Blockchain Technology: Modern Enigma of Transactions

Hey guys! In this blog I have explained 'Blockchain technology' in a simplified manner and covered important points like,

• What is Blockchain Technolohy?  
• How Blockchain works?
• Is Blockchain Secure?
• Real Time Applications of Blockchain (Applicable to each and every one of you who wants to make use of this amazing tech in business sector) 
• How Blockchain Is Transforming the Payment Industry/Online Transactions
• Advantages and Disadvantages of Blockchain. 

So prepare yourself to digest some interesting information about blockchain technology.

So as we know, Blockchains are extremely popular and trending in 21st Century. This technique was originally described in 1991 by a group of researchers and was intended to timestamp digital documents so that it’s not possible to backdate them or to tamper with them. However it mostly unused until it was adapted by Satoshi Nakamoto in 2009 to create the digital cryptocurrency Bitcoin.

What Is The Blockchain Technology?

As the word indicates, Blockchain is a chain of blocks that contains information. These Blocks store information about transactions like the date, time, and dollar amount of your most recent purchase. It also store information about who is participating in transactions. Instead of using your actual name, your purchase is recorded without any identifying information using a unique “digital signature,” sort of like a username. Each block stores a unique code called a “hash” that allows us to tell it apart from every other block. Even though the details of your new transaction would look nearly identical to your earlier purchase, we can still tell the blocks apart because of their unique codes. A blockchain carries no transaction cost but it carries an infrastructure cost. The blockchain is a simple yet ingenious way of passing information from A to B in a fully automated and safe manner.

How Blockchain Works?

1.      A TRANSACTION MUST OCCUR: A node starts a transaction by first creating and then digitally signing it with its private key created via cryptography. Transaction can represent various actions in a blockchain. Most commonly this is a data structure that represents transfer of value between users on the blockchain network.

2.      A TRANSACTION MUST BE VERIFIED: A transaction is flooded by using a flooding protocol, called Gossip protocol, to peers that validate the transaction based on preset criteria. Usually, more than one node is required to verify the transaction.

3.      A TRANSACTION MUST BE STORED IN A BLOCK: After your transaction has been verified as accurate, it is included in a block, which is then propagated onto the network. At this point, the transaction is considered confirmed.

4.      THE BLOCK MUST BE GIVEN A HASH: The newly-created block now becomes part of the ledger, and the next block links itself cryptographically back to this block. This link is a hash pointer.

                                                                                                                                                              

When all these four steps are done the new block is added to the blockchain. This new block becomes publicly available for anyone to view. Transactions are then reconfirmed every time a new block is created. Usually, six confirmations in the Bitcoin network are required to consider the transaction final. This is how a Blockchain works.

So every one of you who has read the blog until now, must be asking yourself ‘one’ important question.

Is Blockchain Secure?

There are several ways a Blockchain technology is secured. First, new blocks are always stored linearly and chronologically. That is, they are always added to the “end” of the blockchain. If you take a look at Bitcoin’s blockchain, you’ll see that each block has a position on the chain, called a “height”. The block height of a particular block means number of blocks preceding it in 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. That’s because each block contains its own hash, along with the hash of the block before it. 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.

So it’s also difficult for the hackers to edit your transaction because As soon as they edit the dollar amount of your transaction, the block’s hash will change. The next block in the chain will still contain the old hash, and the hacker would need to update that block in order to cover their tracks. However, doing so would change that block’s hash. In order to change a single block, then, a hacker would need to change every single block after it on the blockchain. Recalculating all those hashes would take an enormous and improbable amount of computing power. In other words, once a block is added to the blockchain it becomes very difficult to edit and impossible to delete.

Real Time Applications of Blockchain

1. SMART CONTRACTS: Smart contracts is a decentralized platform that run exactly as programmed without any possibility of downtime, censorship, fraud or third party interference. These contracts will be unbreakable.Companies like 'Slock', which is an Ethereum-enabled internet-of-things (IoT) platform, uses this application to allow customer to rent bicycles where they can unlock a smart lock after both parties agreed on the terms of the contract.
2. FOOD SECTOR: Yes, we can make use of blockchains in Food sector. That sounds crazy right? Let me explain you how we can use it. If the entire production and supply chain system are logged on the blockchain, consumers can easily trace their food from origin to their plate, which means we can exactly know where our food is coming from. This makes it easy for regulators to identify and control the source of any food-based illnesses. Also, it helps users be aware of their choices.
3. DIGITAL IDs: More than 1 billion people worldwide face identity challenges. Microsoft is working to change that by providing people with digital IDs. This would allow people in impoverished regions to get access to financial services, or start their own business, as an example. Of course, Microsoft's attempts to create a decentralized digital ID are still in the early stages.
4. DIGITAL VOTING: We all know the increasing amount of voter frauds. But, with blockchain technology voter fraud could be totally eliminated. Migrating the entire process will make it highly transparent. Transparent enough that any regulators would be able to see if something were changed on the network. By combining the convenience of digital voting with the immutability of the blockchain, the entire voting process becomes transparent and trusted.
5. CLOUD STORAGE: Cloud storage will be another application that businesses can take advantage of. Storj is one such company that’s offering secure cloud storage while decreasing dependency. Storj founder Shawn Wilkinson told VentureBeat that “Simply using excess hard drive space, users could store the traditional cloud 300 times over,” much like how you can rent out your home or room on Airbnb. Wilkinson also said, “Considering the world spends $22 billion + on cloud storage alone, this could open a revenue stream for average users, while significantly reducing the cost to store data for companies and personal users”.
6. PAYING EMPLOYES: Since the blockchain has it’s roots in cryptocurrency, it only makes sense that it could be used as an application to compensate employees. Geoff Weiss adds on Entrepreneur that “If your company regularly pays wages to international workers, then incorporating Bitcoin into the payroll process could be a major cost saver.”Bitwage, which claims to be the world’s first Bitcoin-based payroll service, will “circumvent the costly fees associated with transferring money internationally, as well as the time it takes for such funds to move from bank to bank, payments made via Bitcoin can save both money and time for employers and employees alike.” Bitwage’s founder and COO, Jonathan Chester says that by using a public ledger of all transactions in chronological order “you can actually see exactly where the money is throughout the process.”

How Blockchain Is Transforming the Payment Industry/Online Transactions

• Though, Blockchain is relatively a new technology, but it has a potential to disrupt the way banks and companies process their financial transaction on a global scale. The reason behind this is, Blockchain can resolve inefficiencies and provide a faster, cheaper and more secure alternative to the current system of transactions.
•  Let’s say you want to make an international payment through bank. Sending an international payment through established banking channels is a complex, multistep process that occurs at irregular intervals. It also involves several intermediaries. Let me explain you how the international banking process works.
• Example: If Company A in the India wants to pay Company B in USA, Company A asks its Indian bank to send a payment overseas. The Indian bank partners with a correspondent bank to facilitate the transfer, and a respondent bank in USA receives the funds and then transfers it to Company B’s bank account. Each step of this process requires time and money to complete, creating an overpriced and frustrating bottleneck. Also, the average for sending payments worldwide is 7%, according to the World Bank.
• Blockchain solves these problems by storing every transaction in a secure distributed ledge. In Blockchain as soon as a transaction is recorded, the receiving party has access to the payment – no middlemen, no interm, no unnecessary fees. And once a payment is entered, it can’t be reversed or changed in the ledger. So basically, blockchain payments are cost-effective, almost immediate, secure and transparent. According to ‘Deloitte’, payment with blockchains result in a 40% to 80% reduction in transaction costs (compared to two to three days using the standard transfer process). Also it takes average of 4-5 seconds to finalize the process. 
• So basically blockchain has the potential to transform the transaction process forever.

Advantages And Disadvantages Of Blockchain

ADVANTAGES OF BLOCKCHAIN:

1.     DISINTERMEDIATION: Disintermediation it enables a database to be directly shared without a central administrator. Rather than having some centralized application logic, blockchain transactions have their own proof of validity and authorization to enforce the constraints. Hence, transactions can be verified and processed independently.

2.     PROCESS INTEGRITY: This program was made in such a way that any block or even a transaction that adds to the chain cannot be edited which ultimately provides a very high range of security.

3.     FASTER TRANSACTIONS: Blockchain transactions reduces transaction time to minutes and they are processed 24/7.

4.     LOWER TRANSACTION COST: By eliminating third party intermediaries and overhead cost for exchanging assets, Blockchain have the potential to greatly reduce the transaction fees.                      

DISADVANTAGES OF BLOCKCHAIN:

1.     UNCERTAIN REGULATORY STATUS: In each and every part of world modern money has been created and controlled by the central government. It becomes a hurdle for Bitcoin to get accepted by the preexisting financial institutions.

2.     LARGE ENERGY CONSUMPTION: The consumption of power in the Blockchain miners was alone more than the per capita power consumption of 159 individual countries. Keeping a real-time ledger is one of the reasons for this consumption because every time it creates a new node, it communicates with each and every other node at the same time.

3.    COST: Blockchain transactions offers highly savings in transaction costs and time but the high initial capital costs could be deterrent.

I hope the blog is helpful to you all. If you have any queries related to this topic, write them in the comment section. I request every reader to 'Share' this blog to your friends and family members who are unaware about the 'Blockchain Technology'. Also comment below what do you think about the application of Blockchain Technology. Sharing is Caring... 
                                                                           --- Sourabh M.JR

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