Blockchain is a new interesting technology that enables moving digital currency or assets from one individual to another. A complete guide about what is blockchain and how does it work?
In 2008 the financial industry crashed and a person or Satoshi Nakamoto (pseudonym) came up with a protocol for a digital cash that used an underline Cryptocurrency called Bitcoin, this Cryptocurrency enabled people to establish trust and do transactions without a third party.
In this article, we are not going to talk about what Bitcoin is but what blockchain is and how does it work? How it is used in industries. Blockchain is the vehicle through which transactions are done, it has evolved from just doing Bitcoin transactions to other monetary, assets transaction chains.
It has a democratized system with no central authority. The information on Block chain is open for everyone because of it being a shared and immutable ledger. Everything on the Blockchain is transparent and everyone involved is responsible for their actions.
What is Blockchain?
Blockchains are digital blocks that have digital information stored in them. They are basically made up of pieces of information and have three parts.
- One of them stores information about the date, time and dollar amount of your recent purchases and transactions.
- Another part Stores information about who is participating in a certain transaction. The block does not store or use your actual name instead of stores your information using a unique “digital signature,” like a username.
- It stores information to distinguish one block from another as well. Each block stores a unique code that’s called “hash” a cryptographic code using special algorithms to be created. Suppose you make a Splurge purchase on Amazon, but while it’s still in transit, you decide you just can’t resist and need another one. The details of both of your transactions would look identical but we will still be able to tell the blocks apart because of their unique codes.
Private vs Permissioned Blockchain:
Everyone has access to the information on Blockchain and users can connect their computers to the Block chain network as nodes. When you connect your computer to the network you get a copy of the blockchain that updates automatically when a new block is added just like Facebook’s news feed that gets updated with every new status.
Every computer that’s connected to the block chain has its own copy of the network, which means that there are thousands or in the case of bitcoin millions of copies of that one blockchain alone. Even though all of the copies of the block chain are identical but the fact that the information is spread across millions of computers makes it difficult to manipulate. If a hacker is trying to manipulate data on the block chain then he won’t have to manipulate just one copy but every copy across the network. That is the reason block chain is being called “distributed ledger”.
Blockchain does not give you an access to identifying information about the users making transactions but the transactions are not completely anonymous either every user has a digital signature or username that raises a valid question that if we don’t know whoever is adding blocks to the blockchain then how can we put our trust in Block chain network or the computers upholding it?
Is Blockchain Secure?
Blockchain technology takes several precautions for the trust and security of the users.
- Blocks in the block chain are stored linearly and chronologically. They are always added to the end of the blockchain.
- When a block has been added to the end of the block chain, it becomes very difficult to alter the contents of the particular block because each block has its own hash and the hash of the block before it.
- Hash codes are created through a specific math function that turns digital information into a string of numbers and letters and if that information gets altered in any way the hash code alters with it, which makes it very difficult to be hacked or misused.
- The Hash codes play an important role in the blockchain security. Suppose a hacker tries to edit your transactions from Amazon to try to make you pay for your transactions twice but as soon as the dollar amount of your transaction changes the block’s hash changes with it but the block next to it will contain the old hash which will make it necessary for the hacker to change every hash in the block chain in order to cover his tracks throughout millions of computers which is humanly impossible. so once a block is added to the blockchain it becomes impossible to delete or edit.
- To make the network more trustworthy the block chain networks have implemented tests that are called “consensus models” for the computers that want to join and add blocks to the chain. The tests require the users to prove themselves before they are able to participate in a blockchain network.
- Bitcoin has employed a certain test which is called “Proof of work” in the Proof of work computers prove their worth by solving complex computational math problems. When a computer solves a problem they become eligible to add a block in the blockchain.
- The process of adding a block to a block chain which is called “Mining” in the cryptocurrency world is not easy at all, in January 2020, the odds of solving one of these problems on the Bitcoin network were one in 15.5 trillion.
- Computers run programs that cost them a significant amount of power and energy to solve these complex math problems at impossible odds. That proof of work system makes it useless for the hackers to coordinate an attack on the block chain if not impossible because they need to be able to control more than 50% of all the computing power on the blockchain in order to overwhelm all of the participants in the network. Looking at the tremendous size of the Bitcoin block chain makes it not worth the effort and almost impossible to hack it.
The Practical Applications of Blockchain Technology:
Along with storing data of monetary transactions block chain stores data about another type of transaction as well.
It can be used to store data about property exchanges, stops in a supply chain and you can store votes for a candidate too.
Deloitte that’s a professional services network recently surveyed 1,000 companies in seven countries about integrating blockchain Into their business setups.
In their survey, they found that 34% companies already had a block chain system in production and the remaining 41% are expected to deploy a block chain application the next 12 months and 40% of the surveyed businesses reported they would invest $5 million or more than that in blockchain in the next year.
Here are some of the popular and practical applications of the blockchain that being explored today.
Uses of Blockchain in Banks:
Banks are going to benefit a lot from integrating blockchain into their business operations because with blockchain consumers will be able to see their transactions processed in as much as 10 minutes while normally financial institutions take one to three days to make your transactions while all it takes for a blockchain is 10 minutes to add another block to the network and make your transactions regardless of the time and day of the week because it never sleeps and has no off days.
It also provides an opportunity to banks where they could exchange funds and do transactions between institutions more easily and securely because in the stock trading business the settlements and the clearing process takes up to three days or longer in case the bank is trading internationally in all the time that the transactions take the money and shares stays frozen and all the while that the money is in transit it carries significant costs and risks for the bank.
Santander and Capgemini a European bank and a French consultancy respectively estimated that the consumers could save up to $16 billion to $20 billion in banking and insurance fees through blockchain-based applications each year.
Uses of Blockchain in Cryptocurrency:
With Currencies, that’s regulated and verified under a central authority that’s either a bank or government the user’s data and currency are at the whim of the bank or the government and if the bank goes bankrupt or the government is unstable then it poses a risk for the value of the currency, bitcoin was borne out of these uncertainties.
With blockchain bitcoin and any other currency can operate without any central authority which reduces risks and eliminates processing and transaction fees and provides a stable currency with more applications and a wider network to those in unstable countries with unstable currencies.
Uses of Block chain in the Health sector:
Health care providers can store their patient’s medical records or their medical history in the blockchain which ensures the patient that the records couldn’t be altered or changed. The records on the blockchain could be encoded and stored with a private key which gives access to only certain individuals ensuring its privacy.
Uses of Block chain in Property record:
Blockchain has the potential to give accurate and efficient property records to individuals, unlike the local recorder’s system that’s both burdensome and inefficient, the records in the local’s recording system are updated manually which is costly and timing consuming and riddled with human error and inaccuracy, while with records on the blockchain, owners have the satisfaction of knowing that the deed or the records will be accurate and permanent with the fort Knox privacy blockchain provides.
Uses of Block chain in Smart contract:
A smart contract is an online contract that’s built into the blockchain using computer code. It operates under a set of conditions that the users agree to when the conditions are met by the user then the terms of the agreement automatically get carried out.
Suppose someone rents you an apartment using a smart contract and say that they would give you the door code upon receiving your security deposit both of you send your portion of the deal to the smart contract, which holds on to it and automatically exchange the door code upon receiving the security deposit and if the owner fails to give you the door code by the rental date than the smart contract refunds your security deposit automatically which eliminates the fees of a notary or a third-party mediator.
Uses of Block chain in Supply chain:
Forbes has reported that the food industry is moving towards using blockchain to keep track of the path and safety of the food throughout the farm to the consumer journey.
Blockchain can be used in recording the origins of the product and where they have been purchased, which would allow help companies to verify the authenticity of their products with labels like organic, local and fair trade.
Uses of Block chain in Election:
In the 2018 midterm elections in West Virginia voting with blockchain was tested. With block chain, each vote is stored as a block on the network making it impossible to be tempered with. It would also maintain transparency, reducing the personnel needed to conduct an election and will provide instant results.
Blockchain was first proposed in 1991 as a research project from then to now it has seen two decades and has been scrutinized a lot, with companies from around the world speculating that how does the technology work what is it capable of to where it’s headed in the near future.
Blockchain is finally making a name for itself from bitcoin and another cryptocurrency to making businesses and other government operations more accurate, efficient and secure, it’s now just a question of when is the legacy companies going to take on the technology.
Originally Published on Everyday Science Blogspot