Living in the digital era, we are quite sure you would have heard the term "Blockchain", majorly due to the rise of cryptocurrencies. If not, you might be missing the next big thing in the technology market. It is the methodology that will redefine the way transactions happen today. Let’s have a deeper look into the enormous potential it has, how it might directly impact us, the technology behind this solution and the future.
What is Blockchain?Blockchain, in its most basic form, is a general ledger. It contains the information of financial transactions performed by an organization over its lifetime. So, if a unit is purchased, or loaned or taken on lease, such financial transactions are recorded in the general ledger, i.e the blockchain.
The blockchain is an electronic ledger, a peer-to-peer platform with a distributed time-stamping server that is shared among users and creates unalterable records of transactions. Each time a transaction is recorded, it creates a block and allows either an open or controlled set of users to access the electronic ledger.
Each block is created having a unique cryptographic hash when a new transaction is entered. It is linked to a specific participant which can only be updated on consensus between participants and once created it can never be erased.
This makes blockchain perfect for record keeping and auditing purposes.
How does a Blockchain work?Each block in the blockchain contains a hash which is generated by a cryptographic function that takes into account the details o the transaction such as time, date, and place and makes a key out of this to encrypt the block. Further, when the blocks are added to the chain, the hashes link them to each other. This encryption protects the block from any external tampering, thus protecting its integrity.
Further, the General Ledger is protected by its basic function of double entry accounting as the blockchain also works on same book balancing concept. To contain the authenticity of the record, a balancing block is created on seller’s side of the book to record the sale.
The ConceptThe blockchain is an entirely new concept for software engineers, it represents a paradigm shift of how the applications will be developed in future. To understand the building blocks of a blockchain we need to have a deeper knowledge of key concepts and how they are interrelated. The five concepts act more or less like catalyst towards the creation of decentralized applications, a step ahead of distributed computing architectural constructs.
A central database used to be the king and rule transactional validity. This old paradigm has been broken by decentralized consensus, which transfers authority to a decentralized virtual network and enables its nodes to sequentially record transaction on a network block. This creates a unique chain where each successive block is secured via hash code and hence, removing the need for a central intermediary. This combination of blockchain and cryptography ensures there is no duplicity of transactions. Conesus acts as the first layer of decentralized architecture which governs a blockchain’s operation.
The consensus logic is a separate entity from the application. This enables applications to be coded organically decentralized. This is the basis for system changing innovations in application architecture.
Block is a storage space for any data which is to be stored in a linear form. Once you create a block, anyone can verify by your signature that information has been stored by you, but the contents of the block can be unlocked only by you (or the program) as you hold the private keys to the block. This characteristic makes blockchain similar to a database, the only difference being the header is public. Thus, a blockchain works on public –private control where the address is public which what holds the address is encrypted by private keys.
The software design approach behind a blockchain is to bind a number of peers that obey same “consensus” for storing or accessing the information held. All the related transactions are further verified by cryptography.
A smart contract is a small program that is entrusted with a unit of value and rules around the same. These are thus building blocks for a decentralized application. The idea behind smart contracts was laid to nullify the need of any central arbitrator and two parties can transact directly via blockchain. For a transaction to occur, the two parties agree on simple rules and embed them inside transactions enabling end to end resolution. This helps in self-management of computers and represent direct interests of users. Smart properties are digital assets differentiated by their owners and this ownership is linked to the blockchain.
The concepts of the blockchain, smart contracts, and decentralized consensus enables trust in peer to peer computing at a very detailed level. Due to rules of trust, authority, governance, compliance, contracts, law, and agreements; a trust develops between each peer and hence they can proceed with secure transactions. Blockchain acts as a validator of transactions for two consenting parties without either of them knowing their trusted intermediary.
Arguably, “trusted computing” on the web is a key tenet of the new crypto-driven paradigm.
Proof of work
Proof of work is the right to participate in a blockchain’s system. Information once recorded in a blockchain system cannot be undone and is secured via cryptographic hashes to ensure the authenticity. Proof of work is expensive to maintain, however, there is an upgraded solution called proof of stake which it is more expensive but tougher to compromise. In addition, to determine the owner of the consensus it prevents unwanted branching of the underlying blockchain.
Blockchain in Action
Internet of Things(IoT)
Supply Chain Auditing
The Sharing Economy
Land Title Registration
Properties are most susceptible to fraud where too much cost is involved in administering it.
Today, people are using social media platforms in exchange for their personal information. blockchain brings the future where people can sell the data that is generated by their online activity.
The KYC practices require a labor-intensive multi-step process for every new customer. With blockchain technology, these costs can be reduced through cross-institution client verification.
Suspicious transactions are then forwarded to compliance officers. While another startup TiM, also known as Instagram for KYC allows customers to store their documents digitally, once the documents are verified, data validation by the bank is cryptographically stored on a blockchain.
The possible use cases of this technology are endless which can be uncovered once the need is assessed in each domain.
IBM BlockChain and Hyperledger Fabric
FutureBe it any new technology, businesses must be cognizant of it before completely adopting it. For blockchain, the technology is still emerging into reality from a concept. The products are blooming and are being presented to the market.
At present, there are about 15 blockchain distributed ledger platforms being developed for specialist applications. The industry still needs to lay down standardization in order to encourage the adoption of blockchain technology. IBM with Hyperledger project is putting positive efforts in the same direction.