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All You Need to Know About Blockchain

Posted by Mohit Chauhan

Blockchain is quite the buzzword these days, but how many of us really know about it?

Don’t fret if you don’t, this blogpost will prove to be a great source of information, we promise!

Introduction to Blockchain

Blockchain is arguably one of the most misinterpreted words today, often used wrongly in place of Bitcoin (why? we’ll discuss this later in the blog). First, let’s understand what Blockchain exactly is and why even people like Bill Gates and Richard Branson have become its admirers.

Today, every transaction is performed under the watchful eyes of a middle man, which is either the commercial banks or payment banks. This presence of the middle man, can sometimes result in fraud, identity theft, or delay in transaction.

Fraud: When buying or selling an item in the open market, you may receive counterfeit money from the seller or buyer.

Identity Theft: When buying some goods or services from a merchant using your Credit Card, you are giving the merchant access to complete credit line, regardless of the size of the transaction. It can, thus, result in compromise of information and identity theft.

Delay in transaction: Your mortgage transaction, which involves third party such as Bank to validate savings to approve loan, Title Companies to validate property and Legal professionals who will validate signatures and contractual documents. All of these steps take time and cost money that may result in delay in transaction.

Blockchain overcomes all of the above concerns due to its uniquely defined implementation.

The Concept

To be able to understand Blockchain, it is important that you do not confuse it with bitcoin. Blockchain is actually the underlying concept on which cryptocurrency works. As the name suggests, blockchain is a chain of continuously growing records called blocks. A block is a part of a blockchain, which records recent transactions that once completed is permanently stored in the database. Thus, every time a block is completed, a new block is generated. These blocks are interlinked in a chronological order and secured by cryptography. Every immutable block contains a hash pointer as a link to the previous block, a timestamp, and transaction data. You can also see a blockchain as a public ledger with all the transactions that have ever been executed.

For better understanding, let’s take a look at the analogy between blockchain and conventional banking. In this respect, blockchain is similar to full history of banking transactions where entries are documented in a chronological order. Similarly, the full copy of blockchain contains records of every bitcoin transaction ever executed. You can, thus, use it to gain insight about facts such as how much a particular address used to own at any given point in the past.

There have also been reports of developers creating different blockchains, so as to not depend on a single one. Parallel blockchains and sidechains are a result of this approach, enabling tradeoffs and improved scalability via alternative, completely independent blockchains, thus allowing for more innovation.

Public and Private Blockchain

Public Blockchain

A public blockchain provides public a platform where they can read or write, though, only after authentication. The public blockchain is also considered a fully decentralized blockchain. Some examples of public blockchain:

Ethereum

Ethereum is a decentralized platform and programming language assisting in functioning of smart contracts and publishing distributed applications.

Factom

Factom is the provider of records management and records business processes for business & government organizations.

Blockstream

Blockstream is a provider of sidechain technology, assisting in enhancing the capabilities of bitcoin. The company now provides accounting assistance use of public blockchain technology, which was otherwise considered a function for private blockchain.

Private Blockchain

Contrary to public blockchain, a private blockchain allows only the owner to modify the blocks. Thus, the owner becomes a centralized authority with powers to amend the rules, revert transactions, etc. based on the needs. This makes the private blockchain a highly suitable concept for FIs and large companies, who can implement it to simultaneously develop proprietary systems and reduce the costs, thereby, increasing the overall efficiency of the system. A few examples of private blockchain can be:

Eris Industries

Eris industries ambitions to be the largest provider of shared software database on blockchain technology.

Blockstack

Blockstack offers financial institutions back office operations, including clearance & settlement on a private blockchain.

Multichain

Multichain offers an open source distributed database that help in carrying out financial transactions.

Chain Inc.

Chain Inc. partnered with Nasdaq OMX Group Inc. to deliver blockchain APIs that enable trading of private company shares with the blockchain.

The Implementation

Blockchain works on technology concept similar to that of a database, only exception being the way we interact with them. Blockchain is implemented using a special kind of Distributed Database (DDBMS), known as Distributed Ledgers (DL). Distributed Ledgers are nothing but decentralized databases, which means, the database isn’t stored at a single location, and the records (blocks) it keeps are public and easily verifiable. Blockchain information stored in these ledgers is continuously reconciled and shared with all nodes (computers connected to network) in the network automatically, which makes it Byzantine fault tolerant and almost impossible to hack.

Benefits –

  • Decentralization of the technology
  • Blockchain technology eliminates the need for central authority for peer-to-peer transactions.
  • Being a public ledger system, blockchain records and validates every transaction, ensuring security and reliability.
  • Each and every transaction is authorized by miners, which makes the transaction’s immutable and minimizes the risk of hacking.

Use Cases –

Non-financial

  • Authentication & Authorization
  • App Development
  • Blockchain in IOT
  • Digital Content/Documents, Storage & Delivery
  • Digital Identity
  • Marketplace
  • Network Architecture & APIs
  • Real Estate
  • Reviews/Endorsements

Financial

  • Currency Exchange & Remittance
  • P2P Transfers
  • Ride Sharing
  • Data Storage
  • Trading Platforms
  • Gaming

Blockchain for Financial Services: Digital Currencies

The currencies which are traded and verified via Blockchain technology are called cryptocurrencies. Bitcoin (invented by Satoshi Nakamoto in 2009) being the first & most expensive is just one of the 1384 cryptocurrencies available till date (as on 7th January 2018).

Cryptocurrency is basically a form of digital currency which is designed to work as medium of exchange using cryptography to secure any transaction, to verify the transfer of currency and control the creation of more units.

Different cryptocurrencies have different traits, for example, while Bitcoin can be exchanged for products & services as well as other currencies, Ethereum has capabilities of Smart Contracts and Corporate backing, making it a preferred choice for many corporations. People around the globe are investing in various cryptocurrencies looking at the possibilities of surplus gains.

Some Interesting Facts –

  • May 22 is observed as Blockchain Revolution and known as “Bitcoin Pizza Day”.
  • The current Market Capital of Cryptocurrency has surpassed over $300 Billion.
  • Most expensive Cryptocurrency is Bitcoin, which was trading at $13,150 per Bitcon as on 13:00 Hrs 27th Nov 2017 (Source: coinmarketcap.com)
  • Do you know Barclays, HSBC, MUFG, Credit Suisse, Canadian Imperial Bank of Commerce and State Street have joined hands to launch own cryptocurrency named “Utility Settlement Coin” by 2018 end?
  • RBI Research Institute (Institute for Development and Research in Banking Technology) has already completed the successful testing of Blockchain tech for digital transactions. You can read the research white paper here.
  • India might soon be having own cryptocurrency named on Indian Godess i.e., Laxmi Coin.
  • SBI is taking the lead in Blockchain initiative and has partnered with companies like IBM, Microsoft, Skylark and KPMG for further developments.

All in all the blockchain is one of the most awe-inspiring innovations in this Internet age. The technology allows everyone to transact as strangers but in a transparent manner. With no mediator involved in any transaction, the entire process is easy and cheap. Thus, the concept can be applied to the digital world and act as a catalyst to create decentralized applications that are an evolution of distributed computing architectural constructs, ensuring security of all kinds of exchange or transactions.

That’s all for this time folks. Don’t forget to leave your feedback in the comments below, we love to hear from you. Also, let us know if you wish to learn more about Blockchain and Cryptocurrencies, and we’ll come up with the same.

 

 

References:

https://letstalkpayments.com/an-overview-of-blockchain-technology/

https://blockgeeks.com/guides/what-is-blockchain-technology/

http://www.nasdaq.com/article/byzantine-fault-tolerance-the-key-for-blockchains-cm810058

 

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