The word “Blockchain” simply refers to blocks that are chained together. However, technically blockchains are ledgers of all transactions across a network (peer to peer) yet decentralized. What is cool about this concept is that the participants themselves can verify all these transactions. Conventionally a central certifying authority (a financial institution approved by a regulatory body) would confirm such activity whereas using this technology the processes can take place without having the need for such.
Now the very first question that may come to your mind is that “isn’t this the first and foremost requirement to having a Financial Authority
Financial institutions such as banks, microfinance institutions, savings and loan associations, investment companies, brokerage firms, insurance and mortgage companies etc. have established themselves, as a universally accepted medium of financial activities.
Now the inception of such technology not only eliminates the need for essentially having to use these financial institutions (depending on the purpose) but also creates a newer scope for technologies to evolve and possibly come up with a hybrid that can actually do so in the future.
A humble request to my readers to not get confused with the idea that blockchain only deals with financial activities but the use of this technology goes beyond financial needs.
Let us try to have a broader understanding of the entire process and how a single transaction takes place.
So for starters, you need a peer to peer network and the participants (computers) are connected which we will title as ‘Nodes’. The network of nodes is the ones who validate the transactional activities and user status using an algorithm (process or set of rules to be followed in calculations or other problem-solving operations), especially by a computer. The transactions can essentially involve cryptocurrencies, contracts, records or other information based on the requirements.
The first transaction is called the “Genesis Block” and all the transactions are listed in chronological order. Once the verification process is over, the combination of transactions creates a block of data for the ledger. With the addition of this newly formed block into the existing blockchain, the process is completed. Once added to the chain a transaction cannot be altered and becomes permanent.
So what are the benefits and risks of using such technologies?
Being the obvious question at this point. Well starting from cost reduction to minimalizing the checkpoints, blockchain increases the overall transparency and creates the scope for accurate tracking as all the ledgers eventually becoming permanent. On the other hand, the overall acceptance of blockchain has constraints of possible regulatory implications and the challenges to be faced while implementing the technology. It is so complex that the risks may outweigh the benefits. The application of blockchain is definitely not limited to financial activities. A few possibilities (but not limited to):
- Automotive Industry: Fractional ownership can be managed of autonomous cars
- Financial services: Reduction of transactional costs with faster and cheaper settlement while maintaining complete transparency
- Voting: Votes can be cast using portable devices such as smartphone, tablet or computers resulting in immediate verifiable results
- Healthcare: Encrypted information about the patient’s health can be shared with providers without the risk of privacy breaches.
Blockchain comes with endless possibilities. Even though it is mainly being used for cryptocurrencies but I personally believe this concept is going to prevail for a long period of time. As the leading giants are focusing on how to utilize this concept for different purposes that are not at all bound by legal implications, blockchain creates this immense scope for exploring the future in present time.
This article was written by Ahmed Kabir Chaion