What is a Blockchain?
A blockchain is a distributed database, meaning that the storage devices for the database are not all connected to a common processor. It maintains a growing list of transaction records, called blocks. Each block has a timestamp and a link to a previous block.
The concept was introduced in 2008 by Satoshi Nakamoto, and then implemented for the first time in 2009 as part of the digital bitcoin currency. The blockchain serves as the public ledger for all bitcoin transactions.
As the name suggests, blockchain is a chain of blocks that contains information. Each block consists of a number of transactions and each transaction is recorded in the form of Hash. Hash is a unique address assigned to each block during its creation and any further modification in the block will lead to a change in its hash.
A block has mainly 3 parts:
- Data- contain the information of the transaction incurred
- Hash- An unique ID of the block
- Previous Hash- Hash of previous block
Features of Blockchain
- Data stored in blockchain is immutable and cannot be changed easily. Also the data is added to the block after it is approved by everyone in the network and thus allowing secure transactions.
- Blockchain is decentralized as well as an open ledger. Ledger is the record of the transactions done and because it is visible to everyone, therefore is called an open ledger. No individual or any organization is in-charge of the transactions. Each and every connection in the blockchain network has a same copy of the ledger. Blockchain is a decentralized network which has no central authority to control the network as compared to the client server model.
- Blockchain provides a peer to peer(P2P) network. This characteristic of blockchain allows the transactions to involve only two parties, the sender and the receiver. Thus it removes the requirement of ‘third party authorization’ because everyone in the network is able to authorize the transactions. For example, if I am sending some money in my country to my friend in another country through a bank, then the bank will be the trusted third party. It will verify the transaction and then charge a fee for the transaction. Hence blockchain aims at removing trusted third party so as to make the transaction fast and cheap.
How is blockchain used?
Besides storing data about monetary transactions as blocks in Bitcoin, blockchain is actually a reliable way of storing data on other types of transactions as well.
Banking and Finance
Perhaps no industry stands to benefit from integrating blockchain into its business operations more than banking. Financial institutions only operate during business hours on weekdays. If you try to deposit a cheque on Friday evening, you will likely have to wait until Monday morning to see that money is credited into your account. Even if you do make your deposit during business hours, the transaction can still take one to three days to verify due to the large volume of transactions that banks need to settle.
By integrating blockchain into banks, consumers can see their transactions processed in as little as 10 minutes, basically the time it takes to add a block to the blockchain, regardless of the time or day. With blockchain, banks also have the opportunity to exchange funds between institutions more quickly and securely. In the stock trading business, for example, the settlement and clearing process can take up to three days (or longer, if trading internationally), meaning that the money and shares are frozen for that period of time. Given the size of the sums involved, even the few days that the money is in transit can carry significant costs and risks for banks. Through blockchain-based applications, these costs and risks are greatly reduced.
A smart contract is a computer code that can be built into the blockchain to facilitate a contract agreement. Smart contracts operate under a set of conditions that users agree to. When those conditions are met, the terms of the agreement are automatically carried out.
For example, a potential tenant would like to lease an apartment using a smart contract. The landlord agrees to give the tenant the door code to the apartment as soon as the tenant pays the security deposit. Both the tenant and the landlord would send their respective portions of the deal to the smart contract, which would hold onto and automatically exchange the door code for the security deposit on the date the lease begins. If the landlord doesn’t supply the door code by the lease date, the smart contract refunds the security deposit back to the tenant.
Suppliers can use blockchain to record the origins of materials that they have purchased. This would allow companies to verify the authenticity of their products. In food industry, using blockchain gives companies the ability to track a food product’s route from its origin to its delivery. If a food is found to be contaminated then it can be traced all the way back through each stop to its origin. Not only that, but these companies can also now see everything else it may have come in contact with.
The blockchain technology is increasing and improving day by day and has a really bright future in the upcoming years. The transparency, trust and temper proof characteristics have led to many applications such as Bitcoin, Ethereum, etc. It is a pillar in making the business and governmental procedures more secure, efficient and effective. Therefore, blockchain isn’t just another hype that people forget after some time. It is here to stay and will be a way of life in the future.
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