If only time travel were possible then the majority of people would wish to go back in 2010 to buy bitcoins. A mere 10,000 rupees invested in bitcoins back then would have fetched you over mind-boggling 330 crores by now! The world was stunned with such a phenomenal growth of bitcoins as a cryptocurrency.
Keep reading this blog as we will explain bitcoin shortly. But how could such a currency grow stupendously on a global scale? The answer is Blockchain. Simple as it may sound there are huge mechanisms in place in making the technology work. The time spent by IBM global financing was reduced by 75% in solving financial disputes using Blockchain technology.
Did you know that in international trade finance and remittances, ICICI bank using Blockchain technology successfully executed transactions? Did you know SBI is using it in its KYC norms and smart projects? Did you know that Azure is already providing Blockchain as a service(BaaS)? And these are just three instances of Blockchain applications and the most obvious use case is bitcoin.
Check this video on Blockchain by Intellipaat:
We’ll be helping you in understanding the Blockchain basics. For recording transaction history, Blockchain is used which is nothing but a shared immutable ledger. Without the need for a third party, Blockchain is used to manipulate the ledger. Blockchain allows digital information not to be copied but to be distributed and it may serve as a massive platform for the faultless and seamless transaction processing the world has ever seen.
Here, there is no such thing as a Blockchain server. On top of expert transaction processing, Blockchain also preserves the anonymity and security of users involved in the transaction.
Information that is in Blockchain exists as a shared database that is continuously updated and is called a Blockchain database. The records are, therefore, verifiable and are not stored in a single location. Its data is accessible to anyone in the internet world and as it is not centralized no determined hacker can play his tricks here.
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What is Blockchain?
Blockchain is an immutable ledger that is used to record and track assets and transactions within a network. Anything of value could be tracked and traded on a Blockchain network, which helps in cutting down the risks and expenses involved.
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Importance of Blockchain Technology
Today, everything runs on data. It is better if the quality of the data is good. And even greater is if businesses receive quality data, fast. With quick, quality data comes better insights. But, what if, the data received is manipulated or altered? It hinders the business and pushes them in the wrong direction.
Blockchain becomes paramount here, in establishing a single truth via an immutable ledger that stores every transaction or data that only authorized network members can access. With Blockchain technology, you can track orders, and payments, and explore accounts, productions, etc., in an unprecedented efficient way. Blockchain brings in new ways of doing business with newer opportunities and high confidence. Let’s now talk about the key elements and the future of Blockchain technology:
Distributed Ledger Technology
All the participants of the network have access to the shared immutable ledgers. That means any record of data will happen only once. Once the data has been recorded, all efforts in duplicating it are in vain.
Ledgers being distributed eliminates the possibility of data manipulation which is the root cause of inefficiency and corruption prevailing in traditional business networks. Once the data is recorded, it can’t be manipulated or altered. If the recorded transaction is faulty, you need to record a new transaction with the change, and both of these transactions are now visible across the business network since it’s a distributed ledger.
To speed up the process of transactions, Smart Contracts or a set of rules are stored on a Blockchain and executed automatically to cut down the time taken. These Smart Contracts define conditions in various scenarios like corporate bond transfers, travel insurance payments, etc.
You may be familiar with Google spreadsheets which we’ll be using to make Blockchain explained to you. Companies use it to create calendars updatable by multiple parties in real-time. The usual way to share files when collaboration is needed is to send an ODT file or an MS word file to another party and ask to make changes to the document.
In this process, however, you need to wait for the file to be received from the other party before you hope to see or reflect your own changes in the file. This process is how databases are working today. The flaw in this system lies in the way two owners are allowed to access the same record at the same time.
Banks maintain their systems in this way. They lock access in a fund transfer and only after updating the other side which receives these funds do they release access. In Google spreadsheets, all parties have access at the same time to the same document and all parties actually view the single version of the document. It can be said as distributed as multiple parties are involved in the process. It is like a shared document and Blockchain works exactly like this.
“In a world where we trust our institutions less and less, having technologies that help us conduct business and get things done without needing to depend on central third parties seems ever more important.”
– Brian Behlendorf, the director of Hyperledger
Workflow of Blockchain
Now that you understood the architecture of Blockchain, let’s understand the workflow of Blockchain or in simple words, how Blockchain works.
- Each transaction is recorded in Blockchain as a block of data. These transactions could be anything of your choice. Everything is stored within these data blocks. The assets could be tangible as well as intangible.
- It’s a “Block” chain, which means the data blocks are chained. Every transaction of assets whether tangible or intangible is recorded within the data blocks which are a chain of data. Every block of data is stored in the ledger with timestamps showing the exact time of recording the transaction. These data blocks are connected to blocks before and after them. This represents a flow of sequence, which eliminates the act of duplicating or even inserting a new block between already linked data blocks.
- Transactions are locked together in an irreversible chain in an immutable ledger. Each new block will be added to an already existing Blockchain containing previous transactions. Adding a new block validates the previous transaction, and hence, the entire Blockchain. This proves that Blockchain cannot be tampered with, and makes duplication or data manipulation, out of the question.
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Types of Blockchain Networks
There are multiple ways to build a Blockchain network. Every new method caters to different requirements of the network. Here we will discuss the types of Blockchain Networks:
Public Blockchain Networks:
As the name suggests, Public Blockchain networks are the ones that anyone can join and participate in. The best example of this would be Bitcoin. Major drawbacks when it comes to Public Blockchain Networks are that it requires substantial computational resources, combined with weak security or little to no privacy for transactions. This type of Blockchain network would suit enterprise use cases.
Private Blockchain Networks:
A Private Blockchain is similar to a Public one, the only difference being that the entire network is controlled and governed by a single organization. This organization will have control over who is allowed to participate, execute a protocol and handle a shared decentralized ledger. This type of network helps in developing trust and confidence among participants.
Permissioned Blockchain Networks:
Blockchain networks that need an invitation or permission to join our Permissioned Blockchain Networks. Businesses usually set up Permissioned Blockchain networks. This kind of network puts restrictions on which participants to allow and in what transactions. It’s essential to note that even Public Blockchain Networks could be transformed into Permissioned.
The meaning of the term “Consortium” is an association of companies. So, Consortium Blockchain Network is an association of companies sharing managing, and maintaining Blockchains. This type of network outlays the chosen organization that will submit transactions and who will access the data. Consortium Blockchains are the best option when all the participants must be Permissioned and must shoulder a shared responsibility for the Blockchain networks.
Blockchain Use Cases
Today, Blockchain is famous for cryptocurrency. And the most popular cryptocurrency is Bitcoin. Blocks of Bitcoin store monetary transactions. There are reportedly more than 10,000 cryptocurrency systems running on Blockchain as of today. But lately, businesses started realizing the true potential of Blockchain and are seeing it as a reliable way of storing data about other types of transactions too.
Many MNCs and bigger businesses have already incorporated Blockchain into their operations like Unilever, IBM, Walmart, Pfizer, AIG, Siemens, and a bunch of other corporations. The best example of the lot is IBM. It has created a Food Trust Blockchain to trace the journey of food products from their source to their destinations. Through this initiative, IBM is trying to solve the problem of food contamination and helping in tracing foodborne outbreaks like E. coli, salmonella, and listeria. Traditionally, it will take weeks to identify the source of the outbreak, through this technology, they will be able to trace the contamination to the source. Let’s talk about the applications of Blockchain technology.
Banking and Finance:
The Banking and Finance sector seems to be a perfect place for Blockchain technology. They will perfectly benefit from integrating Blockchain into their business operations. Financial institutions only operate five days a week. Let’s take an example, if anyone tries to deposit a check on Friday, they have to wait until Monday for confirmation. And even if deposited during business hours, sometimes it will take three days to confirm just because of the sheer volume of transactions that banks need to handle. But Blockchain never stops, nor sleeps.
Once Blockchain is introduced, consumers can now get their transaction confirmation in a very little time window, as long as it takes to add a block to the blockchain anytime. Blockchain helps in exchanging funds between institutions more quickly and securely.
Considering the stock trading business, the process to settle and clearing can take up to three days. And for those three days, the money and shares remain frozen. Since there is a huge amount of money and shares involved, there’s a significant amount of risks and costs involved for banks. Blockchain technology can minimize these issues to a great degree.
Blockchain also helps those customers who are totally new to the banking system or are living in a country of unstable government, who are unable to provide basic banking infrastructure, etc. People from around the world can use this technology to store wealth or money.
All those economies which are still developing depend a lot on physical cash, which can be negated by introducing this technology. You can store the unique key to a Bitcoin wallet or any other cryptocurrency wallet much more easily than storing physical cash.
Blockchain is the foundation of Bitcoin and all the other cryptocurrencies around the world. The physical currency that is in use and circulation right now is controlled by a central banking agency in each country. This centralized system means, the user data and the currency is at the whim of their bank and government. If the bank gets hacked, then the client’s private data is at risk. Or if by any chance, the bank is located in an unstable government, then the value of their currency is at risk. How exactly will Blockchain eliminate this problem?
Blockchain enables cryptocurrencies to work without any central agencies or any central authority. Decentralizing the currency not only reduces the risk but also eliminates the processing and transaction fees. Also, for unstable governments, it can provide a stable currency, more applications, wider network of individuals and institutions to conduct business both domestically and internationally.
Using cryptocurrency wallets is of significant help to all those individuals who live in countries where the government has no proper banking infrastructure that provides identification. Citizens living in these countries might not have proper access to savings or brokerage accounts, and therefore serves as a safe way to store wealth.
This is another good application of Blockchain technology. Healthcare providers can leverage the simplicity of Blockchain technology to store patients’ medical records. Once a medical record is generated and signed, it can be saved on a block on Blockchain.
It serves the purpose of being immutable proof. These personal health records could then be encoded and stored on Blockchain with a private key, which increases blockchain data privacy.
Property recording is such a burdensome work that is inefficient in its current form. Today, a physical deed or legal paperwork regarding the ownership of the property must be sent to the local property recording office, where it is manually entered into a central database and public index.
This means any dispute raised must be reconciled with the public index. All this process is not just costly and time inefficient but also is prone to human error, which makes the whole process of tracking and recording property inefficient.
Blockchain is the apt solution in this scenario, which records every bit of data into blocks that are immutable and remain accurate. It will help in avoiding the task of scanning documents, manually entering, or even tracking physical files in a local recording office. Once the property records are stored on the blockchain, the owners could trust that their deed is accurate and permanently recorded.
Smart Contracts, as discussed above, is a computer code built on a Blockchain, designed to facilitate, verify, and negotiate a contract agreement. Smart Contracts operate under a set of conditions to which users agree. The agreement is carried out only when all the conditions are met. For example, a tenant looking to lease an apartment using Smart Contracts from a landlord.
In this case, using Blockchain technology to create a Smart Contract that will supply the door code in exchange for the security deposit and if the landlord doesn’t provide the door code then the security deposit will be refunded. Implementing Blockchain will eliminate fees, and other processes like using a notary, attorneys, a third-party mediator, etc.
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As we have discussed the IBM’s Food Trust program, suppliers can use Blockchain technology to track the origin of materials that have been purchased. Implementing Blockchain technology into the supply chain will help companies and businesses validate the authenticity of their products and also common labels like “Fair Trade”, “Local”, “Organic”, etc. As reported by Forbes, the food industry is increasingly implementing the usage of Blockchain technology to track the path and safety of food and food products from the source to users.
Voting is a time-taking process that involves huge costs. Voting could be another use case wherein, Blockchain could be used to facilitate a modern voting system. Voting using Blockchain technology helps in eliminating election fraud and boosts voter turnout. It has already been tested in several parts of the world. Blockchain also solves another problem that has been plaguing the entire voting system for a long time.
Once a vote has been recorded in a block of the blockchain, it cannot be altered, or tampered with. Following the Blockchain, the protocol helps in maintaining transparency in the electoral process, which reduces the number of personnel needed to conduct an election. It also helps in offering instant results, with no need for a recount anymore.
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Benefits of Blockchain
We discussed the various applications and use cases of Blockchain. Now let’s spotlight the significant benefits of Blockchain.
Accuracy of the chain:
The biggest benefit of Blockchain technology is the accuracy of the information stored on the blockchain. Every bit of information that is stored on this blockchain is verified by thousands of computers. It removes all human-prone errors and makes an accurate record of information.
Even if a computer on the network makes a mistake. The error will be on one copy of the blockchain. For that error to spread across the rest of the Blockchain network, the same error has to be made by 51% of computers on the network. Which is just impossible on these networks.
Blockchain helps in reducing the costs of processing transactions. In traditional banking methods, consumers pay a small fee for processing different transactions. You must also pay a notary to sign a document and similarly, there are many third-party verifications, traditionally.
Introducing Blockchain will help remove all these third-party verifications, and eventually bring down costs associated with it. It’s all because Blockchains don’t have any central authority, it’s a decentralized system.
Blockchain is a decentralized system. Meaning all the data stored in blocks are copied and spread across a Blockchain network, rather than storing it on a single database. Whenever a block is added to a Blockchain network, every computer on the network will update it to reflect the change.
A decentralized network means it’s very difficult to tamper with. Even if a hacker gains control of a computer, he can only manipulate a single copy of that block, but cannot spread it to the entire network.
The traditional mode of banking is inefficient when compared to the Blockchain application on banking. It takes a few days to get the confirmation of a payment process, and since the banks are shut down during the weekend, it means it could take many days to get a confirmation of the payments.
Meanwhile, the Blockchain network is always active, never ceases, and always verifies the transactions. With this technology, the payment confirmation comes within 10 minutes, more or less depending on how much time it takes to add a block of information to the blockchain and verify it.
Blockchain is a great asset for cross-border trades, which will take a much longer duration because of time zone issues, and the fact that every party must confirm payment processing.
Blockchain for a long is considered to be a network for conducting anonymous transactions. Many Blockchain networks are public databases, meaning that anyone with an internet connection can view the network’s transaction history.
Although anyone can view the transaction details, they cannot access any personal information of those who make these transactions. Blockchain transactions are confidential rather than anonymous.
Whenever a user makes a public transaction, their unique code called a public key is recorded on the blockchain. Not their personal information. Personal identity is linked to a blockchain address, but a transaction never reveals any personal information.
Blockchain’s other great advantage is that thousands of computers rush to verify a transaction. After a computer validates a transaction, it adds that information to a block in the network. Each block on the network has its own unique hash, it adds this hash along with the hash of the previous block.
If anyone tries to manipulate or change the information recorded on a block in any way, the hash of the block changes. Even though the unique hash changes, the hash of the previous block remains unchanged. This arrangement or security protocol in place will help in avoiding any discrepancy, and thus will fend off any attempt to change any data stored on a block of Blockchain network.
Most blockchains are entirely open-source software. That means anyone or everyone can view the code. This helps auditors in reviewing any cryptocurrencies like Bitcoin for security reasons. That also means that there’s no real authority or control over Bitcoin’s code or even how it’s edited. This allows anyone to offer suggestions or upgrades to Bitcoins Blockchains. Only if a majority of users agree, the new version will be rolled in or updated.
There are several Blockchain companies that are already thriving in their business. There is a huge demand for Blockchain developers who know how to work around the system in Blockchain development. Nations across the world are skeptical of these systems. But mankind has always been resistant to change.
More so the growth of emerging technologies is often hindered by the myopic mindset of lawmakers across the world. But the truth and efficiency of these technologies will make them widespread as we have seen before.
People didn’t have a favorable outlook on the Internet but the same people can’t imagine their life without it. Bitcoin recognition and widespread global use of Blockchain technology will all happen with time. Blockchain currency may pervade the future global monetary market.