Blockchain technology has been going around since its invention in 2008 by an anonymous person or a group of people under the name Satoshi Nakamoto. It was initially invented to fulfill the purpose as an open public ledger for cryptocurrency Bitcoin, but since its invention, it has been evolved and proven to be of greater use.
Although Blockchain has been in existence for almost a decade now, still a lot of people don’t know much about it and ask the question: What is Blockchain? What is its purpose? So this article will help understand the basic idea behind Blockchain and its purposes.
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A Brief History
Before the conceptualization of the Blockchain that is available to us today, there existed a primitive form of blockchain known as Merkle Tree which was a form of a hash tree , it was patented in 1979 by Ralph Merkle.
Merkle Tree, a data structure with the main function to verify and handle data between different computer systems. In this data structure system, validation of the data was important to make sure that no alteration of data had occurred while transferring the data from one computer to other. It was designed in such a way that it made sure that false data was not transferred and that the authenticity of the data was maintained.
In 1991, by using Merkle Tree a chain of blocks was created which were secured and conn ected in a series to one another forming a data record. Every time a new block or record was added to the chain it would be connected to the previous block and contain the entire history of the chain, thus forming a block chain.
In 2008, Satoshi Nakamoto developed the now available Blockchain which is a secured database where blocks are connected in a series and each block contains the history of data transactions, it uses the network built between different computers to know the time stamp and also verify the exchange. The whole data transfer or exchange is managed autonomously by all the participant of the network and isn’t controlled by any central authority.
What is BLOCKCHAIN?
The blockchain is defined as a digitized database which contains information that can be shared simultaneously within a large-publicly available decentralized network, invented with the function to serve as a public ledger for cryptocurrency transactions.
A blockchain is basically a continuous list of record which is constantly growing at any given time. Each record is linked and secured using cryptography and is known as Blocks. These blocks are recorded and added in a chronological order with each block comprising of a cryptographic hash of the previous block, a time stamp, and the transaction data. With the help of blockchain technology, all the participant are able to keep an overall track on the digital currency transactions without any central authority having a control over it.
One of the most interesting features of the blockchain technological design is that once a transaction is recorded there can be no change in the data, i.e, blockchain is resistant to modification or alteration of the data. The design of the blockchain is such that if any changes are to be made in the data of any particular block it requires the agreement from a majority of the participant in the network because one change in a block leads to the alteration of data in the subsequent blocks which can create a major chaos.
The blockchain comprises of all the details of digital transactions of different participants in the blockchain network, along with their addresses and balances from their initial block to the most recent block.
How does BLOCKCHAIN works?
Knowing how the blockchain works is a key factor in understanding it and ultimately being able to work on it.
As it was stated above, a blockchain is a secured list of record where a block is the current part of the blockchain which comprises of all the details of the recent transactions and once a transaction is completed this block goes on to join the blockchain and become a permanent part of the database. Every time a transaction is completed and the block joins the blockchain, simultaneously a new block is created repeating the procedure.
Ø What are the Nodes?
“A node is any electronic device connected to the blockchain network”
The participants or users are connected to the blockchain network through nodes, where a node is an electronic device such as a computer, mobile phones, etc which carries out various tasks. One of the main roles of a node is to provide the required support to the blockchain network by maintaining a proper copy of the blockchain and also in certain cases to perform the necessary transactions. These nodes form the foundation of the blockchain technology which allows the network to function and serve the purpose.
The owner of the particular node earns a reward (transaction fee) each time they allow their computing resources to engage in the storing and validation of the cryptocurrency transactions. This process is known as mining or forging and today many people are involved with it.
A node can either be a point where the communication ends or the point from where the distribution of communication occurs. In the blockchain network, all the nodes are treated equally and are responsible for the confirmation and validation of the transaction. Nodes are designed in such a way that it can make its own conclusion about the validation of a transaction, irrespective of the other nodes.
BLOCKCHAIN and BITCOIN
The blockchain is considered as the backbone of Bitcoin.
Due to the blockchain technology decentralization of Bitcoin was possible, hence no central authority controls the cryptocurrency transactions and all the activ e users in the network are able to dictate and validate all the cryptocurrency transactions.
Blockchain removes the third party scenario, that is, whenever payment has to be done between two users through Bitcoin (Digitized currency) for any goods or services, they can directly go through the payment without the involvement of a third party.
All the transactions which are completed over the time are publicly recorded in the blocks and ultimately into the blockchain and are available for the entire network users. It is known that on an average of 10 minutes a new block is added to the blockchain by the process of mining.
According to the Bitcoin protocol, the blockchain database is for the public and is shared by all the participants of the network through their nodes. Once a participant joins the network, the connected computer will receive a copy of the blockchain which would comprise of all the details about every transaction occurred till date.
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Expansion of BLOCKCHAIN technology
A blockchain is an unconventional form of banking and no central authority control it. When the analogy of the conventional form of banking is used, then blockchain will be considered as a full history of the institution’s financial transactions and individual blocks will be considered as a bank statement.
As it is known blockchain is a distributed database system which serves as an open public electronic ledger which ultimately simplifies the business operations for all the sides. Due to these reasons, the blockchain technology is not only attracting financial industries and the stock market but also other fields like music, IOT etc. Some advocates have even suggested that such technology can be of great use in the voting systems, medical records, vehicles registry etc.
Blockchain has impressed with its technology to a level that even banks who at first were a little hesitant to explore the technology are now looking into it. Also, new models based on Blockchain for accounting and payment networks are starting to replace the expensive accounting technology in the financial industry.
Due to an impressive concept of a decentralized unconventional form of a database, many tech start-ups are getting attracted with the concept of blockchain and trying to adopt it with the goal of incorporating it in varieties of industries. BTCJam, Storj and etc are few of the companies who are currently involved with the blockchain technology.
Blockchain over the years has proven to be of gre at potential which can also be applied in other fields apart from the cryptocurrency.
Factors that make BLOCKCHAIN unique
- Blockchain technology, which is a type of DLT or Distributed Ledger Technology, has been proven to be cheaper than the traditional accounting methods, as its adaption can lead to some major cost cuttings which result in having an effect on overall expenses.
- This technology has been designed in such a way that it results in less number of mistakes or errors during the transactions and also helps in eliminating some of the repeated confirmation steps making the whole process faster than the traditional methods.
- This technology minimizes all the processing delays and also, have been proven to be of great benefits with the international transactions because of the absence of any human involvement in the processing.
Difficulties along the way of adopting BLOCKCHAIN
Like any other technology developed by humans, even Blockchain technology has its own challenges that are needed to be overcome before we can see more and more people getting involved with it.
- One of the main challenge related to Blockchain is that it has a steep learning curve, i.e, it can be little intimidating to understand the working of the blockchain technology, especially for an individual without any technical background.
- Blockchain technology should be able to interact with another operational process smoothly without creating any chaos or delays and hence, be able to enhance the overall efficiency of the operation resulting in cheaper operating costs for all the parties involved.
- Security is one of the major concerns related to Blockchain, as there still many organizations who are doubtful about how safe are blockchain and cryptocurrencies.
- As it is known that Blockchain is an open public ledger where the details about all the transactions that have occurred during its lifetime are available to the entire public (participants of the network). Not all organization are OKAY to work with such an open-source model with no central control.
Disregard of these few back steps there is many who find Blockchain as a revolutionary technology and consider it to be the future technology not just in the digital currency world but in other fields too.
In simple word, Blockchain acts as a digitized open bank for digital currency where all the information about each transaction that occurs in its lifetime is available to its users and there is no central authority that controls it. Each participant in the network is responsible for making sure that only legit or valid transactions occur and thus, maintaining a healthy open banking system.
But over the years, Blockchain has proven that it has potential outside the cryptocurrency world too. One of the main feature of Blockchain that has attracted various organizations is decentralization which provides incredible opportunities in varieties of fields which may result in more flexible and secure businesses and operations.
It is believed that the number of blockchain applications is un limited and at the moment several companies are either at the developing stage of these applications or are at the testing stage. With more and more money being poured in the direction of Blockchain the time is not far away when its products and services would have a major effect on the way business occurs.
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Author: Abeer Ghansar, Business Development Lead, Abeer@decisiont.com