Blockchain Revolution

You might have heard about various cryptocurrencies like Bitcoin, Ether, Ripple, etc and all of these cryptocurrencies are powered by Blockchain. Let’s first discuss what exactly is a blockchain and how can it solve all the issues that we discussed sometime back.

Blockchain is a tamper-proof distributed digital ledger. This digital ledger is safe, secure, transparent, and decentralized, which simply means that it is not controlled by a single authority. Blockchain has gained a lot of popularity recently. The invention of Blockchain technology can be compared to the invention of the wheel, motor, and internet that changed the world.

It has been predicted that blockchain technology will rule the next decade. One of the oldest and most successful applications of blockchain is bitcoin and many of us might even confuse Bitcoin as equivalent to the blockchain. But the truth is blockchain is the technology that powers bitcoin and has many more applications beyond bitcoin. Before jumping to its real-world applications it is very crucial to first understand how a blockchain works.

So in our example, the excel sheet can be assumed to be a Blockchain. This excel sheet is generally shared over a large network of computers. These computers having a copy of the excel sheet or Blockchain are referred to as nodes. Every node on the network has access to the same sheet or Blockchain.

Whenever a transaction gets executed over the network, the excel sheet gets updated automatically on every computer on the network. These transactions get added as separate sheets in the excel sheet or separate blocks in the Blockchain. Blockchain is secured through cryptography thus making it nearly impossible for hackers to hack it and tamper with the data inside it. Now let us look at the features and properties of Blockchain that make it suitable for such a wide array of industries.

Decentralization is one of the most critical components of a blockchain. The main rationale behind this concept is to place your trust in the network rather than in a single centralized body like a bank or a government. As the data doesn’t reside with a third party, this eliminates the possibility of data tampering and misuse of the data. Further removing these third parties from the equation lowers the transaction costs significantly.

The changes made in a public Blockchain are visible to all the parties on the network, thus making them transparent. Distributed Ledger is the second critical feature that makes a Blockchain so powerful and effective. The word distributed ledger is composed of two terms — Distributed and Ledger. Ledger as the suggests is the record of all transactions and distributed means that the ledger is shared with every person on the same network.

The distributed ledger contains a record of each and every transaction that took place over the network and every node of the network has access to a copy of this updated ledger. Any updates or changes in the ledger are reflected in almost real-time in all the copies of the ledger across the network.

Now let’s discuss some of the key advantages of such a distributed system for the stakeholders involved

This is one of the main reasons why many big companies have started integrating blockchain technology into their supply chain. All the transactions are recorded on one single ledger which makes it easier to manage, view, refer and verify the transactions. Once the data has been recorded inside a blockchain it becomes nearly impossible to change it thus making it tamper-proof and immutable. This is exactly how immutability works in the Blockchain network.

A new block is created after every transaction that contains all the relevant information of that transaction. Double spending is a potential loophole specifically applicable to digital currencies. Unlike physical currencies, a digital currency consists of digital information which can be reproduced or duplicated easily. In the case of digital currency, a currency holder can make a copy of the digital token.

This was one of the very serious concerns with Bitcoin initially because there was no central authority to verify that a token is spent only once. In traditional online transactions, banks are the centralized authorities that ensure that there is no double-spending. Blockchain being decentralized found the solution for double-spending through the consensus mechanism. The consensus mechanism requires users to vote on valid transactions and only then these transactions get appended to the latest block.

Let us understand it through an example, there are 3 persons Phil, Lyra, and Matt. Lyra has 1 Bitcoin with her. Lyra sends that Bitcoin to Phil. Simultaneously, Lyra does another transaction and sends the same Bitcoin to Matt as well.

The second transaction will be rejected by the participating nodes. So in the first case, when Lyra sends money to Phil, the transaction will be validated against the ledger which will show that Lyra has one Bitcoin with her, which means that she can transfer her one Bitcoin to Phil. Thus making it a valid transaction. But in the second transaction, which Lyra does to Matt when the transaction is validated against the ledger, it gets rejected as there is no Bitcoin left with Lyra so she can’t make any transaction to Matt.