What is Blockchain Technology?
Most people who have heard of blockchain think of it in terms of its relationship to the cryptocurrency Bitcoin. However, blockchain technology is capable of revolutionizing the way every business conducts transactions. This may be difficult for the average person to conceptualize, especially if they have little idea of what blockchain is. Understanding more about the technology can lead anyone to see the advantages in it and the potential for widespread applications.
What Is Blockchain?
Blockchain is sometimes referred to as a distributed ledger. Instead of having a single entity, like a bank or a bookkeeper holding and managing a ledger, the ledger is managed by everyone who has an interest in the transactions. Unless every interested party, or node, is in agreement about the transaction, then that “block” of the “chain” cannot be completed. Once everyone is in agreement, that block is permanent and unchangeable.
Each record or block in the chain is signified by a unique cryptographic signature and a timestamp. This ensures immutability and is a significant improvement over traditional ledgers, which are subject to error or later amendments. These amendments or discrepancies may be made intentionally with the intent to defraud or as a mistake. Either way, they can create confusion, chaos and distrust.
Additionally, traditional ledgers have the disadvantage of being intended for the eyes of one party only. One party has their ledgers, the other party has another set and there may be a third party with yet another set. There may be inaccuracies and discrepancies between each set of ledgers. When the parties disagree about the details of a transaction, chances are good that their ledgers will not be in accord. At best, this leads to distrust and suspicion. At worst, it may lead to litigation.
What Makes Blockchain a Better Solution?
A blockchain network is a digital ledger that is transparently shared among all parties. If anyone attempts to tamper with the records, this action will be immediately evident. Each member of the network is a peer or a node of the network. Each peer is required to confirm and validate each transaction before it’s permanently recorded in the chain. This means that everyone is in agreement at all times about all stages of the transaction.
Blockchain technology eliminates the middleman in many transactions. A financial institution is no longer required to act as a mediator. Instead, a consensus protocol is relied upon to create the ledger content, with digital signatures and cryptographic hashes being used to guarantee the integrity of each entry. Because the ledger is shared, it appears identical to all members. Additionally, it is not possible for anyone to go back to make an alteration to any block.
The shared nature of the blockchain thus ensures that no single member is capable of undermining the system as a whole. Everyone involved is an equal participant, and there is no third party that manages the records. If changes to a prior record do need to be made, then this also must be agreed to by all participants, and the action will be recorded as a new block in the chain.
How Can Blockchain Technology Benefit a Business?
When businesses maintain traditional ledgers, the opportunities for error and discrepancies are multiplied. Several intermediaries may need to be involved to manage various aspects of the transactions, and disputes are all-but guaranteed to arise.
When businesses use a blockchain network instead, they have an opportunity to save time, reduce costs and also protect themselves from unnecessary risks. Participants are joined by one shared ledger about which they must reach a consensus at every step along the way. The result is greater data and transaction integrity as well as increased trust among the participants.
What’s more, regulatory compliance is ensured with blockchain technology and audit costs can be reduced to virtually nothing. Business contracts that are created using a blockchain network are immutable and can be automated. This means that such agreements can be executed with remarkable speed and efficiency, clearing the way for companies to develop new revenue streams and new clients.
How Is Blockchain Being Used Today?
Blockchain’s most high-profile usage to date is with the cryptocurrency known as Bitcoin. In many ways, blockchain technology is the foundation that makes Bitcoin possible. As a digital currency, Bitcoin is secure, and it is not issued by a central agency. Bitcoin is designed to entirely negate the possibility of counterfeiting, because each transaction must be agreed upon in consensus. A network of users, known as “miners,” provides this consensus. It is they who validate each transaction to ensure that there is no double spending of Bitcoin.
The Future of Blockchain
While many technologists are excited about cryptocurrency ventures like Bitcoin and Etherium, others are mainly interested in the blockchain networks that underlie these ventures. They see possibilities for blockchain technology that go well beyond cryptocurrency.
In the Entertainment Industry
Piracy of music and movies is rampant in the digital era, but blockchain technology may end this. Each digital copy of a song or movie can receive a digital signature that essentially assigns that property to just one person. It cannot be shared or disseminated, making it possible to go back to the days when consumers had to buy a copy for their private use.
In the Realm of Identity Theft
Centralized agencies that hold reams of information are big targets for hackers looking to steal identities. With the decentralization that’s inherent to blockchain, there’s no single server for a hacker to attack. Each individual may have a unique digital identity record, and no one lacking a key to that record could have access to it or use it.
In Regard to Voting
Many countries resist online voting because of hacking and security concerns. Blockchain changes that by locking in identities and identifying individuals with a unique key that cannot be duplicated or used by anyone else.