Blockchain is the ingenious creation by a person or group known by the pseudonym Satoshi Nakamoto. Blockchain still remains a complex concept for many individuals and established systems. You must have encountered the complex definition of blockchain: Blockchain is a decentralized, distributed public digital ledger. Don and Alex Tapscott’s definition is quite simple and drives home the point. Blockchain is an incorruptible digital ledger of economic transactions that can be used to record everything of value.
As the name implies, blockchain is literally a chain of blocks. It is a public digital database shared across a large network of computers. These computers connected to the blockchain network are known as nodes. Identical copies of every transaction made are recorded on all the blockchain nodes. So, in order to alter these data, changes must be made on every node.
Blocks, in this case, refer to digital information about transactions. This includes the date, time amount and the participants in the transaction. When a new transaction is made it is recorded in a new block. This new block is then added to the previous existing block hence, the name, blockchain. In a matter of seconds, the blockchain nodes will verify the validity of this transaction.
The blockchain technology prevents the double-spend problem of online transactions. Every user is assigned a private key and a public key to be shared with other users. The main idea is to provide a distributed database of transaction records for all participating parties. Once a record is created and accepted in the blockchain, it cannot be altered.
It is important to note that contrary to misconceptions, blockchain and bitcoin are not the same. Bitcoin and Ethereum are applications of blockchain technology.
Understanding a Transaction in Blockchain
Before a new block is added to the chain, certain conditions must be met. First of all, a transaction which could be a purchase or transfer must be initiated. The approval of a transaction is via a process known as a consensus. A consensus is an agreement between all the nodes in a blockchain. 51% of the nodes must agree on a transaction before it is approved.
After a transaction is verified as accurate by the nodes, it is then given a hash value. This hash value is a string of hexadecimal characters that link successive blocks in the chain. This linking secures the entire blockchain from data alterations.
The blockchain network has no central authority and is thus a decentralized or democratized system. This, from a novice point of view ought to be a weakness in the technology but is however an advantage. A central authority could mean a hacker is authorized to make changes in blocks. But now, to make changes, you have to alter the hash of the previous block till the very first block. Even in your wildest imagination, it’s quite impossible to accomplish.
The blockchain works using a peer to peer network topology. The data stored is visible access the globe by every connected node. As transactions are made, they are updated in real-time on every node. So, everyone can see what goes on but no one can control the entire network.
Remember the blockchain is connected by nodes which all synced with the same data. If one node is corrupted, the network will replace the corrupted data with the real one. A hacker has to make changes to 51% of the nodes in the network to be successful. That’s quite impracticable and the more the users, the more impossible it becomes.
Blockchain in Banking: The Edge over It
The banking industry is the sector with the most useful applications of blockchain technology. The current manual network mode of operation in banks is prone to errors and fraud. Blockchain has the capacity to revolutionize the banking sector. A Harvard review stated that blockchain will do to banking what the internet did to media. In this case, in a more controlled and trusted manner. Let’s see what blockchain has to offer in banking and finance.
Speeding up Transactions
Banks are sometimes overwhelmed with volumes of transactions to verify and settle. Imagine how much time it takes to deposit cheques just before closing hours. Sometimes it will take up till the next Monday if your transaction is initiated on a Friday. While the bank has closing hours, blockchain never sleeps. In a matter of minutes, these transactions can be settled on the blockchain. It takes the same time it will take to create a new block on the blockchain. This is regardless of the time of the day or the day of the week.
Combating banking Fraud
Identity theft is one of the issues facing the banking system at the moment. Identity verification is yet another cumbersome and costly process in the banking system. Over the years, fraudsters have managed to escape the system’s security measures. About 45% of banking intermediaries like the SEC and money transfer are vulnerable. The centralized database of most banking systems is prone to cyber-attacks.
As explained earlier, blockchain is more resistant to cyber-attacks. This is powered by the decentralized mode of operation of the technology. Plus the hashing system preventing alterations to records on all nodes. The network is highly secure from unauthorized external influences. Not forgetting that it enables customer identity verification during transactions. Therefore, making it more impossible for fraud to excel.
Saves Processing Cost
In addition to efficiency, automated processes offer reduced cost. Many of the cost of traditional banking operations and transactions are reduced with blockchain. This is made possible by the elimination of many of the cost-intensive banking processes. The saved cost can be redirected to other equally important purposes.
Transparency and Trust
Blockchain facilitates interoperability between private and public chains of the sector. It uses a tamper-proof automated software for its processes. This introduces high levels of standardisation in financial protocols. It acts as a single source of truth for it’s a network of participants. This transparency of operations allows for shared processes amongst participants. Consequently making the banking system reliable and transparent to all related parties.
International trade is quite tasking due to the many manual processes involved. Importers and exporters have to deal with inconvenient regulations. The goods need to be tracked through every stage of the process. Every phase requires countless ledgers and documentation.
On the other end, blockchain provides a huge relief from this unnecessary stress. Remember that it is a distributed ledger visible across the globe. These ledgers are immutable and trusted everywhere. Thus, the world trade finance system is simplified and streamlined. It is a much faster, cost-effective and trustworthy technique for international trade.
Practical Application of the Blockchain Tech
Healthcare: blockchain has the capacity to redefine the healthcare sector. Patients’ medical records can be safely stored on the blockchain network. Access to these records will be based on the authorization. In the supply of pharmaceuticals, blockchain can be used to track serial and batch numbers of drugs. This way, the authenticity of drugs can be verified and the supply of fakes will be eliminated. This will also help check the illegal production and transport of restricted substances.
Supply Chain Management: supply chains require blockchain for the transparency it offers. It is applied in the supply of pharmaceuticals, diamonds and other luxury items. This joint venture allows every participant to verify the location and transport specifications. The trustworthiness of the data simplifies the entire procedure for all participants.
Digital Identity Management: Identity management is one of the conditions for secure online financial transactions. Web commerce systems are quite imperfect due to the security risks of poor identity management. Data breaches are becoming more rampant every passing year. Managing the identities of users and non-users is becoming increasingly difficult.
The distributed ledger system provides an enhanced method of identification. You can digitize personal documents and maintain your reputation blockchain data management systems are immune to fraudulent practices. It is without a doubt a reliable means of managing online identities.
Real-Estate: blockchain brings a fresh perspective to the real estate sector. It makes it possible to tokenize actions. This means properties can be rented out for a certain period using pre-defined codes. With the ease of identification, both property owners’ and tenants’ digital identities can be managed. This process is powered by the ease of documentation and information sharing. Also, legal and traceable property sales can be executed using smart contracts. Apparently, the entire real estate process can be carried out seamlessly on the blockchain network.
Protection of Copyright and Royalties: Creatives like musicians and content creators can employ blockchain to their advantage. Traditional protection rights on music, videos, blogs etc are not very effective. Blockchain introduces a system of stability in the protection of intellectual property. It automates sales of intellectual property online with minimal risk of copying or redistribution. For every download or live streaming of intellectual property, the creators will get their fair share.
Electronic Voting: the decentralized blockchain system can help improve the current voting system. It will eliminate fraud and provide for anonymity and transparency. It enhances the integrity of polling processes and results.
Blockchain cuts down transaction lags through its automation process. The speeds of software are incomparable to that of humans. Traditional processes are stalled by verifications, lags in connection, incompetence of communication channels. With blockchain, any time of the day, the software can work at high speed to produce results.
Blockchain reduces the amount businesses spend to maintain their current systems. It saves third-party and evaluation costs of transactions. Businesses can divert these saved expenses to other profitable ventures.
The blockchain topology is currently the most secure. Before transactions can be made, the network must certify its validity. To hack into a blockchain, you would have to hack into half of every computer in the network. The complexity of the system, the speed and volume of activities make it difficult for hacking.
The blockchain process is a completely automated process. This technology can be trusted to handle transactions without supervision. The traditional methods are prone to human errors in transactions. These errors can be detrimental to business especially when undetected. The software has higher accuracy. The integrity of blockchain data is assured due to the accuracy of the software.
Blockchain’s distributed nature makes it reliable. Full copies of trAnsaction ledgers are made available to all active nodes. If one node goes off, information can still be accessed in other nodes. No single party can alter information on any nodes without being detected. It can be banked in for its transparency and reliability.
Power consumption is the greatest weakness of blockchain. High power is needed to maintain the real-time distributed ledger. A substantial amount of power is expended in preventing downtimes on the nodes. This action consumes lots of electrical power with time.
There exists the problem of balance between the quantity and the favourable cost for users. The more the nodes in the network, the more immutable the technology becomes. However, the increase in nodes does slow down transactions. 50% of verifications must be made for every transaction. A larger network of nodes does not work intensively.
High Capital Cost
Blockchain is supposed to be a cheaper alternative but it had expenses of its own. The initial capital requirement is on the high side. An average transaction costs between $75 and $160 and most of this goes to power consumption.
Possibility of threats and attacks
The threat of hacking blockchain is almost impossible. The slightest chance of doing this is a weakness that should not be ignored. If it is possible then, someone or groups of people can make an attempt.
The blockchain concept is still strange to many people at the moment. Just like many other transitional technologies, people still have doubts. This is, of course, the reason for the current level of adoption. Blockchain isn’t going down anytime soon. In fact, it is still an infant technology with so much potential. Very soon, there would be a need for blockchain experts. Training programs for developing and managing blockchains are essential. Blockchain is the future and you should get acquainted with the future.