Blockchain was first introduced as the core technology behind Bitcoin, the exclusive decentralized digital currency ecosystem. The interest of blockchain technology lies in its use of peer-to-peer network technology integrarted with cryptography. This combination enables parties who do not know each other to conduct transactions without requiring a traditional trusted mediator such as a bank or payment processing network. By eliminating the mediator and harnessing the power of peer-to-peer networks, blockchain technology may provide new opportunities to reduce transaction costs dramatically and decrease transaction settlement time.
Blockchain has the potential to transform and disrupt a number of industries. As a result, a number of capital firms and large enterprises are investing in blockchain technology and trials to re-consider traditional practices and business models.
In recent years, blockchain technology has advanced far beyond bitcoin and is now being tested in a broad range of business and financial applications. However, blockchain technology is still emerging and has not yet been proven at enterprise scale, which is a fundamental challenge to blockchain’s power to change potential. In addition, many firms have undertaken blockchain initiatives to further understand the connection of this technology.
What is Blockchain Technology?
A blockchain is a digital records created to capture transactions conducted among various parties in a network. It is a peer-to-peer, Internet-based distributed records which includes all transactions. All participants for an example individuals or businesses using the shared database are “nodes” connected to the blockchain, each maintaining an identical copy of the ledger. Every entry into a blockchain is a transaction that represents the trading of value between players. In practice, many different types of blockchains are being evolved and tested. However, most blockchains follow this framework and approach.
When one participant wants to send value to another, all the other nodes in the network communicate with each other using a pre-determined mechanism to check that the new transaction is valid. This mechanism is referred to as a consensus algorithm. Once a transaction has been approved by the network, all copies of the recrods are updated with the new information. Multiple transactions are usually combined into a “block” that is added to the records. Each block contains information that refers back to previous blocks. Thus, all blocks in the link together in the distributed identical copies.
Characteristics of a Blockchain
As a near real-time and distributed digital records, a blockchain has several unique and valuable attributes that could transform a wide range of industries overtime:
– A blockchain enables the near real-time settlement of transactions, thus reducing risk of non-payment by one party to the transaction.
– The peer-to-peer distributed network contains a public history of transactions. A blockchain retains a secure record of proof that the transaction occurred.
– A blockchain contains a testable record of every single transaction ever made on that blockchain. This prevents more spending of the item tracked by the blockchain.
– The economic rules built into a blockchain framework provide financial incentives for the independent participants to continue validating new blocks. It means a blockchain continues to grow without an “owner”.
What are the benefits of Blockchain Technology?
A major advantage of blockchain technology is its distributed nature. In today’s capital markets, the transfer of value between two parties generally requires centralized transaction processors such as banks or credit card networks. These processors reduce counterpart risk for each party by serving as mediator but centralize credit risks with themselves. Each of these collected mainframe maintains its own separate records. The transacting parties rely on these mainframe to execute transactions accurately and securely. For providing this service, the transaction processors receive a incentives.
In contrast, a blockchain allows parties to transact directly with each other through a single distributed ledger, thus eliminating one of the needs for centralized transaction processors.
In addition to being organized, the blockchain has other unique features that make it a breakthrough innovation. Blockchain is considered reliable because full copies of the blockchain records are maintained by all active nodes. Thus, if one node goes offline, the records is still readily available to all other players in the network. A blockchain lacks a single point of failure. In addition, each block in the link refers to the previous blocks, which prevents deletion or reversing transactions once they are appended to the blockchain. Nodes on a blockchain network can come and go but the network coherence and dependency will remain intact as long as it is being used. In this way, no single party handles a blockchain and no single party can update it or turn it off.
Where Blockchain can be applied?
- Financial services
Several stock exchanges around the world are piloting a blockchain platform that enables the issuance and transfer of private securities. Additionally, multiple groups of banks are considering use cases for trade finance, cross-border payments, and other banking processes.
- Consumer and industrial products
Companies in the consumer and industrial industries are exploring the use of blockchain to digitize and track the origins and history of transactions in various products.
- Life sciences and healthcare
Healthcare organizations are exploring the use of blockchain to secure the integrity of electronic medical records, medical billing, claims, and other records.
- Public sector
Governments are exploring blockchain to support asset repository such as land and corporate shares.
- Energy and resources
Ethereum is being used to establish agile technology that would allow for excess energy to be used as tradable digital assets among consumers.