What is a Blockchain?
You might have heard of such news floating in the air or a popup on your phone by Google News. Do you have any idea about blockchain?
In layman’s terms, if we break the word ‘blockchain’, we get two by-products, ‘block’ and ‘chain’. There must be some link with the words.
Could it be a chain of blocks for storing information?
You are right! A blockchain is a database of blocks, holding transactions, that is decentralized, distributed, and immutable in terms of security.
As the word ‘decentralized’ has come into the frame, let’s talk about it without any further ado.
Decentralization is the process of transferring control and decision-making power to a distributed network. Contextually, this means there would be no central authority.
Let’s have the example of a financial institution, say banks.
Banks follow a top-down approach working in a centralized manner. Databases containing information about the records, identities, and transactions are stored at a server, posing a potential threat of being hacked.
On the contrary, the databases of blockchain are distributed across the network of computers. Each computer (or node) has access to every information of the block that has been added since its birth.
Decentralization made transparency possible on blockchain technology. Even if I am working in Antarctica sitting with the penguins on my side (obviously, it is a hypothetical situation), I can view all the transactions with my personal computer, or I can hover to the website blockchain explorers to see the addition of blocks.
This brings in a question of safety racing in your mind, Is it safe?
How safe is blockchain?
Blockchain is known for the security level it provides to consumers. It is unmatchable!
The addition of blocks is done sequentially with the hash and timestamp of the previous block stored in the current block. Hash codes are created by a math function that encrypts the output file.
Much of technical? Let’s understand it in simple terms.
A bank’s server can be hacked into easily as it has a centralized authority which could result in a leak of information (as much private as credit card info). If someone tries to break into the blockchain, the block would not be accepted, as under checking by other nodes, the hash codes and timestamps would lead to the discarding of such a block.
Does that mean we can’t alter the blockchain?
For doing altercations to the blockchain, the hacker would have to gain access to 51% of control of the network of the blockchain to be granted access. It would require a vast sum of money and resources that would deplete the value. Therefore, it is pointless to even try!
Blockchain Technology and Banks
Blockchains and banks are just poles apart. If you are already at this point of the article, even you could easily list out points of differences. We will brief you a little more.
The blockchain provides privacy, contrary privacy in banks is just a hack away. The transactions are paced at much higher speeds than banks, they take even days to perform. The transaction fees are lower and transfers are easy to perform on the blockchain.
Adoption of Blockchain Technology
Blockchain technologies have a very bright future ahead. The possibilities of implementing its use have spiked the graph where even as little as the energy generations could be tapped by the blockchain to prevent any misuse.
With the growing climatic changes, the use of automobiles, and the emission of various harmful pollutants, the need to effectively track waste generation is the key to a clean and green environment. Blockchain as a technology is helping municipalities to track and monitor the waste life-cycle efficiently.
Use cases of Blockchain
With the emergence of technological advancements, blockchain has a stable foot on the ground and you could find it almost in every field.
- Finances: Blockchain technologies work 24*7. Forget about standing at the bank queues to transfer the funds or encash a cheque, blockchain makes it possible within 15 minutes. Moreover, a wide set of people are also active in trading blockchain products (like bitcoin).
- Currency: Traditional currency involves the use of currency notes which are regulated by the government and centralized bodies. Blockchain makes it possible to hold it digitally at a safe, secure, and decentralized place.
- Records: The land record details can be easily saved on a blockchain. This will remove the cumbersome process existing, save on time and resources, and provide a fast, seamless experience.
- Smart contracts: A smart contract is computer operated transaction protocol that automatically executes and controls the events described in the agreement. Introducing them in a blockchain will help in the easy implementation of contracts.
Applications of Blockchain
Blockchain technology has tons of pros to list.
- Cost reductions: The cost to set up an institution is very high, plus you have to pay for taxes, lease, paperwork, legalities, etc. These costs are incurred by the consumers in the form of transaction fees. Blockchain, being a decentralized authority has a very less transaction fee and is more feasible.
- Accuracy: ‘To err is to human’, financial institutions are worked up by the humans. This comes at the stake of errors which might result in loss of funds. Blockchain works on computer nodes, there is no room for errors (chances being very less of an error).
- Privacy: The most important point at the time where every other company is facing a hack for information leak. Blockchain technologies have a unique selling point of a public key that is stored on the blocks instead of personal information, posing no threat to consumers.
- Lower-income group: The banking institutions may sometimes deny access to their facilities on some factors. However, blockchain doesn’t distinguish anyone. Everyone is welcome to transact and use it for personal or savings purposes, with just an internet connection and computer in handy.
- Secure: Blockchain is very secure. Bitcoin, which runs on a blockchain, is a popular cryptocurrency where millions of dollars in transactions take place every day. Without security and trust, naturally, people wouldn’t have favored, posing it.
Disadvantages of Blockchain
There is no technology yet born with no disadvantages, blockchain is not untouched. There are some hindrances in the way of blockchain.
- Technological Costs: The costs are not for setting up a blockchain, but for making them running at a pace. At present, verifying the bitcoin’s block (also known as proof of work) requires vast amounts of electricity. With the surge in rates, the transaction costs can go high. For the blockchains with no cryptocurrencies, miners would require some sort of incentives for adding the blocks.
- Speed: Not all blockchains are slow. Some blockchains can perform a million transactions in a minute, whereas bitcoin, which is the most popular, requires about 10 minutes to add a block. Pretty slow, isn’t it?
- Government Regulations: There has been a word with some countries which can even plan to ban any transactions or even owning a cryptocurrency. Whereas, El Salvador became the first country to adopt Bitcoin as a legal tender.
- Illegal Work: The use of some cryptocurrencies was also active on the dark web to transact illegal products such as drugs, weapons, or smuggling. This needs to have Governmental intervention to stop such illicit trades.
So far from now, reading this article would have convinced most of you as blockchain being a promising technology for the future.
As we are heading over to the digital age, where even food orders are done by a food tap, regulating the cryptocurrency and bringing in the blockchain could be a bright side of the road. Agreed, some limitations could hinder, but looking at the positive aspects will surely bring in a revolution in every industry.
Sign Up today on The Blockchain School, to unlock more content on Blockchain.