Blockchain—a peer-to-peer network that sits on top of the internet—was introduced in October 2008 as part of a proposal for bitcoin, a virtual currency system that eschewed a central authority for issuing currency, transferring ownership, and confirming transactions. Bitcoin is the first application of blockchain technology. Much of the initial private blockchain-based development is taking place in the financial services sector, often within small networks of firms, so the coordination requirements are relatively modest.
What is Blockchain Technology?
Blockchain is a distributed or decentralized ledger technology which was first introduced in the design and development of cryptocurrency, Bitcoin in 2009 by Satoshi Nakamoto. Blockchain technology is an amalgamation of various technologies such as distributed systems, cryptography, etc. Blockchain is a series of blocks, where each block contains details of transactions executed over the network, hash(address) of the previous block, timestamp etc.
Data and transactions stored in blocks are secured against tampering using cryptographic hash algorithms and are
validated and verified through consensus (consensus protocols) across nodes of the Blockchain network.
Significance of the Blockchain
Blockchain technology provides efficient distributed ledger storage mechanism with appropriate authentication and
authorization thereby eliminating the need for a third party to validate the transactions. Any tangible or intangible asset of value can be represented and tracked on a Blockchain network, which brings transparency, increases processing speed and reduces cost. A system that is based on data stored in a number of places is immune to hackers. It is not that easy to get access to it, and if so, any piece of information can be easily recovered. Features like transparency, efficiency, security and accountability fosters trust in digital arena.
Benefits of Blockchain
Transactions on the blockchain network are approved by a network of thousands of computers. This removes almost all human involvement in the verification process, resulting in less human error and an accurate record of information. Typically, consumers pay a bank to verify a transaction, a notary to sign a document, or a minister to perform a marriage. Blockchain eliminates the need for third-party verification—and, with it, their associated costs. Blockchain does not store any of its information in a central location. Instead, the blockchain is copied and spread across a network of computers. Whenever a new block is added to the blockchain, every computer on the network updates its blockchain to reflect the change.
Drawbacks of Blockchain
Bitcoin is a perfect case study for the possible inefficiencies of blockchain. Bitcoin’s Pow system takes about 10 minutes to add a new block to the blockchain. While confidentiality on the blockchain network protects users from hacks and preserves privacy, it also allows for illegal trading and activity on the blockchain network. Many in the crypto space have expressed concerns about government regulation over cryptocurrencies. While it is getting increasingly difficult and near impossible to end something like Bitcoin as its decentralized network grows, governments could theoretically make it illegal to own cryptocurrencies or participate in their networks.
With many practical applications for the technology already being implemented and explored, blockchain is finally making a name for itself in no small part because of bitcoin and cryptocurrency. As a buzzword on the tongue of every investor in the nation, blockchain stands to make business and government operations more accurate, efficient, secure, and cheap, with fewer middlemen. As we prepare to head into the third decade of blockchain, it’s no longer a question of if legacy companies will catch on to the technology—it’s a question of when. Today, we see a proliferation of NFTs and the tokenization of assets. The next decades will prove to be an important period of growth for blockchain.