Blockchain
(Building Trust)
Blockchain is a foundation technology like the Internet - a big system on top of which you can build applications. It will disrupt the business process and eliminates the middleman. The technology cut a process that normally takes a long time. The real value of blockchain is that it renders intermediaries obsolete. They make a living off being a third party that establishes "Trust" between parties unknown to each other. It replaces this middleman. This is the main reason business firms are investing in blockchain.
Let's understand what is blockchain and how it works & What Industries Could blockchain disrupt?
What is blockchain?
A blockchain is a type of distributed ledger in which value-exchange transactions are sequentially grouped into a block. Each block is chained to the previous block & immutably recorded across a peer-to-peer network using cryptographic, trust & assurance mechanisms.
- It is an open, distributed ledger that can record transactions between two parties efficiently & it is a verifiable and permanent way. The ledger itself can also be programmed to trigger transactions automatically.
- It is not controlled by any single entity but rather distributed across multiple, observable entities.
- It is a cryptographically secure, shared & distributed ledger.
- Cryptographically - Blockchain applies tried & true digital signature technology to create transactions that reduce fraud and establishes trust and accountability.
- Ledger - A write-once, read many databases that is an immutable record of every transition. If a mistake is made you must post a compensating transaction to correct it - no updating or deleting is allowed.
- Shared - Blockchain has little value within the organization station. The more organizations or companies that participate even competitors the more streamlined the process will be and the greater the value.
- Distributed - The more replicas there are, the more authentic the ledger becomes.
Potential of blockchain
With blockchain, we can imagine a world in which contracts are embedded in digital code and stored in a transparent, shared database, where they are protected from deletion, tampering, and revision.
In this world, every agreement, every process, every task & every payment would have a digital record and signature that could be identified, validated, stored & shared. Intermediaries like lawyers, brokers & bankers might no longer be necessary. Individuals, organizations, machines & algorithms would freely transact and interact with one another with little friction. This is the immense potential of blockchain.
Blockchain is a foundation technology, it has the potential to create new foundations for our economic and social systems.
The New Architecture
Blockchain is a peer-to-peer network that sits on top of the internet. It was introduced in October 2008 as part of a proposal for bitcoin. ( A bitcoin is a virtual system that eschewed a central authority for issuing currency, transferring, ownership & confirming transactions.)
Bitcoin is the first application of blockchain technology.
The parallels between blockchain and TCP/IP are clear, just as e-mail bilateral messaging, bitcoin enables bilateral financial transactions. The development and maintenance of blockchain are open, distributed & shared - just like TCP/IPs. A team of volunteers from around the world maintains the core software. And just like e-mail, bitcoin first caught on with an enthusiastic but relatively small community.
TCP/IP unlocked new economic value by dramatically lowering the cost of connections. Similarly, blockchain could dramatically reduce the cost of transactions. It has the potential to become the system of record for all transactions.
Consider how a stock market business typical transaction works, A typical stock transaction can be executed within microseconds, often without human intervention. However, the settlement-the ownership transfer of the stock can take as long as 2 or 3 days. That's because the parties have no access to each other's ledgers and can't automatically verify that the assets are in fact owned and can be transferred. Instead, a series of intermediaries act as guarantors of assets as the record of the transaction traverses organizations and the ledges are individually updated.
In a blockchain system, the ledger is replicated in a large number of identical databases, each hosted and maintained by an interested party. When changes are entered in one copy all other copies are simultaneously updated. So as transactions occur, records of the value and assets exchanged are permanently entered into all ledgers. There is no need for third-party intermediaries to verify or transfer ownership. If a stock transaction took place on a blockchain-based system it would be settled within seconds, securely and verifiable.
How does blockchain works?
1. Distributed Database -
Each party on a blockchain has access to the entire database and its complete history. No single party controls the data or the information. Every party can verify the records of its transaction partners directly without an intermediary.
2. Peer-to-Peer Transmission :
Communication occurs directly between peers instated of through a central node. Each node stores and forwards information to all other nodes.
3. Transparency with Pseudonymous
Every transaction and its associated value are visible to anyone with access to the system. Each node or user on a blockchain has a unique 30-plus character alphanumeric address that identifies it. Users can choose to remain anonymous or provide their identity to others. Transactions occur between blockchain addresses.
4. Irreversibility of records
Once a transaction is entered in the database and the accounts are updated, the record can not be altered, because they are linked to every transaction record that came before them (hence the term "Chain"). Various computational algorithms and approaches are deployed to ensure that the recording on the database is permanent, chronologically ordered & available to all others on the network.
5. Computational Logic - The digital nature of the ledger means that blockchain transactions can be tied to computational logic and in essence programmed. So users can set up algorithms and rules that automatically trigger transactions between nodes.
Blockchain durability and robustness
Blockchain technology like the internet is that it has a built-in robustness. By storing blocks of information that are identical across its network the blockchain can not.
1. Be controlled by any single entity.
2. Has no single point of failure.
Blockchain truly is a mechanism to bring everyone to the highest degree of accountability. No more missed transactions, human or machine errors, or even an exchange that was not done with the consent of the parties involved. Blockchain helps to guarantee the validity of a transaction by recording it not only as the main register but connected distributed systems of registers all of which are connected through a secure validation mechanism.
Transparent and incorruptible
The blockchain network lives in a state of consensus, one that automatically checks in with itself every ten minutes. A kind of self-auditing ecosystem of digital value, the network reconciles every transaction that happens in ten-minute intervals. Each group of these transactions is referred to as a "block". Important properties result from this.
1. Transparency - Data is embedded within the network as a whole by definition it is public.
2. It cannot be corrupted - Altering any unit of information on the blockchain would begin using a huge amount of computing power to override the entire network.
A network of nodes - A network of so-called computing nodes make up the blockchain.
Node - ( Computer connected to the blockchain network using a client that performs the task of validating and relaying transactions) gets a copy of the blockchain which gets downloaded automatically upon joining the blockchain network.
Who will use the blockchain?
Finance offers the strongest use cases for the technology for example international remittances and the high demand for blockchain developers.
The blockchain potentially cuts out the middleman for these types of transactions. Transactions online are closely connected to the processes of identity verification. It is easy to imagine that wallet apps will transform in the coming years to include others types of identity management.
Blockchain and enhanced security
By storing data across its network the blockchain eliminates the risks that come with data being held centrally. Blockchain security methods use encryption technology. The basis for these so-called public and private "keys" ( a long randomly generated string of numbers) is a user's address on the blockchain. Bitcoins sent across the network get recorded as belonging to that address. The private key is like a password that gives its owner access to their bitcoin or other digital assets. Store your data in the blockchain and it is incorruptible.
The blockchain is a new web 3.0
The blockchain gives internet users the ability to create value and authenticates digital information. What new business application will result?
- Smart Contracts.
- The sharing economy
- Crowdfunding
- Governance
- Supply chain auditing.
- File storage
- Prediction markets.
- Protection of intellectual property
- Internet of things (IoT)
- Neighbourhood micro girds.
- Identity management.
- AML and KYC
- Data management
- Land title registration,
- Stock trading.
References:
- Top 10 Strategic Technology Trends for 2017. Published 14 October 2016. Analyst(s): David W. Cearley, Mike J. Walker, Brian Burke G00317560.
- https://hbr.org/2017/01/the-truth-about-blockchain
- https://blockgeeks.com/guides/what-is-blockchain-technology/
- https://azure.microsoft.com/en-in/solutions/blockchain/
Its Very Good information
ReplyDeleteThanks
ReplyDelete