Blockchain Technology – Everything you need to know in layman’s
language
The Blockchain technology has become
a regular news item with the emergence of cryptocurrencies like Bitcoin.
Now, this technology is disrupting almost all markets, changing the way we do
our day to day business. Yes, the blockchain technology is changing our
world.
Let’s decode the latest buzz word –
The Blockchain Technology – in this post. Thank you for the excellent
feedback on our earlier articles in this series – on Artificial Intelligence, Internet of Things (IoT), and Automation. Feel free to post your feedback on this article
in the comment section at the post-bottom.
Comparing
Blockchain to an Excel Sheet
Imagine a Microsoft Excel Sheet file
in your laptop with details of some transactions you made. You can call it
a ledger.
Now, imagine that your Excel Sheet
file is copied to hundreds of your friends’ computers, connected to each other
forming a network. The ledger in your laptop has become a distributed
ledger.
Then imagine that this network of
computers is designed with a technology to regularly update this Excel
Sheet, whenever you or your friends update the ledger.
You
now have a basic understanding of the blockchain!
What
is a blockchain?
In
simple terms, blockchain is a digital ledger.
Wondering
what is a ledger?
Ledger
is a book containing accounts to which debits and credits are posted from books
of original entry.
A
blockchain is a digitized, decentralized, public ledger. So simple, right?
Defenition of Blockchain
The
main chain (black) consists of the longest series of blocks from the genesis
block (green) to the current block. Orphan blocks (purple) exist outside of the
main chain.
The blockchain is an incorruptible
digital ledger of transactions that can be programmed to
record virtually everything of value.
Each
list of record in a blockchain is called block.
So
a blockchain is a continuously growing list of records called blocks,
which are linked and secured.
Who
invented blockchain technology?
Blockchain Technology was invented
by Satoshi Nakamoto in 2008 for use in the cryptocurrency bitcoin, as its public
transaction ledger. Satoshi Nakamoto’s aim in creating the
decentralized Bitcoin ledger—the blockchain—was to allow users to control their
own money so that no third party, not even the government, would be able to
access or monitor it.
The
creator of Bitcoin, Satoshi, disappeared back in 2011, leaving behind open
source software that the users of Bitcoin could update and improve.
The
invention of the blockchain for bitcoin made it the first digital currency to
solve the double spending problem without the need of a trusted
central authority or central server.
The
bitcoin design has been the inspiration for other applications.
Bitcoin
Is To Blockchain As Email Was To The Internet
In
the 1990s, when the internet technology (TCP/IP or HTTP) was in the native
stages, email was the first major application. Later new applications like web
browsers came. Websites became popular. People started using chat software
like Skype. Now if you look at your mobile, see how many different
applications are run using the Internet.
Similarly,
when blockchain technology emerged, bitcoin was the first major application
which used it. Other cryptocurrencies followed the trend. Now, blockchain
technology is used in a variety of applications like security, online voting
etc.
Internet
Technology vs Blockchain Technology
Simply
put, the Internet allows computers to exchange information; Blockchain allows
computers to record information.
Both
use a lot of computers (nodes).
The
Digital Economy, Wikinomics is bold on the subject and reflects about
Blockchain that:
The first generation of the digital revolution brought us the Internet
of information. The second generation — powered by blockchain
technology — is bringing us the Internet of value: a new platform to reshape
the world of business and transform the old order of human affairs for the
better.
Blockchain
is a vast, global distributed ledger or database running on millions of devices
and open to anyone, where not just information but anything of value — money,
but also titles, deeds, identities, even votes — can be moved, stored and
managed securely and privately. Trust is established through mass collaboration
and clever code rather than by powerful intermediaries like governments and
banks.
Technologies
behind blockchain technology!
1.
Private Key Cryptography
2.
P2P Network (Peer-2-Peer)
3.
Program (the blockchain’s protocol)
What
is the need of blockchain technology?
The
blockchain is a mechanism to bring everyone to the highest degree of
accountability. No more missed transactions, human or machine errors, or an
exchange that was not done with the consent of the parties involved.
The
most critical area where Blockchain helps is to guarantee the validity of a
transaction by recording it not only on the main register but a connected
distributed system of registers, all of which are connected through a secure
validation mechanism.
Blockchain
technology can find applications in the following areas in future:
·
Smart
contracts – Any industry heavily reliant on
contracts, such as insurance, financial institutions, real estate,
construction, entertainment, and law, would benefit from blockchain’s
indisputable way to update, manage, track and secure contracts. Smart
contracts, those that are embedded with if/then statements and be executed
without the involvement of an intermediary, also use blockchain technology.
·
Supply
chain management – Whenever
value changes hands or the status of asset changes, blockchain is ideally
suited for managing the process.
·
Asset
protection – Whether
you’re a musician who wants to ensure you get royalties when your music gets
played or a property owner, blockchain technology can help you protect your
assets by creating an indisputable record of real-time ownership.
·
Personal
Identification – Governments manage vast amounts
of personal data from birth and death records to marriage certificates,
passports and census data. Blockchain technology offers a streamlined solution
for managing all of it securely.
·
Payment
processing – Blockchain
has the potential to be highly transformative to any company that processes
payments. It can eliminate the need for intermediaries that are common in
payment processing today.
·
Crowdfunding
– As with traditional crowdfunding, a
blockchain powered crowdfunding campaign seeks to
secure investment for a new project from an interested community. But in this
instance, funding is most likely to come in the form of bitcoin or other
cryptocurrencies.
Blockchain
technology – opportunities and advantages
·
The blockchain allows our smart devices to speak to each other better and faster.
·
Blockchain solves the problem of
manipulation. It brings everyone to the highest degree of accountability.
·
Online identity and reputation will
be decentralized. We will own the data that belongs to us.
·
Cryptocurrencies take the power away
from governments to control the value of currencies and hand it to people.
·
The potential is great for people in
the informal economy to exploit the blockchain’s middleman-free way to exchange
asset.
·
Blockchain technology can more
equitably address issues related to freedom, jurisdiction, censorship, and
regulation, perhaps in ways that nation-state models and international
diplomacy efforts regarding human rights cannot.
·
Blockchain-based systems allow for
the removal of intermediaries involved in the record keeping and transfer of
assets.
·
The removal of intermediaries and
settlement on distributed ledgers allows for dramatically increased transaction
speeds compared to a wide range of existing systems.
·
Data entered on the blockchain is
immutable, preventing against fraud through manipulating transactions and the
history of data. Transactions entered on the blockchain provide a clear trail
to the very start of the blockchain allowing any transaction to be easily
investigated and audited.
Blockchain
technology – Criticisms and Challenges
Huge power required: Remember all that computing power required to verify
transactions? Those computers need electricity. Bitcoin is a poster child of
the problematic escalation in power demanded from a large blockchain
network. That’s not appealing given today’s concerns about climate change,
the availability of power in developing countries, and reliability of power in
developed nations.
Security about the private key: The private key must remain secret at all times
because revealing it to third parties is equivalent to giving them control over
the bitcoins secured by that key. The private key must also be backed up and
protected from accidental loss, because if it’s lost it cannot be recovered and
the funds secured by it are forever lost, too.
Transaction speed: Transaction speed is also an issue. As we noted
above, blocks in a chain must be verified by the distributed network, and that
can take time.
Summary
In
scaling society up from tribes and small groups, governments have had to
confront the problem of enabling secure commerce and other interactions among
strangers. The methods now may be very different, but the goal is still the
same – a secure way of transactions.
The complex world of big data
and IOT is emerging. Blockchain will be an
important part of our financial and technological digital future.
The
‘blockchain’ technology behind bitcoin could prove to be an ingredient of an
entire new world of technology, as big as the internet itself, a wave of
innovation that drives the middleman out of much commerce and leaves us much
more free to exchange goods and services with people all over the world without
going through corporate intermediaries.
It
could radically decentralise society itself, getting rid of the need for banks,
governments, even companies and politicians.
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