Last updated on February 15th, 2024 at 12:20 pm
What is blockchain?
A blockchain is a shared, immutable ledger that records transactions and tracks assets in a particular business network. Whether a tangible asset (car, house, land) or an intangible asset (copyrights, patents, etc).
If there is anything that holds value, then a blockchain network can track & trade such assets. The blockchain network reduces risk and cuts all unnecessary costs of traditional methods.
All cryptocurrencies are based on Blockchain Technology. The first one is very well known i.e. Bitcoin. To know more about Bitcoin you can visit this article
Why is blockchain so important?
Blockchain provides modern solutions to conduct business transactions. It is ideal for transactions because the communication is fast, shared, and transparent. All the transactions on the network are accessible via an immutable ledger.
Blockchain allows for verification and traces all multi-step transactions. It helps to make transactions secure and boost the data processing speeds. Blockchain is also ideal for contract management, where you can identify and track information about a product.
Blockchain is a revolutionary technology that encrypts the data and then binds them together to create a single source of information. All the business assets are distributed across an immutable ledger.
The assets are decentralized allowing full-time access, preventing fraud & establishing transparency across the network. Its inbuilt security measures and immutable ledger makes it a must-have for every industry.
Key Elements of Blockchain
Following are the keyword elements of the Blockchain technology:
– DLT (Distributed Ledger Technology)
Blockchain is an immutable ledger, where only authorized personnel participate. It maintains the record of all transactions. Every transaction gets recorded only once. It reduces effort and minimizes the chances of human errors compared to the traditional ledger.
– Immutable records
Despite being a shared ledger, blockchain does not allow any participant to make changes to a transaction. In case if there is some kind of error in the transaction, then the authorized person will have to add another transaction to rectify the error. Everything is accessible to all the members of the network.
This creates transparency & helps in keeping a track of all the transactions without an error.
– Smart contracts
Smart contracts refer to a set of rules programmed in a blockchain network for automatic execution. These are programmable as per business requirements.
For example, you can create smart contracts with your clients to ensure that you can track your payments, or for corporate bond transfers & much more!
Uses of Blockchain
Blockchain can be used in a variety of different industries, but here are some of the popular uses of blockchain technology:
Cryptocurrencies
Blockchain is the backbone of all cryptocurrencies. All the transactions in terms of cryptocurrency are recorded over the blockchain network. Without using blockchain there can be no cryptocurrency.
The whole idea of a decentralized currency works on the blockchain network. As blockchain gets more popular, new cryptocurrencies have come to experience their highs & lows. One popular example after Bitcoin is Ethereum.
You can buy Bitcoin & Ethereum at Binance Cryptocurrency Exchange. For Indian users, WazirX is a great option.
Banking Services
Banks use blockchain to process transactions of currencies such as dollars, euros, etc. It makes the whole process secure and accelerates sending money from one bank to the customers.
Blockchain is fast, as the money is processed quickly and transferred outside of banking hours.
Asset transfer
Blockchain can maintain the record of ownership for multiple assets at the same time. Currently, it is very popular to maintain a record of ownership of digital assets like NFTs, patents, digital arts, etc.
But, blockchain can also track the ownership of tangible assets such as real estate, cars, bikes, etc. It works like an escrow service, where both the buyer & seller agree to use a blockchain for the exchange.
It works both ways, the buyer can check whether the seller is the legitimate owner of the property. Also, the seller can check whether the buyer has the funds to buy the property or not.
Once both parties have verified, then they transfer the funds & transfer the ownership over the blockchain network. It makes the whole process simpler by eliminating the manual paperwork to update government records.
Smart Contracts
A Smart contract refers to self-executing rules that work based on predefined conditions. It is an ideal technique for businesses to automate their repetitive business processes. For example, a business can get into a smart contract with its clients to receive payments in exchange for service.
It will maintain a clear record of all the transactions against products/services delivered. It can also be used to make business decisions to measure performance & counter the bottlenecks.
Supply chain Monitoring
Monitoring an effective supply chain requires keeping track of all the goods & transactions happening every now & then. Using the traditional data storage methods, it will be a tedious task to track all transactions. Even a single error can create a lot of problems.
However, blockchain can eliminate all chances of error, and anyone can track the source of the problem. Each transaction is stored in chronological order. You can go back to the source of the problem to take the appropriate corrective measure.
Voting
Blockchain helps in preventing all kinds of fraud in voting. Because no one can tamper with the votes within a blockchain network. If someone has to tamper, then he has to add another entry to post the votes as an error.
Even if someone tries to do this, then he/she will be caught instantly. Hence, blockchain provides a practical solution to eliminate cheating that takes place in the traditional ballet voting method.
Advantages of Blockchain
Accuracy: Each blockchain transaction is verified by multiple nodes, which reduces the chances of error. Also, if there is an error then it is accessible to everyone, which makes it easier to catch.
Whereas in the traditional ledger, the data is kept with one person increasing the chances of human error.
Transactions do not require any intermediaries: Blockchain networks do not require any intermediaries acting as a third party to verify the transactions. All the exchange can take place within the network itself and does not require any other party to verify.
Security: Blockchain offers better security than traditional methods because the blockchain network is only accessible to authorized personnel.
Hence, there are no chances for everyone to join the network and commit fraud. Blockchain helps in verifying all the transactions with their source making it a better option than the traditional methods.
Efficient Transfer Mechanism: Banking usually takes 24 hours or even seven to process the transfer of funds. Even though banks have improved in delivering fast transactional services. But, still, they are no match to the speed and efficacy of a blockchain network.
Disadvantages of Blockchain
- Blockchain slows down with high network participants: As the number of participants on a blockchain increases, the network might slow down. It is fast to process one transaction, but it slows if multiple transactions.
- High Cost: Running a blockchain network is a costly process, as it involves high-end computers.
- Integration: Hard to integrate with the legal system. As governments are not able to fully adopt the blockchain system.
- High energy consumption: Blockchain networks require and consume very high energy due to their high-end operations.
Types of Blockchain network
There are 4 different kinds of blockchain networks:
- Public blockchain networks: These are open blockchain networks for anyone to become a member & participate. One of the biggest examples here is Bitcoin. These networks require more computational power, where anyone can join. Anyone can access anything, and it offers a relatively weak security mechanism.
- Private Blockchain network: A private blockchain network is a peer-to-peer network. Only authorized individuals can access the information. It is quite popular among business organizations to establish a seamless record of transactions. It boots trust & makes transaction tracking easier.
- Permissioned Blockchain network: These are private blockchain networks, but it has some restrictions among the members. To gain full access, a participant has to gain an invite or permission to join.
- Consortium blockchains: This is a blockchain network that connects two or more blockchain networks. It is designed to provide fast transactions among the participating networks. For example, two organizations can create a consortium blockchain to ensure transparency and accuracy of transactions.
How does Blockchain work?
The blockchain working process is simple. Each transaction is verified over the network, and put together as a collection of blocks to keep a record of the transaction.
To make this easier, let’s take an example of bitcoin – the most popular cryptocurrency.
Let’s assume that someone tries to make a transaction of $10,000 worth in Bitcoin.
Step-1: The value of $10,000 will be computed in terms of Bitcoin. Currently 0.16 Bitcoin (as per the current evaluation).
Step-2: Your entry for the transaction enters into the network!
Step-3: The transaction will transmit across the peer-to-peer bitcoin network around the world.
Step-4: The entire network of computers will solve the cryptographic equation, and verify the authenticity of your transaction
Step-5: Once the transaction is verified, then it will be back together in blocks. (There are multiple blocks of a single transaction.)
Step-6: The ledger will create a record for your transaction, the transaction is complete.
Using bitcoin here was an example. Most of the blockchain networks have their information processing blocks.
Bottom Line
Astonishingly, Blockchain is a highly secured technology in spite of its widespread uses. It has incomparable uses not only limited to Cryptocurrencies. But also in real estate, Patents, Copyrights, Trademarks. This list is just an illustrative one where people are working.
Even if you are not confident about Cryptocurrencies doing well in future, which I doubt you now would. Still, blockchain technology in itself is the next revolution like E-Commerce.
Though there are certain shortcomings of the technology because it is in its nascent stage. Still the applications of Blockchain technology are limitless!
