Blockchain is a secure database shared across a network of participants, where up-to-date information is available to all participants at the same time.
Blockchain is a technology that enables the secure sharing of information. Data, obviously, is stored in a database. Transactions are recorded in an account book called a ledger. A blockchain is a type of distributed database or ledger, which means the power to update a blockchain is distributed between the nodes, or participants, of a public or private computer network. This is known as distributed ledger technology (DLT). Nodes are rewarded with digital tokens or currency to make updates to blockchains.
Three Pillars of Blockchain Technology
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Decentralization
Traditionally, centralized systems stored all the user information in one place. This is easier to keep track of the information you need. But it makes the information an easy target for potential hacks. It also requires downtime if the system needs maintenance or a software update. And if the system ever shuts down or gets corrupted, all the data can be lost.Blockchain provides a decentralized system where everyone in the network owns the information. This also takes out any costs related to third-party interference.
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Transparency
Transparency means that the flow of assets would be visible to everyone in the network. But it maintains privacy. It does not share identity of the participants. If Peter sent 1 Bitcoin to Kevin, the transaction appearing in the ledger would be something like:“1MF1bhsFLkBzzz9vpFYEmvwT2TbyCt7NZ sent 1 BTC to
9vpFYEmvwT2TbyCt7NZJ1MF1bhsFLkBzzz”That long string of gibberish cannot be traced back to Kevin or Peter. If you write someone a check, their bank has to confirm with your bank that you have enough money. The blockchain can do it anonymously.
But cryptocurrencies are just one aspect of Blockchain technology. This kind of transparency can preserve a secure record of transactions in any field. It could be a supply chain saying that one company filled an order placed by another. Or it could be in real estate, tracking ownership of some plot of land. Without blockchain, there are whole government offices devoted to this.
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Immutability
Immutablilty means that once something has been logged in the ledger, it cannot be changed.Blockchain uses complex hashing algorithms to store information. These algorithms create strings with the same size, no matter how minor or major changes in the data. Bitcoin, for example, uses SHA-256 which creates strings 256 bits long.
Even if a minimal change in the data would change the hash drastically. The change would appear in all the chain blocks and completely change the chain. This property is known as the “Avalanche Effect.” This is how Blockchain attains immutability.
If someone wanted to add a fake transaction, they would have to find some other data that creates the same 256-bit string. This is not literally impossible, but there is no known way to do it even with the world’s best supercomputers. You can assume that any transaction recorded in the blockchain did really happen.
How Does Blockchain Work?
Blockchains are distributed data-management systems that record every single exchange between their users. These immutable digital documents use several techniques to create a trustless, intermediary-free system.
Let’s start with the blocks. Each block contains stored data, as well as its own unique alphanumeric code, called a hash. These cryptographically generated codes can be thought of as a digital fingerprint. They play a role in linking blocks together, as new blocks are generated from the previous block’s hash code, thus creating a chronological sequence, as well as tamper proofing. Any manipulation to these codes outputs an entirely different string of gibberish, making it easy for participants to spot and reject misfit blocks.
Another key feature to the inner workings of blockchain is decentralization. In lieu of a centralized entity, blockchains distribute control across a peer-to-peer network made up of interconnected computers, or nodes. These nodes are in constant communication with one another, keeping the digital ledger up-to-date. So when a transaction is taking place among two peers, all nodes take part in validating the transaction using consensus mechanisms. These built-in protocols keep all in-network nodes in agreement on a single data set. No blocks can be added to the blockchain until it is verified and has reached consensus. Luckily, this step has been sped up with the advent of smart contracts, which are self-executing programs coded into a blockchain that automate the verification process.
Once a transaction is recorded, it’s considered permanent. Blockchains are one-way operations in that there are no reversible actions. This immutability is part of creating transparency across the network and a trustworthy record of all activities on the blockchain.
Blockchain Decentralization
Centralized and decentralized structures are polar opposites. A centralized structure implies control of the central entity by people who have the power to manage, control and oversee it. One example would be a nation's currency, which is managed by a central bank. Decentralization is the opposite of that, where no one person or entity owns, manages or controls the network or structure.
So how can cryptocurrencies operate without a governing authority to keep order? Bitcoin's peer-to-peer public blockchain offers a solution by using a cryptographic protocol known as proof of work (PoW).
A blockchain consists of blocks of data with information about transactions that is used to prove the validity of the next block. Bitcoin users can add blocks to the blockchain through validation by PoW. Since the blockchain is public, it can be viewed by everyone, and anyone can add a block by providing PoW for a transaction.
The main reason blockchains are decentralized is to avoid putting control in the hands of a few, or a country's central bank. That's the main motivation behind the embrace of cryptocurrency in the first place: to take banks out of the equation and have true peer-to-peer transactions.
Decentralized blockchains are designed to be unalterable, and once the data is entered it is irreversible. New data can be tacked on, but the old data can't be edited or changed in any way. For Bitcoin, this means transactions are permanently recorded and viewable by anyone. Think of it as feedback on eBay taken to the next level.
Not all Digital currency is decentralized. There are also cryptocurrencies that use private, centralized systems, where only a select few people have the power to add new blocks and check the validity of transactions. These tend to be used in privacy-oriented industries like healthcare and finance.
Blockchain Transparency
Blockchain transparency refers to the characteristic feature of the blockchain that ensures all the transactions and data on the network are available to everyone with access to the system. With blockchain transparency, anyone can see and validate the authenticity of transactions and data on the network. This is the approach many public blockchains like Bitcoin and Ethereum took in developing their various networks.
Transparency is essential because it allows everyone to trust the information contained within the blockchain network. It also allows members of the network to verify that the transactions that they are making are legitimate. The transparency of a blockchain network is one of its key strengths. It brings about fairness, trust, and reliability and is one key feature that makes blockchain technology more efficient than other data storage systems.
Blockchain transparency is a crucial feature of blockchain technology that creates uniform accessibility to data and transaction information for all participants in a blockchain network.The base design of the distributed ledger tries to strike a balance between privacy and transparency.Privacy-focused blockchain attempt to limit transparency by concealing transactional data and restricting access to information on the network.Benefits of transparency of blockchains include reduced costs, increased trust, accountability, and efficiency.
Do Blockchains Limit Transparency?
While transparency is generally seen as a good thing, various blockchains approach this concept differently. Depending on what the blockchain developers intend to accomplish, they may configure the chain in such a manner that transparency appears limited.
For instance, some developers believe the balance between privacy and transparency in regular blockchains is insufficient. They have worked to create more privacy-focused blockchains designed to limit or completely remove the transparency feature, making it extremely difficult for anyone to check information on the network.
With these blockchains, it is nearly impossible to verify the wallet owner of certain assets or trace the movement of cryptos under the network. This approach to privacy makes it hard for users to figure out who is responsible for any fraudulent or illegal actions that happen on the blockchain.
Is Blockchain secure?
If you ask, is blockchain secure? Then Yes, blockchain is secure in its principle.
Each block has its unique 32-bit nonce and 256-bit hash numbers. Thus, if a hacker wants to change its entry, they have to calculate around four billion nonce-and-harsh combinations for the block itself and other billions of calculations for its subsequent block.
This is almost impossible unless the hacker does faster than other nodes or has more powerful computers than all other nodes combined. Otherwise, such an alteration is rejected by other nodes automatically.
So much a theory. People still make countless efforts to hack the chain. One in a trillion, they combine a correct nonce and harsh. Plus, hackers might use a node’s communications or wallets to save private keys. Many other ways.
The blockchain is changing the way business is carried these days. It allows consumers to remove the middlemen in all essential services, reducing costs and also boosts efficiency. But using blockchain has a question raised as to do these technologies offer trust and privacy, and do they ensure private and tamper-free records? To understand the difference, it is important to get the difference between public and private blockchain. Bitcoin is an example of a public blockchain which offers anyone using it to read and write. On the other hand, the private blockchain applications comprise a different range of markets in which varied parties wish to contribute. So when using blockchains, a question arises that is blockchain safe.
What about Security and Privacy?
Due to the public key infrastructure, blockchain ensures confidentiality. i.e. blockchain technology is safe. It protects against malicious attempts to make changes in data and also maintains the size of the ledger. To answer this, we can say that security starts with network architecture. The network is the first decision to make safe when private blockchain is coming into consideration. To get a consensus of blockchain on their ledger, the list of transactions is made through an announcement, and a communication medium is needed to write or endorse a new transaction.
The communication that takes place is between two nodes which will have a copy of the ledger and will also inform the other nodes about this new information. People who manage private blockchains have the authority to work on a node and on linked nodes. A node which has many links will get information faster. A private blockchain with many commodities may award more central positions in the network and develop trading partners. It may provide new nodes to maintain a link to one of these central nodes as a safety measure and also behave as expected.
Whether Private Blockchain is more Safe and Secure than the Public One?
The main purpose of having a private blockchain built is to preserve safety and security in a severely misguided one. It is true that a private blockchain enables the user to screen or filtering of participants while the public blockchain is easily accessible to all people. Due to this public exposure, public blockchain is immune to hacks.
For example, Bitcoin is an original public blockchain that stood relentlessly for years towards hacking. It grew more resilient with every hack and always withstood. This removes the misconception and proves that public blockchain is considerably Safe and superior to that of the private blockchain.
Blockchain Technology and Modern Banking Systems
The blockchain’s ability to tokenise assets, ie creating digital representations of physical and financial assets, promises enhanced transparency, increased liquidity and operational efficiencies.
The shift towards a blockchain-centric financial industry is accelerating, with the tokenised market capitalisation expected to reach around US$2bn by 2030. Notable adopters, like JPMorgan and BlackRock, leverage blockchain for applications ranging from digital identity verification to trade finance, signalling a robust future for blockchain in banking.
BlackRock CEO, Larry Fink, said earlier this year: “We believe the next step going forward will be the tokenisation of financial assets, and that means every stock, every bond […] will be on one general ledger.”
According to a recent McKinsey & Company report. ‘Tokenised financial assets: Moving from pilot to scale’, tokenisation has reached a tipping point, setting the stage for at-scale implementations that promise enhanced liquidity, operational efficiencies and new avenues for revenue generation.
What blockchain platform or technology do banks utilise, and why?
Dr. Scott Zoldi, Chief Analytics Officer at FICO, says: “Some of the most exciting new uses of blockchain are utilising permissioned and private blockchains, such as Hyperledger Fabric, which allows for controlled access, transaction visibility and simpler consensus models.
“These private blockchains balance control, access and scalability concerns compared to traditional public blockchains. Banks focus on the right level of access, consensus and protections while balancing the costs and benefits of using blockchain technology,” Zoldi adds.
Nick Jones, Founder and CEO of Zumo, observes the varied adoption of blockchain platforms among banks. “Different banks are using different platforms for a growing range of use cases as their interest in the technology grows,” he notes.
HSBC has also implemented a blockchain-based trade finance platform to digitise and streamline operations, specifically using the R3 blockchain platform. The R3 Corda platform, designed for the financial services industry, facilitates the secure sharing of trade documents like letters of credit and invoices.
“Other banks are now focusing on how they can leverage blockchain technology to help their customers safely explore the possibilities that crypto opens up,” Jones adds.
How are Blockchain is used?
When talking about blockchains, we commonly think of its applications in the future. “Blockchain will solve this, blockchain will achieve that”. It’s easy to forget that blockchains are already deployed in the wild.
Pick an industry, from automobiles to artificial intelligence, and odds are you’ll find examples of blockchains in action. In all quarters and all circles, blockchains are making their mark. Even the US Treasury is in on the act, advocating for more pilot projects and test programs.
The ‘World Economic Forum’ anticipates that 10% of global GDP will be stored on the blockchain by 2025. That means the global executives out there are preparing for this seismic shift, and are ready to completely back its implementation. The impact of distributed ledger technology could be as grand as the internet revolution itself.
The use cases differ, but the benefits derived from using the technology remain unchanged: transparency, immutability, redundancy and security. In 2018, new blockchain initiatives are launched every day. Here are 50 examples of blockchains in use around the globe.
Government
A number of governments have expressed an interest in blockchain technology to store public records on a decentralized data management framework. Blockchain will enable urban and rural citizens throughout Finland to access records.Other use cases include government applications such as education, public records and voting.
Waste Management
Waltonchain’s RFID technology is being used by a Smart Waste Management System in China. Using Walton’s blockchain, the project will enable supervision of waste levels to improve operational efficiencies and optimize resources.
Identification
Zug in Switzerland, known as “Crypto Valley” has developed a blockchain project in partnership with Uport to register residents’ IDs, enabling them to participate in online voting and prove their residency.
Border Control
At present, passengers on the Eurostar train between the two countries undergo border control checks at multiple points. Blockchain would provide a means of ensuring that the data has not been tampered with and is verifiably accurate.
Healthcare
Medical records are notoriously scattered and erroneous, with inconsistent data handling processes meaning hospitals and clinics are often forced to work with incorrect or incomplete patient records. Healthcare projects such as MedRec are using the blockchain as a means of facilitating data sharing while providing authentication and maintaining confidentiality.
Enterprise
Clients of Microsoft Azure Enterprise can access the Ethereum Blockchain as a Service. This provides businesses with access to smart contracts and blockchain applications in a secure hosted environment.
Google is also reported to be working on a proprietary blockchain to support its cloud-based business. Parent company Alphabet is developing a distributed ledger that third parties will be able to use to store data, believed to be in regards to Google’s cloud services for enterprises, with a white label version for companies also in the works.
Medical
Medical centers that have digitized their patient records don’t distribute their data across multiple facilities, instead keeping them on-site on centralized servers. These are a prime target for hackers, as evidenced by the ransomware attacks that struck NHS hospitals in the UK. Even if security risks are overlooked, there is still the problem of fragmentation. There are currently more than 50 different electronic healthcare record (eHR) software systems that operate in different hospitals, often with dozens of different packages within the same city. These centralized systems do not interoperate with one other and patient data ends up scattered between disparate centers.
In life-and-death settings, the lack of reliable data and sluggish interfaces may prove devastating. Patient privacy is maintained on a secure decentralized network where access is granted to only those who are medically authorized and only for the duration needed.
Pros of Blockchain
Reducing risk
If you are a supplier of design products and would you like to check the authenticity of a product? Have every stakeholder in the production process to complete a block. Ask each party to provide evidence of their work, for example in the form of a digital certificate or a proof of origin of the product. By recording this in the blockchain database, you reduce the risk of imitation or forgery.
Detecting errors
Blockchain makes it easier to detect errors in the chain, as each stage of the process is recorded in a block. Emsbroek cites the chain of deposit bottle crates as an example: company A manufactures these crates. Company B transports the crates to Company C. Company C uses the crates for storing bottles of lemonade. If a number of crates were to fall off the lorry during transit, Company C will only notice this when filling the crates. At the end of the chain, Company C has two problems on its hands in this case: they paid money for crates which have not been delivered ànd they are stuck with a surplus of lemonade they were unable to store.
Blockchain has changed this entire process. In the production of the crates, Company A assigns a digital code to each crate, similar to a QR code. This records each crate digitally in the blockchain database. A, B, and C all three have access to this database. In addition, each crate is assigned a sensor connected to the internet. This sensor reports the location of each crate to the database.
If a crate falls off the lorry, this will be indicated in the database. What happens next depends on how the system is set up. This means the crates can be automatically charged to, for example, the transport company or the supplier. Then Company C does not need to pay for the missing crates. Alternatively, a notification might be sent to Company C’s production system that the number of bottles of lemonade must be reduced.
The biggest advantage here is that blockchain makes the entire process transparent for all parties and immediately reports any errors. This saves everybody time and costs.
Cons of Blockchain
Blockchain also has a number of disadvantages. Emsbroek: “You can only use blockchain once the full process of value transactions has been developed and established. This is both time-consuming and expensive.” So, you should take into account the following:
The law does not always permit blockchain
First, check that blockchain is permitted. Emsbroek: “Whenever we start blockchain, we always hire the services of a legal expert. Because no matter how effective a solution might be, if the law does not permit it, all the work is for nothing.” Emsbroek uses the dispatch of containers at sea as an example. “That is a good business case, as errors and fraud are a major problem in ports. Still, blockchain is not feasible here, as blockchain is fully digital and Dutch law requires a printed Bill of Lading.”
Cooperating with third parties
All parties involved in the chain must want to cooperate. “Only very large companies can use blockchain to improve internal processes. So, you will likely always need to work with other businesses. If one of the parties involved in the example with the crates is not cooperative, the added value of blockchain is significantly smaller.”
Time-consuming process
To improve any process through blockchain, you must develop every stage of the process. This is very time-consuming. "After all, you need to understand not only how the process works now, but also how it should work in the future."
Extensive testing before you implement the plan is essential. This will tell you if the concept delivers on its expectations. If anything goes wrong, you will still be able to rectify it.
Benefits of Blockchain Technology for Businesses
The use cases of blockchain technology keep expanding. The world has come a long way from associating blockchain with only keeping track of cryptocurrency transactions. Now more industries are realizing that several of the blockchain’s inherent traits are revolutionary and can positively improve the business operations specific to those industries.
The question is have you explored those qualities and do you understand how they can improve your business? Let’s take a quick look at five benefits that blockchain offers businesses across different industries.
The Benefits of Adopting Blockchain Technology
- Reliable Security : Several of the blockchain’s capabilities enable it to offer the sort of security that top businesses need to safeguard sensitive data and operate smoothly.Its decentralized structure ensures that hackers can’t easily gain control of your systems and wreak havoc. This is because unlike with a single server, the blockchain stores information across multiple servers globally, and hackers would need to gain control of more than 51% of those servers to breach your defense. Going one step further to leverage permissioned blockchains means you can even restrict data access to a select set of users who are issued special certificates. That way, certain details are accessible only on a need-to-know basis.The blockchain’s record-keeping system is also great at preserving operational integrity. Transaction records are validated and stored based on approvals reached by consensus. And once accepted, data is stored in blocks and encrypted end-to-end, preventing alterations and fraud.
- Improved Efficiency :One of your top business goals should be delivering value to customers while managing business operations as efficiently as possible. You can make this possible by drawing on the blockchain’s unique characteristics.For one, using the blockchain simplifies documentation. You can avoid cumbersome paper trails by simply storing transaction details and other data on the blockchain. Consequently, critical data will be accessible anywhere, you can access aggregated transaction details without having to reconcile multiple ledgers.The blockchain also introduces speed into payment and settlements with its peer-to-peer network. By bypassing traditional financial institutions using the blockchain, you can move money faster and enable your customers to do the same.
- Reduced Costs: Blockchain technology eliminates several inefficiencies that also translate to more overhead cost for businesses. For instance, it can speed up the processing of transactions by bypassing expensive legacy systems, infrastructure or middlemen that offer similar processing capabilities as the blockchain.Also, the use of blockchain-powered features like smart contracts can eliminate the need for lawyers and other similar intermediaries, thus removing the cost of employing their services for certain deals. Moving business funds via the blockchain can also help you avoid banking. Over an extended period, money saved on bank charges can be sizable enough to help build the business.
- Better Transparency : One of the biggest drivers of business growth is accountability, and the blockchain facilitates this better than traditional systems. Seeing as the blockchain is a distributed and open ledger, all transactions are recorded accurately and are uniform across all access points. This way, important data is available to critical stakeholders whenever they need it. Blockchain can also deliver a trustworthy and reliable ledger of transactions which shows the movement of funds for internal company operations and revenue inflow from sales. All transactions are also time- and date-stamped.
- Instant Traceability : The blockchain ledger offers an audit trail that can be useful in tracking transactions and movement of goods. This can be helpful in identifying loopholes in a supply chain, verifying the authenticity of digital assets and preventing fraud. In supply chain management for instance, businesses can digitize physical assets and move such digital representations across the blockchain so the assets they represent can be tracked from production to delivery using an immutable record.
Drawbacks of using Blockchain
- Blockchain is not a Distributed Computing System
Nodes are necessary for the correct operation of the Blockchain network. The Blockchain's quality is dependent on the nodes' quality. For instance, the robust Blockchain used by Bitcoin encourages nodes to join the network. The same cannot be said for a Blockchain network where nodes are not incentivised. This indicates that it is not a distributed computing system in which the network is independent of the contribution and involvement of the nodes. In contrast, a distributed computing system strives to ensure that the transactions are verified in accordance with the rules and that the transactional history is available for each transaction. While each of these operations is comparable to those of a Blockchain, there is no cohesion, cooperation, or synchronisation among any of them.Blockchain is undoubtedly a distributed network, but it lacks the characteristics that make distributed computing systems valuable to businesses. - High implementation costs
Blockchain Technology implementation entails a significant upfront expense. Even though Hyperledger and most Blockchain solutions are open sources, they still demand substantial investment from the company that wants to pursue them. Hiring developers, supervising a team that excels at various facets of Blockchain Technology, paying for a Blockchain solution, and other fees are all involved. In addition, you must consider the solution's ongoing maintenance costs. The costs for commercial Blockchain projects can also exceed a million. Therefore, companies that enjoy the concept of Blockchain but need more resources or funds to implement it may have to wait a long before joining the fad. - Power use is too high
Blockchain energy consumption is high because of mining. This is because each new node links to every other node as soon as it is established and creates a distributed, continuously updated ledger. Every Blockchain solution operates uniquely. These problems do not exist in private or permissioned blockchain networks with fewer nodes. They employ consensus-building strategies since a global consensus is not necessary. However, if you use Bitcoin Blockchain, the most well-known Blockchain network, the problem is still unresolved. Permissioned networks consume less energy than public networks. - Data is immutable
Data immutability is one of the critical disadvantages of Blockchain. Financial and blockchain supply chain systems benefit from it. Only a network with evenly dispersed nodes may support immutability. A blockchain network is susceptible if one organisation controls at least half of the nodes. Data cannot be removed once written, which is another concern. A Blockchain-based digital platform cannot be deleted after it has been used. - Blockchains are sometimes inefficient
There are numerous Blockchain technologies available at the moment. The most well-known ones, such as Bitcoin, have many inefficiencies in the overall system. One of the main disadvantages of Blockchain is this. Firstly, it is discovered that the ledger can easily exceed hundreds of gigabytes when you start doing bitcoin mining on the system. It had inefficient data storage, which could cause storage issues for numerous nodes that desire to join the network. Since nodes must replicate the data anytime it is altered, there must be a better way to handle this. Moreover, as transactions and nodes increase, so does the size of the Blockchain. The entire network slows down if it keeps expanding. This is not ideal for commercial blockchains, where the network must be quick and safe simultaneously. With the aid of other Blockchain solutions, inefficiencies are being reduced gradually. Using lightning networks, Bitcoin is attempting to address these inefficiencies.
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