In this digital era, you hear about blockchain technology all the time but, do you really have any idea what it is about? Our mind still goes blurry when we hear about that, even though it’s going viral out there.
You are more likely to hear about blockchain as the underlying technology that facilitates the transaction of cryptocurrencies like Bitcoin, Ethereum, Altcoins, and many more. However, how does blockchain really work behind the scene?
Blockchain technology refers to the public ledger that records all transaction and each block of transaction connects to another block to form a chain. Even though these records are stored in a public space, blockchain allows them to be kept confidential and one is able to access or remove the records. Thus, blockchain technology enables complete transparency.
Brief History of Blockchain
Blockchain technology was introduced by Satoshi Nakamoto in 2008. Until now, the true identity of the founder of Blockchain technology is still unknown.
Blockchain technology first emerged with the introduction of Bitcoin. Bitcoin was offered publicly in 2009 when Nakamoto’s whitepaper was released. He authored the white-paper with the title “Bitcoin: A Peer-to-Peer Electronic Cash System”.
Blockchain technology has developed in the last decade into one of the ground-breaking technology. In relation to that, there was a hike in investment when blockchain developed, entrepreneurs are optimistic to explore how blockchain could be utilized to impact not only financial industries but also, supply chain, health care, insurance, transportation, and many more.
Why is Blockchain Technology Important?
Nowadays, we tend to share information through a decentralized online platform-the internet. However, when we are about to transfer value, let’s say money, intellectual property, etc- we are usually following the traditional ways to do so, such as depending on centralized financial institutions as the intermediaries like banks or government agencies.
Even when you think of any online payment methods (e.g. Paypal) that have existed since the birth of the internet, they also require an intermediary to function. For instance, integration with a bank account or credit card in order to function well.
In that case, the existence of blockchain technology enables this “intermediary or middleman” to be eliminated during the process. It supports the processes that are typically carried out by the financial institutions- recording transactions, creating contracts, etc
Blockchain technology has brought positive implications to the financial services worldwide, and they are considered as the industry that has the highest market capitalization. The technology enhances efficiencies in the financial service industry, even though it has served as a disruption.
In terms of efficiencies, blockchain technology helps to support in the process of establishing contracts. Starting from storing digital information, let’s say a computer code.
The computer code can be utilized in such a way to allow the other parties to show an agreement to a contract. When some conditions of the contract have been fulfilled, it will be automatically filed. Some conditions of the contract could be coming from the external sources-news headlines and stock prices.
This contract is called as a “smart contract”. Application of smart contract is seen in the regulation of intellectual property. The users can access how many times a brand has been copied. Other than that, a smart contract can also be utilized to support the fraud-proof voting systems, distribution of information prone to a censorship, and many more.
How does Blockchain Technology work?
Blockchain technology records transaction on a virtual and digitized decentralized network. When any information (transaction) is added in the network, all computers in the network will be able to access this information.
If another user in this network adds his own information and makes a new block after yours, you can’t modify your block.
However, you can edit your block if you make it available for editing from all computers in the network and make similar changes in one moment only.
Overall, blockchain technology is considered one of the best technologies for saving and structuring information. There are several advantages in adopting blockchain technology:
It has an open source structure, which means that others users who have access to the network can read the information. The importance of being an open source is that it can’t save logged data, without the approval from the network users.
Blockchain technology has no central data hub. This means the information is stored in a decentralized net where any users can check any of the actions.
3. User controlled networks
As a result of having a decentralized network, the stakeholders involved are able to control each other and make their own decisions.
4. Faster Transaction Settlements
Blockchain technology works 24/7, which means that blockchain based transaction process is quicker.
Whereas, transactions sent to traditional banks normally take days to be settled.
This is due to the protocols in the bank transferring software as well as the fact that financial institutions are only available during business hours, five days a week. These two means delay processing times.
5. Reduced Transaction costs
Blockchain technology allows to execute transactions without third party involvement, which often refers to a bank or central server. The absence of third-party allows the user to save transactions costs.
As explained before, blockchain technology has been utilized in many spheres. There are a few examples below to illustrate the point:
Blockchain technology is used when creating digital signatures based on blockchain data, which gives access only with the permission of several people (e.g related to the health sphere) and full compliance with keys.
Insiders will create their own network, which will increase along with the number of people involved. This will maintain the confidentiality of medical records and reduce the chances of fraud during medical services payments.
Normally, many government agencies process 70% of the information in the form of paper, including citizen and unauthorized hacking information.
This method results in the slow work of agencies and corruption. So, blockchain technology is adopted to improve transparency, speed up government works and check corruption all over the world
As explained in the previous part, blockchain technology helps to create smart contract. Smart contract refers to a computer protocol to digitally facilitate the negotiation or performance of a contract. The performance involves credible transactions without the involvement of third party.
In order to maximize the use of generated energy, blockchain technology is utilized. For instance, at a time when your smart thermostat at home has a particular function to determine the level of energy usage.
When the energy usage reaches certain level, blockchain will automatically record this value and informs the electric company. This makes the overall meter reader and billing process becomes more efficient.
5. Supply Chain
Suppliers can utilize blockchain to record the origin of materials that have been purchased. This record allow companies to know the source of the materials and verify the credibility.
Other than that, blockchain also helps in supporting the process of creating health and ethics label of the materials such as “Organic”, “Local” and “Fair Trade”.
Blockchain Technology – Conclusion
To sum up, there are various means that blockchain technology has brought to improve the quality of service provision.
Moreover, the potential application of blockchain technology are vast. There is a possibility that more industries will explore many ways to utilize blockchain technology in the future. To learn more about blockchain technology, check this infographic the folks from Breadnbeyond whipped up!
Here’s a link to the full infographic: The Visual Guide to Blockchain Beyond Cryptocurrency