We think you are convinced about the robust security that is prevalent in Blockchain. Let’s now see what cryptocurrency is because it is where Blockchain works its magic.
Cryptocurrency is a digital asset designed to work as an exchange medium and to ensure secure transactions. Over 700 cryptocurrencies are present in the world. Blockchain technology may be said as the support for the whole cryptocurrency system.
In 2010 no one knew what a bitcoin is and now it may emerge as a leading currency exchange in the future. It is a virtual decentralized form of cryptocurrency that can be used to purchase products, used as payment for services, used in investment and used in market trading. Did you know that the hackers who stole Game of Thrones scripts asked ransom in bitcoin from HBO?
Issues in the banking system :
Although Blockchain is applicable in various fields banking is the domain where it can be massively deployed. But first, let’s discuss the issues in the banking system
1) We have already said that banks lock access and release it when they deem fit. Tech-savvy crooks make use of this weakness on part of banks by performing what is called double spending. A transaction where a single digital token is fraudulently used more than once is called double spending. Suppose a crook has only 7,000 rupees in his name. Let’s say he sent 7,000 and 6,500 rupees to two of his friends. This transaction would not happen normally but by manipulating the digital token the crook can, in fact, make this happen. You’ll know as you ready by how Blockchain solves these woes.
2) There were around 15,000 internet banking and credit/debit card fraud cases in India in 2016. Fraud in internet banking cost around 21 crore and ATM/card related frauds cost around 40 crores.
3) The general public, especially in America, have lost much of their faith in the banking system. This is due to the 2008 financial crisis when banks and investment organizations borrowed massively and lent it to the general public for their mortgages. Those who took these loans couldn’t repay it and corporate biggies like Lehman Brothers and others came crashing down. The stock market collapsed and the loss incurred globally because of this was around $11 trillion. Banks are known to collapse due to internal frauds also. The huge problem of NPAs (Non-performing assets) in India is one such instance where Indian banks have lent heavily to business tycoons and corporates who are not repaying it back. Therefore the banking which is based on a third-party system is not exactly faultless as it seems.
How Blockchain eliminates banking issues?
Let’s take a stroll into understanding Blockchain as a possible solution to these banking woes.
As a public ledger
The ledger of transactions which happen on Blockchain is open and accessible to all who are affiliated to the system. You can even download all the transactions that happened from the beginning if you’re belonging to the Blockchain network. The ledger is accessible publicly but those details about individuals involved in transactions are anonymous.
As a decentralized system
Unlike banks, Blockchains are decentralized. Everyone is part of the system and is responsible for its growth. There is no monopoly as everyone who is part of the system has power.
Verifies every transaction
By cross-checking the ledger every transaction is verified and the validation signal is sent after an interval like 10 minutes. Through complex hashing and encryption algorithms, double spending is not possible. Assume a system adds a block of transactions and if more than 50% of the network agrees upon it then those block of transactions is assumed to be valid. It, therefore, acts like a distributed ledger where multiple parties can collaborate without having to trust each other.
Check this video on Hyperledger Fabric by intellipaat:
Other features of Blockchain
Robust peer-to-peer network – Every individual in the Blockchain network has a ledger copy with no centralized copy. Suppose you are in Blockchain network in Bitcoins. Imagine you are rich and have 500 Bitcoins and you want to help your impoverished friend. You transfer 10 Bitcoins into his account and hence 10 Bitcoins will be deducted from your account. You can use Blockchain wallet to put bitcoins the same way you use wallets to put wads of cash in. There is also a Blockchain wallet app for it. That’s how Blockchain business is going to be there in the future where payments in Blockchain will be a common reality.
As there are no accounts and balances in the Bitcoin Blockchain ledger these transactions are implemented uniquely unlike a simple fund transfer within banks. Every transaction is added to a continually growing database. There are blocks averaging about 2000 transactions. There are 484000 blocks in the Blockchain with around 25 crore transactions. All users of Bitcoin Blockchain use this ledger. Every Blockchain node owns a ledger in the network and there is no centralized copy. The complete and true copy of the ledger is the collection of all the distributed ledgers. But you can ask if everyone is the owner of Blockchain who is responsible for creating new blocks. It works similar to the process of Bitcoin mining. The one who adds a block to the chain is rewarded as the process is definitely not easy as it sounds. This is just one aspect of Blockchain trading.
SHA256 hash function – This is the main hash algorithm used on Blockchain. The output cannot be decrypted back to the original text as it is a one-way cryptographic hash function. Irrespective of whether the text size is 10 letters or 100 the length of the output of a hash function is the same which is 64. Let’s consider a live example into how this Blockchain algorithm works.
1) big data training – 1195560b9f12883066e54d2b1b43acc7b9659a093b3 aaacf1e7aff22d175a7a0
2) Big data training – 524a5495edda474c10b749d3485a0bdf8190d581a03a 2311936513784aef72c7
Just the ‘b’ when capitalized changes the whole output itself.
3) big data training – 9b9647a32077031f9ee517876a471349e1fb7eb73d56 697c6c177ca2a6f162b7
Again omitting a single space from 1 also varies the hash function very much. I needn’t specify much more as to how unique output can be derived from this hash function.
“I think we will see different flavors of decentralized technologies and Blockchains. I think decentralized networks will be the next huge wave in technology.”
– Melanie Swan, author of Blockchain: Blueprint for a New Economy by Swan
Let’s now delve into the Blockchain applications :
Correspondent banking – Those who have close ones abroad or have relatives in foreign countries can relate to the issues which I’m going to point out now. You may have sent money to your kids who are studying abroad but the kids don’t receive it. On being confronted upon the banks will profess that they have indeed sent the money to the accounts intended by the parents. So you just hope that it will somehow arrive on time. What’s really happening in the background is that your money is going from one correspondent bank to another and this process goes on until it reaches the children’s accounts. Let’s face it that the reason why Blockchain is useful in this regard is that banks no matter how huge can’t simply forge partnerships with 10,000 other banks across the globe in order to make such remittances successful. The problem here is that each bank has its own ledger, there needs to reconciliation happening at the end of each day, manual entry making the process costly and very slow. But imagine if all the banks in the world shared one single ledger then the sending banks can directly connect to the receiving bank in case a remittance has to be facilitated. This is one of the prime applications of Blockchain in that it could essentially disrupt the cross-border payments. This Blockchain support for transfer transactions may be the norm of the day in the future.
Securities market – Increased efficiency in share settlement is one of the main reasons why Blockchains are ideal for the securities market. Currently, three days is required from buying security to owning it. For example, if you buy security like Purvankara on Monday the security will actually be in your possession on Thursday but with Monday’s price. But with peer-to-peer execution, trade confirmations can be done in real-time and this is a huge game-changer. GST may have made auditors busy but if this Blockchain technology is implemented in the securities market in this way then definitely the majority of auditors will be without work. The Australian securities market is considering implementing Blockchain technology. In 2015, Nasdaq’s Linq made public the execution of its first equity trade using Blockchain tech company Chain. Bitshares is used to provide a decentralized trading platform on Blockchain which is highly efficient. There are public Blockchain companies trading on the securities market like BTL Group, BTCS, Concilium Group, HIVE Blockchain, Riot Blockchain.
Detecting counterfeit drugs – You may wonder the drug or the medicine is real or not. In the sense does it really come from the manufacturing company or it is tampered with or is simply fake. Unlabeled medicine, pills sold on the black market are most probably counterfeit. Interpol in 2013 made public that 10 lakh people die from counterfeit drugs each year. But even when you do go into a drug store how would you recognize that the medicine you select is authentic when you’re unaware of the whole supply chain behind it. Blockchain is helpful in this regard. It can be used to provide the entire supply chain from manufacturing, supplying, retailing where each party validates the transaction. So as a customer can know that there is foolproof authenticity on the medicine he is purchasing.
Voting – In countries with malpractices in voting mechanisms especially due to corrupt governments, Blockchain can be really helpful. The governments who are responsible for ensuring seamless voting process are often involved in tampering with the system. When multiple parties are involved in looking after Blockchain voting mechanism it becomes quite implausible to tamper with such a system. Followmyvote is based on Blockchain and helps in voter identification and online voting.
Smart contracts – These can be incepted by the use of distributed ledgers which executes when certain terms and conditions meet along with confidentiality requirements. Ethereum is an open source project of Blockchain which is key in facilitating smart contracts and the scale the usefulness of the concept on the global level. It can reduce the use of brokers and intermediaries for facilitating the transactions between producers and consumers. Automated contracts save the parties involved in the contract the effort of manually filling out the forms and is not only faster but is also cheaper. You don’t need a witness for agreement and no need to rely on lawyers, brokers. The risk of third-party manipulation that exists with traditional contracts is eliminated with smart contracts. NSYNC is an American boy band which did well in the American music industry. But the singers couldn’t get the benefits of revenue in profits as their manager and their record label ate away their profits. They ended up using them. This is a classic example of a potential application of smart contracts.
Check this video on Smart Contracts:
As credit cycles were not under their control SMEs (small and medium enterprises) were at the mercy of the large corporates. Even though contracts stated specific dates payments were delayed in time, and credit terms were not honored. When large corporates don’t honor the contracts SMEs have no choice but to remain silent or take legal action. Even the legal course is not a viable course as SMEs are always short on funds. Blockchain can address this issue in that as the ledger is secure contracts can easily be executed and can’t be tampered with. Blockchain implementation of smart contracts will only increase in the future as everyone recognizes the Blockchain uses. It won’t be long before secure transactions start happening in Blockchain platform.
Learn smart contracts through our Blockchain course
Securing IPR (Intellectual property rights) – Plagiarism and exploitation of intellectual property is a particularly problematic plight in the digital world. Free rich content can be reproduced and replicated all over the internet. The plea of copyright holders should be heard in that they are suffering from losing their IPR. Blockchain can be a great help in this regard. Copying and redistribution can be avoided by smart contracts which protect copyright and automates the sale of creative works online.
Mycelia is a classic example which uses Blockchain to protect its IPR. Musicians and song owners can sell their songs directly to their audiences, license samples can be sent directly to their producers. All of these operations can be automated by smart contracts.
Supply chain auditing – Customers are ever skeptical of the product claims made by the company. Distributed ledgers can easily find out whether these claims are real or false. With Blockchain-based timestamping of a date and location, transparency is ensured. Example of this would be diamonds that corresponds to a product number. Provenance is one such company which provides supply chain auditing for a host of consumer goods.
“Blockchain is a vast, global distributed ledger or database running on millions of devices and open to anyone.”
– Don Tapscott, an influential author on The Digital Economy
Management of data – People are now using social media platforms in exchange for their data. It won’t be long before people start to sell their data online. Bitcoin will most likely be the currency which would be used for this type of small fractional transactions.
Land registration – With the help of open source Blockchain technology which is essentially shared distributed ledgers, record keeping couldn’t be more efficient. Property titles tend to be susceptible to fraud along with being difficult to process with. A host of countries have approved Blockchain-based land registry projects. Honduras was the first government which initiated such an initiative followed by the Republic of Georgia which partnered with Bitfury Group to procure Blockchain system for property titles. Sweden is also considering going forward in this direction.
Identity management – The crux of online financial transactions requires identity management. In web commerce, solutions for security risks are not at all up to the task. Distributed ledgers can be a great help in this regard as they offer to digitize personal documents. For online transactions a secure identity is important. It is very difficult to come up with digital identity standards. It is extremely difficult to enforce co-operation between government and private entities necessary in this regard. On top of this, there are technical challenges to make this process viable. Adding to this consider how the system should be compliant with all legal frameworks of various countries. SSL certificate is heavily relied on by the e-commerce sector for trusted transactions.
“What the internet did for communications, Blockchain will do for trusted transactions.”
– Ginni Rometty, The IBM CEO
The way forward
How trusted transactions will be carried out in the future will determine the future of Blockchain. As we have explored, beyond cryptocurrency Blockchain is also useful in logistics, land dealings, identity management, securities market and a host of other domains. Entrepreneurs across the world are keen on leveraging this Blockchain technology. There are several Blockchain companies already who are 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 the lawmakers across the world. But the truth and efficiency in these technologies will make them widespread as we have seen before. People didn’t have a favorable outlook towards Internet but the same people can’t imagine their life without it. Bitcoin recognition, widespread global use of Blockchain technology will all happen with time. Blockchain currency may pervade over the future global monetary market.