It doesn’t happen often that the appearance of one cutting-edge technology challenges the foundations of so many industries, but Blockchain Technologies have done just that.
Blockchain seems to have become synonymous of sounding tech-savvy. But is this hype technology really gonna change the way this world operates? Before we can speak about ‘blockchain magic’ and how it has the potential to be the technology that redefines many business processes, it is important to get a grasp of it.
What is Blockchain Technology?
According to the authors of Blockchain Revolution (2016) “the blockchain is an incorruptible digital ledger that can be programmed to record not just financial transactions but virtually everything of value.” Hence, one of the key attributes of Blockchain Technology is its immutability: it permits the data to be distributed, but not copied or changed.
Why is it called Blockchain?
The name of blockchain comes from the way it stores transaction data: in blocks that are linked together to form a chain.
When a trade is recorded it is checked by the network. The computers in the network (the ‘nodes’) check the details of the trade to make sure it is valid. The records that are accepted become part of a block. Each block contains a unique code called a hash (a digital fingerprint or unique identifier), timestamped batches of recent valid transactions, and the hash of the previous block. The blocks are linked together by the hashes they share, which prevents any block from being altered or a block being inserted between two existing blocks. That is one of the reasons a blockchain is impossible to tamper with: each subsequent block strengthens the verification of the previous one and therefore contributes to the incorruptibility of the whole chain.
If someone tries to change the original record, a new hash will be automatically generated for that record. As the next block in the chain still includes the old hash, the changed hash breaks the chain. It would require an enormous amount of computing power to recalculate all the hashes in the chain, which makes hacking a blockchain so hard.
How does Blockchain work?
One of the bases of Blockchain Technology is the Peer to Peer (P2P) network. P2P network is completely different from the traditional client-server models as there is no central point of storage. In a P2P network, all the participants on the network act as a server: the users utilize and provide the foundation of the network at the same time. All of them are considered equal, none of the nodes has authority over the other, therefore, no single participant can control the network.
The information included in a blockchain is constantly recorded and interchanged between all the nodes of the P2P network. As a method of transferring data, this proves to be a huge improvement because the information is not held in one centralized point. This way of storing data comes with a considerable advantage: as long as we have a copy of the blockchain in one of the nodes, all the records will remain intact.
Given that all the users of the network have same access and authority, there is no longer a need for powerful intermediates and all the interested parties can deal directly with each other across a secure and decentralized network.
What are the applications of Blockchain technology?
Blockchain Technologies could have repercussion on various aspects of our daily life. The most promising potential uses are in healthcare, real estate, retail, governmental sector, supply chain management, multinational policy management, finance and banking.
While Bitcoin and cryptocurrency might have become the most famous uses of Blockchain Technologies, there are many other practical examples where we can see blockchain in action. Given its origin, finance and banking might be the most obvious ones. Blockchain Technologies will allow speeding up and simplifying cross-border payments, improve online identity management, spread the use of Smart contracts and make share trading faster and more accurate.
Blockchain could also mean a much-needed relief for the healthcare industry, as it promises to provide a more efficient and secure system for managing medical records. As for innovations in governing, Blockchain records could create tamper-proof election returns.
When it comes to supply chain management, the use of blockchain will guarantee transparency with a shared record of ownership and location of products in real time. Today’s consumers are more and more conscious about the origin and quality of the product. Using blockchain is a good way to provide proof of provenance for the consumers. In the food industry blockchain can help the companies find out what food might be contaminated and where throughout the supply chain.
We also have some examples from the entertainment business. Spotify turned to blockchain to develop a decentralized database that allows to connect better the artists and licensing agreements with the tracks on Spotify’s service.
The range of potential uses of Blockchain Technologies is very wide and we promise to go into more detail in our next post.
What are the benefits of Blockchain Technologies?
According to IBM the main benefits of using blockchain are:
- Greater transparency
- Enhanced security
- Improved traceability
- Increased efficiency and speed
- Reduced costs
What are the Main Barriers to a wider Application of Blockchain?
After covering all the benefits and possible uses of Blockchain Technologies, we might want to ask why the companies and governments are not taking full advantage of the potential this technology has to offer. One of the most significant bottlenecks restricting a wider application is the lack of professionals with proper education on this groundbreaking technology. Another barrier hindering Blockchain Technology is the lack of general knowledge and the misinformation with most people thinking the technology is limited to cryptocurrencies.