Blockchain Technology Definition and Applications

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Jul
16
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A blockchain is essentially a permanent, secure, distributed and shared database. It is a distributed digital ledger in which data is irreversibly recorded in the form of packages called “blocks”. A block can be regarded as a page of a record book or ledger. Blocks of recorded data are arranged linearly in chronological order and are cryptographically linked to each other by complex mathematical algorithms to form a “chain”, hence the “blockchain” and blockchain technology.

Unlike a conventional database, the digital ledger is not centralized but distributed across a network of thousands of computers around the world.

Data is encrypted through a “hashing” process by thousands of computers, then a unique identifier is assigned to each block.

The blockchain boom

Though the idea had been around for some time, it had never made any headlines. The launching of the Bitcoin back in 2009 turned things around and put the blockchain technology in the spotlight. The blockchain is the underlying technology of the Bitcoin and other cryptocurrencies.

Here, blocks are files in which all recently completed Bitcoin transactions are permanently stored. Once a block is completed, it adds to the chain in a chronological manner and the next block is generated and so on. The inability to alter, rewrite or remove a registered block ensures that no one is able to spend a coin twice.

Every node (Bitcoin user) all over the world connected to the Bitcoin network gets a copy of the Bitcoin blockchain. So they know about all transactions effected within the Bitcoin network at any time.

Other than Blockchain

Though the term “Blockchain” has become commonplace, it is important to note that there exist other forms of distributed ledgers. Some of these are Ripple (creator of virtual currency XRP), Ethereum (creator of cryptocurrency Ether) and the Hyperledger Project.

Just how efficient and secure is the blockchain?

The distributed nature of the blockchain database makes it very secure. For a successful attack on such a database, hackers will have to gain access to all copies of the database simultaneously. This is virtually impossible given the complexity and amount of computational power such an operation will require.

In addition, the distributed nature of the blockchain makes it very transparent, such that anyone within the network has access to an up-to-date version of the ledger. Furthermore, after addition of new data, the ledger is updated at the same time for every person within the network.

Also, the hashing process is one-way and any alteration in data will immediately produce a different identity which the network instantly detects and raises an alarm.

Emerging applications of blockchain technology

  • In banking, the blockchain could keep all transactions of a bank and ease financial operations. Here a block could represent a single bank statement. The use of a distributed ledger will provide a more transparent, robust and secure banking system.
  • Retailers find the application of the technology in tracking the history and authenticity of high-value goods like gold and diamond.
  • The distributed ledger can be used in tracking the provenance and authenticity of masterpieces hence protecting artists, buyers, and sellers from fraud.
  • It could create a complete, accurate, transparent and decentralized database of music rights.
  • Bitcoin is gaining more and more prominence as a trading tool. Nasdaq is already using blockchain technology in its private stock market. The security and reduced operational risk offered by the blockchain technology is highly attractive to financial institutions and markets and may well be the next big thing in these sectors.
  • The secure, distributed and immutable nature of the blockchain appeals to insurance companies and hospitals. In insurance companies, it could provide a verifiable trail of insurance claims. In hospitals, it could create an audit track for health care processes and verifiable records of patient data.

There are almost unlimited possible applications of this technology. Both the blockchain technology and the other forms of distributed ledgers are gaining popularity among entrepreneurs, bankers, economists, technologists, innovators, governments, financial institutions etc.

Finally, it’s not all rosy, if there is one thing feared from the spread of the blockchain technology, it’s the amount of computational and electrical power required, mainly because of its distributive nature. According to Michael Mainelli, executive chairman of financial tech think tank Z/Yen, Bitcoin already consumes half the energy consumption of Ireland and this continues to increase by the day.

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