Blockchain Technology, the fundamental technology underlying smart currencies, smart contracts, and various other smart services, was introduced in a seminal paper under the pseudonym Satoshi Nakamoto in 2009. Assumed to be the most important invention since the Internet, it is the core technology behind Bitcoin.
A blockchain can be defined as a public ledger of all transactions and a distributed database of records. Each transaction is recorded in a block in a chronological order. All the market participants can keep the record of the transactions. Each transaction is corroborated by the consensus of the majority of participants in the system.
Mining is used as the variant for this process (consensus) in Bitcoin. Each block is chained with the next block using cryptographic signature. Upon joining the chain, each connected computer receives a copy of the blockchain that stands as a proof of every transaction ever executed. This creates an indelible record that cannot be tampered.
Blockchain data is very different from the traditional database where the user (called client) can modify the data stored on a centralized server. There are various decentralized nodes in a blockchain. Any addition to the blockchain is verified by all the nodes. All the nodes must reach a consensus in order to make any additions to the blockchain. This consensus mechanism ensures the security of the network, making it difficult to manipulate it.
In the words of its creator, blockchain technology is a system based on cryptographic proofs than the trust-in-the-third-party mechanism that allows any two willing parties to transact directly.
The most disruptive aspect of Blockchain Technology is its ability to eliminate the need for third-party intermediation in some transactions. The key features of a blockchain are:
– Creation and maintenance of an electronic register of transactions
Blockchain lists each transaction that has been recorded by the system. Each set of a transaction is considered a block in the chain (size of which is described by a protocol) and the register as a whole is called blockchain. Every new transaction is verified by the node is added to the chain.
– Encryption of hashes to maintain authenticity
Data is encrypted using an encryption method known as cryptographic hashing. Once a transaction is submitted, contents of the transaction with a few key pieces are encrypted using a mathematical algorithm. Any change in the document will result in a different hash. Therefore once a transaction is recorded, it cannot be altered.
– Validation of transactions
Public verifiability is one important feature of blockchain that provides transparency and integrity. There are two keys- a public key, that is known to all and a private key. A sender his or her private key to encrypt information about transaction data. The recipient (all nodes across the network) are then able to decrypt the information, required by blockchain’s protocol to validate a transaction, using their public key. The technology uses smart contracts and digital signatures to secure communication.
The process of tying blocks together is called timestamping. This eliminates the problem of double spending. For example, if an individual transacts 10 units at 10:00 and transacts the same unit at 10:01, the network will invalidate the second transaction. This allows data to be stored in a chronological manner in a blockchain. Trusted timestamp servers ensure that timestamps are resistant to compromise.
Advantages of Blockchain
Blockchain Technology represents a revolution in how information is gathered and stored. Cryptographic keys provide a new and secure way to manage digital identity that avoids the user from sharing too much vulnerable personal information. It automatically creates a record of who has accessed the information and set controls on the permission required to obtain information.
World Economic Forum has stated that Blockchain, or distributed ledger technology, could soon give rise to a new era of the Internet even more disruptive and transformative than the current one. Blockchain’s ability to generate unprecedented opportunities to create and trade value in society will lead to a generational shift in the Internet’s evolution, from an Internet of Information to a new generation Internet of Value.
Beyond just being a trusted repository of information, it could enable regulatory compliance in code form i.e. how blocks are made valid could be a translation of government legal prose into digital code.
Blockchain technology has provided a transparent system that reduces cost, processing time and disintermediation. It has led to an important and disruptive trend in fields other than cryptocurrencies. As the mass acceptance of this technology grows, more investors have started seeing this technology as a money-making opportunity.
For other real-time use cases of Blockchain, See How Blockchain helps in KYC and Identity Management
This definitely gives us a glimpse of the possible future transactions. Let us know your views on the same, below!!