Blockchain – The Talk of the Town

Blockchain has been the buzzword since quite a while and continues to pique people’s interest. Some people understand it and are trying to use it in their businesses or otherwise, but a lot of people only know a few fragments of this concept that they would have come across in the news or while talking to someone or on the internet.

Blockchain technology is a structure that stores transactional records (i.e. block) of the public in several databases (i.e. chain), in a network connected through peer-to-peer nodes. Typically, this storage is referred to as a ‘digital ledger.’

In the simplest of terms, blockchain is a shared ledger that records all transactions and is managed by a cluster of computers not owned by any single entity. Thus, blockchain is sometimes referred to as Distributed Ledger Technology (DLT). However, private, centralized blockchains, where the computers that make up its network are owned and operated by a single entity, do exist.

Every transaction in this ledger is authorized by the digital signature of the owner, which authenticates the transaction and safeguards it from tampering. Hence, the information the digital ledger contains is highly secure.

A simple analogy for understanding blockchain technology is a Google Doc. When we create a google doc and share it with a group of people, the document is distributed instead of copied or transferred. This creates a decentralized distribution chain that gives everyone access to the document at the same time. No one is locked out awaiting changes from another party, while all modifications to the doc are being recorded in real-time, making changes completely transparent.

As per the MIT Technology Review, the whole point of using a blockchain is to let people — in particular, people who don't trust one another — share valuable data in a secure, tamperproof way.

The blockchain network has no central authority — it is the very definition of a democratized system. Since it is a shared and immutable ledger, the information in it is open for anyone and everyone to see and thus anything that is built on the blockchain is by its very nature transparent and everyone involved is accountable for their actions.

The way blockchain works is that it collects information together in groups, also known as blocks, that hold sets of information. Blocks have certain storage capacities and, when filled, are chained onto the previously filled block, forming a chain of data known as the “blockchain.” All new information that follows that freshly added block is compiled into a newly formed block that will then also be added to the chain once filled. When a block is filled it is set in stone and becomes a part of this timeline. Each block in the chain is given an exact timestamp when it is added to the chain.

New blocks are always stored linearly and chronologically. That is, they are always added to the “end” of the blockchain. After a block has been added to the end of the blockchain, it is very difficult to go back and alter the contents of the block unless the majority reached a consensus to do so. That’s because each block contains its own hash, along with the hash of the block before it, as well as the previously mentioned time stamp.

Hash functions are one of the most extensively used cryptographic algorithms in blockchain technology. They are cryptographic (but not encryption) algorithms that are designed to protect data integrity. Hash codes are created by a math function that turns digital information into a string of numbers and letters. If that information is edited in any way, the hash code changes as well. One can compare the hash of an original piece of data with the hash of the data received to check if the data has been tampered with. This helps address the security and trust issues that people may have in using blockchain.

Another buzzword commonly used in connection with blockchain is Bitcoin. Bitcoin was the first real-world application of blockchain and one of the original cryptocurrencies.

A cryptocurrency, broadly defined, is virtual or digital money which takes the form of tokens or “coins.” A cryptocurrency is a digital or virtual currency that is secured by cryptography, which makes it nearly impossible to counterfeit or double-spend. Another defining feature of cryptocurrencies is that they are generally not issued by any central authority, rendering them theoretically immune to government interference or manipulation.

The Bitcoin protocol is built on a blockchain. In a research paper introducing the digital currency, Bitcoin’s pseudonymous creator, Satoshi Nakamoto, referred to it as “a new electronic cash system that’s fully peer-to-peer, with no trusted third party.”

The key thing to understand here is that Bitcoin merely uses blockchain as a means to transparently record a ledger of payments, but blockchain can, in theory, be used to immutably record any number of data points.

This also means that there can be and are many emerging applications of the blockchain. Some people feel that blockchain is the future and it will transform the banking and financial industry in the years to come. When exactly will this advancement take place and whether the banking and finance industry will rely totally on blockchain is something that cannot be answered definitively at the moment.

Nonetheless, as more and more people are becoming aware about blockchain and understand the concept, the significance of the blockchain technology is increasing and organisations are trying to apply it to their businesses. This significance has also increased during the pandemic Covid19 and the subsequent shift towards digitalisation and virtual ways of doing things.

"This is certainly an interesting time for blockchain technology," said James Wester, research director for IDC's Worldwide Blockchain Strategies. "While the technology is still emerging in many ways, the many issues it addresses in terms of transparency, resiliency and immutability have become more important across many industries and sectors. It is possible, indeed probable, that the global response to COVID-19, and the secondary problems caused by that response, will spur additional interest and investment in blockchain and distributed ledger technologies."