Money is something that has always revolved around for almost 5000 years and nowadays we all mainly depend on bank transactions. But Have you ever wondered if there is any other way to do money transactions other than online wallets, bank accounts, and third parties applications? Well, there is blockchain.
Using blockchain, we can easily transfer money across the world. Before I tell you what is blockchain, let’s discuss an example. Imagine there is a group of five friends, Phil, Mark, Jane, John, and Tony. it is tony’s birthday and the other friends decided to buy a gift for him. They went to a shop, bought a gift for tony and jane paid for it. After the party was over they decided to split the bill. All Phill, Mark, and John decided to pay the money online. Although john’s share was successfully credited to jane’s bank account, Phils and Marks’s share didn’t get credited to jane’s account. They later found out that there was something wrong with the bank account. Even though they successfully made their transfers, this has happened to a lot of us.
There are a lot of reasons like account issues, hacked accounts, daily transfer limits, and high transfer charges for such a failure to occur. To solve these problems, cryptocurrency came into existence. Cryptocurrency is a type of virtual or digital money that runs on a technology known as the blockchain.
What is Blockchain Technology
The blockchain is a decentralized distributed ledger that records the source of digital assets. As compared to other transaction methods, what makes cryptocurrencies exceptional is that they are immune to counterfeiting, don’t require a central authority, and are protected by a strong and complex algorithm.
Blockchain is a specific type of database that stores data as blocks that are chained together. When new data comes in, it is entered into a fresh block. Once the block is filled it is chained to the previous block and this process is repeated in chronological order. Any kind of data can be stored on the blockchain. But it is commonly used to store ledgers of transitions.
When used with bitcoins, blockchain is used in a decentralized way so that no single person or group is in control rather a copy of the blockchain is kept by all the participants in the network, so that all the participants remain in control. The decentralized blockchains are immune to changes that make the data unchangeable and irreversible.
Although there are various types of cryptocurrencies in the market, the first and most used cryptocurrency is Bitcoin. Bitcoin is known as the granddaddy of all cryptocurrencies. Before discussing how a bitcoin work, first, let’s discuss what is a bitcoin.
Bitcoin first came into existence in 2009 by someone or a group of people named SATOSHI NAKAMOTO. It aimed to solve the problems created by fake currencies with the help of blockchain technology. In 2021 there are more than 1600 varieties of cryptocurrencies inspired by the concepts of bitcoin and blockchain.
How Does Blockchain Work?
Imagine Mark, Phil, and John has 3 bitcoins and Jane has 5 bitcoins. Imagine Phil gives 2 of his bitcoins to jane. Then Phil will have one bitcoin left and jane will have 7 bitcoins left. When this transaction occurs, the miners verify the authenticated users, once verified the transaction is added to the blockchain. The money is deducted from the sender and is credited to the receiver’s account. Then the network updates its copies of the blockchain.
As the name suggests blockchain is a chain block of data. Each block of blockchain act as a container of aggregated transaction details. They mainly consist of a header and transaction detail. The header holds the metadata of the block. It contains a block version number, hash (previous block), timestamp, nonce, and a target. And the transaction detail contains the sender’s information, receiver’s information, and the amount to be transferred. And it is represented in the form of a 250-bit hash value in the header called hash root or Merkle root.
What Makes Blockchain Secure?
what makes blockchain so secure is the hash function used in the blocks. As compared to other encryption algorithms, a hash function is one way. It cannot be decrypted. So the wallet access is encrypted with a hash function. After digitally signing the data it is sent to the receiver. When the receiver receives it he/she decrypts the data using the private key of the receiver. Since blockchain uses a hash function to encrypt the data, the data will be secure while sending it to the receiver.
There are a lot of encryption algorithms used to send data from a sender to a receiver. But why hash function? As I told you already hash function is one way. So the data cannot be decrypted. Blockchain encrypts the data and is sent to the receiver using the hash function.
Normally when the data is sent over a network the attacker hacks into the network and changes the values of the data using a fake key. But in blockchain, this kind of hacking is not possible as it is highly secure. Another reason, why this is not possible is because a blockchain is a chain of data or blocks. And a copy of the blockchain is kept by all the participants in the entire network. So if one has to be changed the entire network has to change. And each block is a connection of the network, so if one is changed all the remaining data has to be changed. This makes blockchain highly secure and resistant to hacking.
Advantages and Disadvantages of Blockchain
With such complexity, the potential of the blockchain as a decentralized system is boundless. Blockchain has high user privacy, reduced errors, low processing fee, and high security. There is an immense amount of advantages as well as disadvantages to the blockchain.
- Improved accuracy by removing human errors in verification.
- Low process rate by eliminating the third-party verification.
- Decentralization makes it harder to meddle with.
- Transactions are kept secure, private, and efficient.
- Transparent technology
- Acts as an alternative for banks and a way to secure personal information.
- Low transaction per second.
- Technology cost for mining bitcoins.
- Used for illegal activities in the past.
Applications of Blockchain
Although the blockchain is mainly used to keep a financial ledger, there is much other application to the blockchain. And there are many MNCs that use blockchain technology. Walmart has been collaborating with IBM on a food safety blockchain solution to add transparency to the decentralized food supply ecosystem by digitalizing the food supply chain process. Based on a hyper ledger fabric and open-source ledger technology, they were able to create a food traceability system. Placing the supply chain on the blockchain allowed the process to be more transparent and traceable. Each node on the blockchain represents each entity that handled the food before it reached the stores. This makes it a lot easier and faster to know where the fault occurred. This helps to solve the problems at origin much easier. The other fields where blockchain is widely used are:
- Banking and Finance
Banking and finance a fields that can benefit a lot by integrating with Blockchain. Usually, if you deposit money into a bank account, if it’s not a business day then it can take up to 3 or 4 days for the money to get debited. If it is a business day then still after the verification process, it can take up to 2 days. But with blockchain, it’ll take only up to 10 minutes, which is the time to add data to the blockchain. Regardless of any holidays or time of the day, you can easily add data to the blockchain, as they say, blockchain never sleeps.
The blockchain acts as a foundation for all cryptocurrencies like bitcoin. If a person has an account with a bank, then he is depositing not only his money but also his personal information. If a user’s bank account is hacked then both his money and private information are at risk. If the client’s bank fails or is struggling with an unstable government, even worse. This is one of the reasons why bitcoin was created.
Blockchain allows bitcoins and other cryptocurrencies to work without a central authority. This not only reduces risk but also eliminates the transaction fee and processing fee. Blockchain also gives stability to participants who have unstable currencies or financial infrastructure. And a wider network of people or companies he can do business with both nationally and internationally.
- Records of Property
The record-keeping of property is another field where blockchain can be widely used. In a normal case, the recording of property rights is a burdening and time-consuming process. You have to be physically present at the recorder’s office, while the process. If you are living in a warzone region or an area where there are no recorder’s offices then, you can choose blockchain. Blockchain eliminates such a time-consuming process and you can easily track down the previous owners. In case of a property dispute, you can easily prove your right on the property using blockchain. As the records in blockchain are immutable.
- Health Care
Healthcare is a field where so many malpractices take place. With blockchain, you can securely store your medical records. When the medical reports are generated and signed, they can be written into the blockchain. This gives the patient the confidence that the medical record cannot be altered in the future. If you want then the personal medical records can be encrypted with a private key and give access to only a few individuals.
Although the blockchain was first introduced decades ago, the growth of blockchain and different cryptocurrencies are attracting more and more people. A career in the blockchain is also something that is expected to grow rapidly. So there is always more to learn about technology. If you are someone who is eager to learn more about technologies and emerging technological trends, then stay tuned.