10. Blockchain Technology – Everything you need to know in layman’s language

Blockchain technology has become a common news thing with the emergence of cryptocurrencies like Bitcoin.

Today, Blockchain technology is exploring almost all markets, changing the way we do our day to day activities. Somehow blockchain technology is changing the world.

Let’s decode the latest buzz word – The Blockchain Technology. Before you go, read earlier lessons Artificial Intelligence, Internet of Things (IoT), and Automation.

Comparing Blockchain to an Excel Sheet

Imagine a Microsoft Excel Sheet file in your laptop with details of some transactions you made. It is called a ledger.

Now, think of your Excel Sheet file is copied to hundreds of your friends’ computers, connected to each other forming a network. The ledger in your laptop has become a distributed ledger.

Then find out that this computer network is designed with technology to regularly update this Excel Sheet, whenever you or your friends update the ledger.

This is the basic understanding of the blockchain!

What is a blockchain?

In simple terms, blockchain is a digital ledger.

what is a ledger?

Ledger is a book that has all accounts to which debits and credits are posted from books of original entry.

A blockchain is a digitized, decentralized, public ledger.

Defenition of Blockchain

The blockchain is an incorruptible digital ledger of transactions that can be programmed to record virtually everything of value.

Each list of record in a blockchain is called block.

So, a blockchain is a continuously growing list of records called blocks, which are linked and secured.

Who invented blockchain technology?

In 2008, Satoshi Nakamoto invented Blockchain technology for use as its public transaction ledger in the cryptocurrency bitcoin. By designing the autonomous Bitcoin blockchain, Satoshi Nakamoto wanted to allow people to manage their own money and that only a single person, not even government, could access or track it.

The creator of Bitcoin, Satoshi, disappeared in 2011, leaving behind open-source software that the users of Bitcoin could update and improve.

The invention of the blockchain for bitcoin made it the first digital currency to solve the double spending problem without the need of a trusted central authority or central server.

The bitcoin design has been an inspiration for other programs or applications.

Bitcoin Is To Blockchain As Email Was To The Internet

The E-mail was the first significant service in the 1990s as internet technology (TCP / IP or HTTP) became native. New technologies such as web browsers were subsequently developed.  Chat apps like Skype were coming to be in use most commonly.

Similarly, when blockchain technology emerged, bitcoin was the first major application that utilized it. Other cryptocurrencies followed the trend. Now, blockchain technology is used in a number of applications like security, online voting etc.

Internet Technology vs Blockchain Technology

Simply put, the Internet allows computers to exchange information; Blockchain allows computers to record information.

Both use a lot of computers (nodes).

The Digital Economy, Wikinomics is bold on the topic and reflects about Blockchain that:

The first generation of the digital revolution brought us the Internet of information. The second generation — powered by blockchain technology — is bringing us the Internet of value: a new platform to reshape the world of business and transform the old order of human affairs for the better.

Blockchain is a vast, global distributed ledger or database running on millions of devices and open to anyone, where not just information but anything of value — money, but also titles, deeds, identities, even votes — can be moved, stored and managed securely and privately. Trust is established through mass collaboration and clever code rather than by powerful intermediaries like governments and banks.

Technologies behind the blockchain technology

  1. Private Key Cryptography
  2. P2P Network (Peer-2-Peer)
  3. Program (the blockchain’s protocol)

What is the need of blockchain technology?

The blockchain is a mechanism to carry out everyone to the highest degree of accountability. Now, no more missed transactions, human or machine errors, or an exchange that was not with the consent of two parties.

The most critical area where Blockchain helps is to guarantee the validity of a transaction by recording it not only on the main register but a connected distributed system of registers, that is distributed ledgers; all of which are connected through a secure validation mechanism.

Blockchain technology can find applications in the following areas in future:

  • Smart contracts – Any business highly based on contracts such as insurance , banking, construction, real estate, entertainment, law, will benefit from the unquestionable way blockchain maintains, handles, tracks, and secures contracts. Intelligent contracts, in which if / then transactions are inserted and implemented without external intervention, using blockchain technologies as well.
  • Supply chain management – Whenever value changes hands or the status of asset changes, blockchain is ideally suited for managing the process.
  • Asset protection – Whether you’re a musician who wants to ensure you get royalties when your music gets played or a property owner, blockchain technology can help you protect your assets by creating an indisputable record of real-time ownership.
  • Personal Identification – Governments manage vast amounts of personal data from birth and death records to marriage certificates, passports and census data. Blockchain technology offers a streamlined solution for managing all of it securely.
  • Payment processing – Blockchain has the potential to be highly transformative to any company that processes payments. It can eliminate the need for intermediaries that are common in payment processing today.
  • Crowdfunding – As with traditional crowdfunding, a blockchain powered crowdfunding campaign seeks to secure investment for a new project from an interested community. But in this instance, funding is most likely to come in the form of bitcoin or other cryptocurrencies.

Blockchain technology – opportunities and advantages

  • The blockchain allows our smart devices to speak to each other better and faster.
  • Blockchain solves the problem of manipulation. It brings everyone to the highest degree of accountability.
  • Online identity and reputation will be decentralized. We will own the data that belongs to us.
  • Cryptocurrencies take the power away from governments to control the value of currencies and hand it to people.
  • The potential is great for people in the informal economy to exploit the blockchain’s middleman-free way to exchange asset.
  • Blockchain technology can more equitably address issues related to freedom, jurisdiction, censorship, and regulation, perhaps in ways that nation-state models and international diplomacy efforts regarding human rights cannot.
  • Blockchain-based systems allow for the removal of intermediaries involved in the record keeping and transfer of assets.
  • The removal of intermediaries and settlement on distributed ledgers allows for dramatically increased transaction speeds compared to a wide range of existing systems.
  • Data entered on the blockchain is immutable, preventing against fraud through manipulating transactions and the history of data. Transactions entered on the blockchain provide a clear trail to the very start of the blockchain allowing any transaction to be easily investigated and audited.

Blockchain technology – Criticisms and Challenges

Huge power required: Remember all that computing power required to verify transactions? Those computers need electricity. Bitcoin is a poster child of the problematic escalation in power demanded from a large blockchain network. That’s not appealing given today’s concerns about climate change, the availability of power in developing countries, and reliability of power in developed nations.

Security about the private key: The private key must remain secret at all times because revealing it to third parties is equivalent to giving them control over the bitcoins secured by that key. The private key must also be backed up and protected from accidental loss, because if it’s lost it cannot be recovered and the funds secured by it are forever lost, too.

Transaction speed: Transaction speed is also an issue. As we noted above, blocks in a chain must be verified by the distributed network, and that can take time.

Conclusion

Governments had to address the question of stable exchange and other relations with outsiders in scaling society up from small and tribal communities. Methods may now be quite different, but the objective – a secure transaction method – remains the same.

The complicated world of big data and IOT is emerging.  Blockchain will be an important part of our financial and technological digital future.

The ‘blockchain’ technology behind bitcoin might prove an ingredient in a whole new technological world, as big as the Internet itself, a wave of innovation that pulls a person out of business and leaves us much free, without passing through intermediaries, to share goods and services with people all over the world.

It could radically decentralise society itself, getting rid of the need for banks, governments, even companies and politicians.

Practice question:

  1. Discuss the procedure involved in blockchain technology. Also, if India adopts blockchain technique, will be advantageous or disadvantageous?