If you’re an employee of an investment firm or an entrepreneur trying to get your latest startup up and running, its likely you’ve come across the term blockchain. So, what is a blockchain? What’s the potential use case of it or why should you need to know more about it? In this article we’re going to explain the terminology, the use cases and the impacts of the blockchain technology in depth. So, grab a hot mug of coffee and get ready to dive deeper into this revolutionary technology.
How it All Started:
For hundreds of years, industries have been depending upon a centralized form of system in order to achieve their financial targets. In a centralized system like a bank, a particular organization or system takes care of the financing and other parties like the customers depend on the action of the central organization. In this system, the third parties are solely depending on the authority and have no control over their action. If any problem arises, like credit card fraud or bankruptcy, the customers have no control and have to suffer as a consequence of others.
So when the internet became mainstream, authorities were trying to overcome these potential problems and became curious about digital currency, as it might put an end to these problems. In 1991 researchers came up with the technique now known as blockchain technology. This is a decentralized system opposed to the centralized form and was intended to be an alternative form of trading system. But industries didn’t pick up the blockchain technology then and continued to use the centralized legacy system until 2008. In the year 2009 came the now massively popular bitcoin technology. Bitcoin is a cryptocurrency system invented by Satoshi Nakamoto using the blockchain technology.
Formal Definition and Technique
The blockchain technology can be formally defined as a decentralized form of network and is a continuously growing list of records, called blocks, which are linked and secured using cryptography. The decentralization is gained by using peer to peer connection instead of central connection used in legacy systems. This system is composed of an infinite number of blocks. Each block contains three elements, namely the data, the hash and the hash of the previous block. The data part contains the actual information, the hash is unique for each block and a block is connected with others using the hash of the previous one. The hash is the part that helps building the connection between each block and is one way, thus preventing any attempt to break.
As with any technology used in industry, security is an integral part of any blockchain. The blockchain technology is famous for its security integration actually. As we already know, every block in a blockchain has an unique hash. If any user changes the data of a particular block, the hash is recalculated. This means the block is also changed and any block connected with the previous is not connected with the new one anymore. So in order to change a blockchain you’d need to change both the new block and recalculate the hash associated with all the other blocks connected to that block.
Computers nowadays are very powerful and can calculate thousands of hash in a second. So its technically possible for a malicious user to recalculate all the hashes to change a blockchain overall. Thats why blockchain has a proof of concept technique. According to this, after changing a block you can not gain access to the next block for a minimum amount of time set by the technology underneath. In bitcoin this amount is 10 minutes. Thus preventing the recalculation of all the other blocks. The blockchain technology has also another security measurement. For establishing a new block the block must be accepted by a minimum 50% users on that network. So in order to gain access of a blockchain a hacker would need to change a block, recalculate all associated hashes after waiting 10 minutes for each block and have access to minimum 50% users system. As this is impossible to mitigate, the blockchain is one of the most secure system till date.
Blockchain Technology Used in Bitcoin:
Bitcoin is a cryptocurrency built on top of blockchain. It uses a decentralized ledger which registers the currency across peer to peer distributed network. A ledger is a registry which registers incoming and outgoing currency with the correspondent balance and used by all the financial organizations across the globe. It is a very secure trading currency and use the SHA-256 hashing algorithm to ensure security. If you want may like to read about the future of cryptocurrency.
With the rise of bitcoin, people all over the world realized the importance and significance of blockchain technology. Bitcoin utilizes this technology for creating and using a form of digital currency or cryptocurrency. But it has enormous amount of applications associated outside the currency platform. The use case scenario is huge and would require another one or two whole article to explain in detail. As this article was meant for a introduction to blockchain technique, we won’t go that far. However, in short, anything that has a value associated with it can use the blockchain technology in order to achieve a decentralized system of trade and ensure highest customer satisfaction. It can be used to ensure great banking service, peer to peer loan service, asset trading, stock exchange, voting systems, tax collection, smart contracts, nonprofit organizations and so much more.
Importance to Customers:
You might be thinking, okay blockchain is great but why would I as a customer use a service based on this? What’s the benefit?
The advantages of blockchain are transparency, authentication and auditing. By using a service based upon blockchain technology, you as a customer can view the service in total transparent mode. Suppose, you’re buying a drug from a store. How do you know that the drug is legitimate and not counterfeit? There’s actually no way to tell this if you’re using a centralized distribution system. In this system, the manufacturer produces the drug, supplies those to distributors from whom you’re buying that. You as a customer has no way of telling if the drug actually came from a legitimate supplier. But if the store was based on blockchain technology then the total process would be hundred percent transparent. In a blockchain system, the users are solely control of authentication and can ensure their data is not tampered. The auditing of different blocks depend on you, thus removing any necessity of buying third party auditing services for your business.
The world is embracing technology very fast and its guaranteed that this awesome innovation will take trading marketplaces by storm. Already most banks and investment firms have established their own blockchain. And as computers are getting cheap and smartphone becoming available to the whole world, blockchain will take over all the other form of businesses very soon.