods, their place of origin, and the quantity as it is traceable and cost-effective.
Using Blockchain technology will eliminate the chances of human error and data alteration. As a result, the entire accounting process also becomes more efficient and integrity of a company’s financial information is also guaranteed.
This has many aspects. Firstly, at the time of voting, use of this technology will significantly diminish the likelihood of electoral fraud, which is a grave issue despite the prevalence of electronic voting systems. Secondly, managing huge piles of records take up a lot of time and resources, and blockchain could make a big difference in areas like this.
As mentioned before, the slow speed of settling transactions adversely affects the businesses. With the help of smart contracts, agreements can be automatically validated, signed and enforced through a blockchain concept. This eliminates the need for mediators and therefore saves the company both time and money.
It is no surprise that with the benefits of transparency, speed, no intermediary and automated process, blockchain in this field is certainly going to reduce the operational risks and make the transaction process a lot simpler.
Blockchain can track more than marketable transactions; it is also capable of holding and protecting sensitive data. For instance, ID papers have conventionally been issued and monitored by governments. But digitally-issued identification via blockchain could be a more secure mechanism, hence avoiding the sharing of too much vulnerable personal information by the user.
In the education sector, blockchain technology can be of immense help. It will replace paper, consisting of school certificates, grade sheet etc. which might get lost. Once put in the blockchain, the student will be himself responsible for his documents. Result? Hours of time and labour saved in keeping them safe, reduction in wastage of paper thereby saving billions of dollars. If less paper is used, less damage to trees will happen and ultimately the cost of paper and printing would reduce.
During the hiring process, a significant time of recruiters can be reduced which goes in verifying the credentials of the candidates like education, skills, and performance. For the candidates, the technology could be of big help in keeping their records safe in case anything happens to their school or business. Apart from this, blockchain could also be used to perform background checks, employee review, and prevention of fraud in HR.
As more devices and objects are connected to the Internet of Things, the amount of data that will be created and collected will rise significantly. This data will be hugely valuable to insurers as they can develop more accurate actuarial models (EY report: Blockchain in Insurance). The encrypted data gathered in the auto insurance market about driving times, distances, acceleration, braking patterns, and other behaviors can be gauged to identify high-risk drivers, validate information included on applications and give customers more control over their premiums. This will enable the customers to trust the technology as a reliable means of storing information as fraud can be detected and risk can be prevented.
The list is endless.
The second part talks about what India and the other countries have been doing with Blockchain technology which could be read in the upcoming article.
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Image credit: Kryptomoney
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