Blockchain, the major tech success story of the past few years is here to stay. Though there’s a lot of chit-chat around its technology and possible opportunities, there’s not enough clarity around it to help fully leverage it for all possible use cases. The basic idea behind blockchain is simple and we aim to break down the elements into easily digestible segments to comprehend all the jargon.

Blockchain overview

What is blockchain in simple words?

Blockchain is a peer to peer network that could be simply defined as a shared, immutable ledger where transactions are permanently recorded by appending blocks.

Let’s begin by breaking down the definition of blockchain if we were to explain it to a five-year-old in 1 sentence – blockchain technology essentially allows a person to make a trade with anyone without the need for a physical store (or any middleman) and without the need even to know the other person.

This is possible because a blockchain is a distributed ledger that is shared among the nodes of a computer network. Distributed ledger technology (DLT) allows a blockchain to maintain a secure and decentralised record of every transaction that has historically occurred on the chain. Blockchain technology’s key element of innovation lies in the fact that it ensures the fidelity and security of the data records it maintains and helps create trust without requiring a trusted third party. This encourages peer-to-peer transactions directly without the need for an intermediary. 

To structure all the data that a blockchain holds, it groups information together in what is known as blocks. These blocks have certain capacity limits which means once it’s filled the block is closed and a new block is now created and attached to the previously filled block. This results in a historical record of all transactions ever recorded, from the genesis block to the latest block, which leads to a creation of a ‘chain’ or string of ‘blocks’.

When was blockchain first invented?

The concept of blockchain, first described by scientists Stuart Haber and W Scott Stornetta in 1991, has evolved significantly over the years. It was when an individual or group published a whitepaper under the name Satoshi Nakamoto focusing on ‘Bitcoin: A Peer-to-Peer Electronic Cash System in 2008’ that the concept of digital money based on blockchain technology first came to light and the technology’s popularity began to see a massive uptick. The Bitcoin blockchain was made open source and released to the public in January 2009, making it possible for people to examine the code and reuse it.

How does blockchain work?

Though blockchain technology has applications in virtually every industry today, the essence of how blockchain works remains constant for every use case. Here’s a list of the steps that occur when a blockchain executes a transaction:

Step 1: Recording the trade or transaction

To indicate an exchange of digital or physical assets between parties on the blockchain network a transaction must be recorded. This record is used to list digital signatures from the parties involved and other details like who was involved in the transaction, what was the transaction about, when, where and why the transaction occurred, among other details.

Step 2: Validating the transaction or trade

Once a transaction has been recorded, validating it is the next step. On a decentralised network like the blockchain, most of the computers on the network called ‘nodes’ must reach a consensus that the transaction or trade is real to validate it. These rules of agreement can vary depending on the type of network but are usually established at the beginning.

Step 3: Adding and linking the blocks

Once a transaction is verified the validated transaction is added to a block and the block is added to the chain. This is equivalent to recording transactions on the pages of a ledger book! Each block contains a unique code called a ‘hash’ and the hash of the previous block in the chain as well which helps link them in the chain at the right location. This could be seen as similar to stacking blocks on top of each other, where you can only add every new block on top of the previous one, and if you remove a block from the middle the stack falls.

Step 4 – Sharing the ledger

After the block is linked to the chain, a copy of the central ledger is distributed to all participants.

Advantages and disadvantages of blockchains

Advantages of blockchain

  • Immutability

Blockchain technology supports immutability, which means that its technology makes it impossible for any data recorded on its network to be erased or replaced. This helps prevent any data tampering and manipulation.   

  • Transparency 

A blockchain network is decentralised allowing any member of the network to scrutinize the data recorded. This creates transparency and builds trust among the public using the network.

  • Security

The blockchain provides heightened security owing to the fact its transactions require validation from network members to be considered real and accurate. This creates a tight layer of security for all trades and transactions in the network. The fact that the transactions are immutable also ensures that there is no room for the data to be prone to a rouge administrator or third-party attacks.  

Disadvantages of blockchain

  • High cost of Implementation

Though blockchain technology reduces costs for users it requires high costs for companies to implement which can hinder mass adoption. Proper planning and implementation are a must if companies want to successfully integrate this technology into the processes.

  • Performance

Since blockchain technology carries out more operations it is seen to be slower than traditional databases. Inefficiencies can also arise from the processes that blockchain technology is defined by, like its mechanism of receiving validation for a single transaction by several network users. There are also redundancies when it comes to every node or computer in the network being required to store each transaction. 

  • Modification of Data

Immutability of data on the blockchain network can also be a big obstacle when necessary modification is required. The process of rewriting the code is incredibly time-consuming and expensiv

How many types of blockchains exist?

Based on structure, characteristics and usage mainly 4 types of blockchains exist, which are:

  1. Public Blockchain
  2. Private Blockchain
  3. Hybrid Blockchain
  4. Consortium Blockchain

Is blockchain technology safe? 

Blockchain has eliminated several security issues that arose from Web 2.0 like piracy and scamming. However, this technology shouldn’t be considered the ultimate attainment of digital security. While the entire purpose of using blockchain technology is to help people who don’t trust each other to have a mechanism to share valuable data more securely than before, the technology is only as noble as its users.

Nonetheless, the creation of the blockchain network has definitely helped achieve technological advancement in making itself tamperproof through two key aspects: its ‘cryptographic fingerprint’ that’s unique to each block and its ‘consensus protocol’. 
The cryptographic fingerprint also known as the hash (or unique code on each block of the blockchain) takes a lot of time to compute initially, but it acts as proof that the miner who added the block has performed the necessary computation work to earn a reward. It also acts as a seal for the block since any modifications would require a new hash to be generated. The consensus protocol on the other hand, which we’ve touched upon earlier (see ‘How Does Blockchain Work?’), requires every node or computer in the network to validate a transaction that occurs on the blockchain, creating high standards of security.

What are the applications and use cases of blockchain?

The features of blockchain technology, embedded in immutability, transparency and decentralisation, make it an attractive use case across industries – going far beyond cryptocurrencies. The parties believed to reap maximum benefits from this technology are enterprises, institutions, and governments. To better understand how blockchain technologies can be applied to projects and processes in different sectors of the economy, we’ve listed some of the most prominent blockchain applications and use cases.

  1. Capital Markets

In the realm of capital markets blockchain technology enables easier, quicker and more affordable access to capital. It helps breakdown barriers that arise in issuance and P2P (peer to peer) trading, it enables quicker clearing and settlement, it streamlines audit and compliance, among other operational improvements.

  1. Healthcare

A healthcare system that is powered by blockchain technology can be assured of having a more efficient, safer and faster way to manage data and track medical supply. For example, medical data like age, gender, medical history or immunisation details would not be able to be effectively managed and tracked back to a patient. But with blockchain technology in place, this data can be securely accessed by multiple individuals.

  1. Decentralized Finance (DeFi)

Finance is shifting from traditional, centralised systems to decentralised, peer-to-peer networks built on blockchain technology. This new system is creating new opportunities for increasing accessibility in finance and creating higher levels of trust. The advent of digital currencies can be seen as one such example.

  1. Real Eastate

Another avenue soaking in the benefits of blockchain technology is the real estate sector. With homeowners moving more frequently and selling their houses every couple of years, having a better system in place to facilitate these processes is always plus. Blockchain technology can help expedite buying and selling of homes through effective verification of finances, ensure better protection against fraud through encryption and improve the transparency of its processes.

  1. Smart Contracts

Another use case for blockchain technology is smart contracts. This essentially is a computer code that enables the facilitation, verification or negotiation of a contract agreement. These agreements have set conditions to operate within which when fulfilled automatically carry out the terms of the smart contract.

What are some examples of blockchain?

  • In Financial Services – Bitcoin and Ethereum are popular examples of cryptocurrencies built on blockchain technology.
  • In Healthcare – Medicalchain, was one of the first medical companies to implement blockchain technology to help facilitate the storage and utilisation of electronic medical records.
  • In Real Estate – Propy,  is a platform using blockchain to transform how people market, search for, buy, sell and invest in. 
  • In Supply Chain – IBM Food Trust is a project developed to help improve the supply chain of food, making it more sustainable, safer and smarter through blockchain.

What’s the future of blockchain?

The idea of blockchain technology as a platform on which an endless possibility of applications can be built is still rapidly developing and has not reached its full potential yet. The way this technology stands to transform the way we live and work is deemed by experts to be to the same extent that protocols like HTML impacted the foundations of the World Wide Web.

While NFTs still remain bewildering for some and Bitcoin remains unstable for payments, the blockchain technology behind it continues to mature. The need for a decentralised and democratic system in industries ranging from finance, art, real estate, to capital markets is eminent and blockchain technology is only going to continue to catch on. If you’re looking to get a foot in the door in this industry, now would be the perfect time to dive in and explore it.

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