Blockchain – Records of everything
In the earlier days (before online banking came into picture), people used to deposit or take out money from the bank and then used to make notes of those transactions in their personal ledger, thus maintaining a history of all transactions. The bank used to note the same transaction in its own ledger. This resulted in issues as both the bank’s ledger and the user’s ledger had to be in sync in order to prevent any financial misunderstanding.
Even after we started saving various transactions electronically, there still remained an issue of trust. Each entity was saving its transactions independently and so, the question was can one entity trust the “ledger” of another entity?
Blockchain address all of the above issues. Blockchain is just like a ledger and can be used to maintain each and every transaction that can possibly occur in the world. However, it is not some giant book hidden away in a secure location. It is a ledger which is organized in the form of data “blocks” and is stored on multiple computers (“nodes”) across the world. Each block is encrypted and contains a timestamp when it was created. This block is connected to the block that was created before it, thus forming a “chain” of blocks (hence, the name “Blockchain”).
Whenever any transaction occurs, then it is broadcasted across the network and each node tries to create its own updated version of blocks. Therefore, if anybody wants to hack and corrupt a data block, then they would have to do it across all the nodes that are associated with that block. The probability of such an occurrence is close to zero (unless the entire population tries to change that data). This feature along with the private-public key encryption mechanism (that blockchain uses) makes the data extremely secure. This also implies that the data stored in the blockchain is essentially immutable. The blockchain network also eliminates trust issues. Since the network is stored globally, everyone serves as “guardians” of the data.
Smart Contracts are self-executing contracts that defines the conditions in the agreement between parties and also executes various actions when certain conditions are met. These contracts are converted to computer code and are stored in the blockchain network. The smart contracts can be compared to a large block of if-then-else statements that contain actions based on various conditions.
For example, there are two users :- “Alice” and “Bob”. “Alice” wants to transfer $20 to “Bob”. Bob” would then ship an item to “Alice”. If “Bob” does not ship the item, then “Alice” would lose the $20. A smart contract can be written such that “Alice” would transfer the $20. The $20 would be held in a temporary state. Only after “Bob” ships the item, would the $20 be transferred to Bob’s account. If “Bob” does not transfer the item, then the smart contract would execute the “refund” function to Alice’s account.
Where can Blockchain be used ?
Blockchain can be used on anything. It can be used for financial transactions, music sharing, tracking the mining and sale of diamonds etc. However, the most famous application of the Blockchain network is a cryptocurrency called “Bitcoin”. The bitcoin was introduced in 2009 and is used as a digital currency. It can also be exchanged for other currencies.
Another famous implementation of Blockchain is called “Ethereum”. Ethereum uses smart contracts to run applications in a decentralized fashion. These applications run exactly as programmed without any third party interference. It provided a cryptocurrency token called “ether” which can be transferred between account and also reward various the host nodes for their computational time.
Blockchain has some other use cases also in the financial world such as :-
- Smart Assets :- Information about all the components in the supply chain can be recorded in real-time. A smart asset system would record the asset identifier, its value, source and destination, thus creating an end-to-end digital repository of data for the organization.
- Payments :- Although the Bitcoin network is currently being used to execute payment transactions, an alternative form of blockchain network can be developed that would execute payment transactions faster. For instance, Ethereum is currently undergoing testing in order to validate its potential for payment transactions.
- Digital Identity :- A person’s digital identity can be recorded on the Blockchain network. Once it is done, then we can authorize our smart objects and other items to execute transactions on our behalf. This can lead to a revolution in Internet of Things (IoT).
Blockchain as a Service (BaaS)
Some companies have now started offering Blockchain as a service (BaaS) platform where the users can develop, test and deploy blockchain applications. Some of the notable platforms are :-
- Microsoft Azure
- IBM Blockchain
- SAP Blockchain
It was just a short introduction to the Blockchain network. The Blockchain network opens a lot of possibilities for new decentralized applications that can be used to implement our day-to-day activities. It removes the need of third parties by establishing trust between the end users.
Schedule a meeting with us to know more regarding how Blockchain can be leveraged in your organization.