In focus: Blockchain technology

In focus: Blockchain technology

Definition

  • In simple words, blockchain is an information sharing platform where multiple authorities cooperate, coordinate and collaborate in a decision making process.
  • Blockchain is a decentralized and distributed database on a peer-peer network which works on the basis of a consensus mechanism involving every node (computer) on the network.

Understanding blockchain with an example

  • A block in a blockchain is a record of transactions.
  • In the figure, suppose A wants to send money to B, the transaction is recorded in a block, say block 1.
  • The transaction is say shared in a peer-peer network.
  • Once the transaction is recorded in block 1, it is represented as a ‘hash key’ in the network.
  • A ‘hash key’ can be simply thought of as a secret code for a transaction. (say a 252-bit alpha-numeric)
  • Now everyone in the network can see the hash key representing the transaction that A has sent money to B.
  • However, note that everyone in the network cannot see the transaction itself.
  • Now any change in the transaction information will immediately change the ‘hash key’ associated with the transaction and that is reflected in the network.
  • So everyone in the network gets to know someone is changing the details of the transaction and thus one may not be able to tamper with the transaction.
  • If one has to change the transaction everyone in the network has to validate and verify the transaction.

 

Key features of blockchain

Going from above example the following are the key features of blockchain

  • Distributed ledger
    • Blockchain is a peer-to-peer distributed network that records a public history of transactions without actually recording identities of the parties or the transaction details.
  • Immutable
    • Since any change or error or tampering of the transaction data is reflected, the transaction is immutable.
  • Enforces trust
    • Since it is a decentralized database, it removes the need for a 3rd party intermediary to enforce trust (like a bank).
    • This is because everyone in the network plays a role in validation and verification of the transaction.
  • Cost-effective and time-saving
    • Since blockchain is a distributed database, it does not need intermediaries thereby reducing cost of transaction.
    • For instance, compare it with a payment through credit card where a number of parties including payment gateway, banks and processing networks are needed to ensure a transaction which involves a certain cost and time.

 

Applications of blockchain

Blockchain technology can be used anywhere where there is a need to enforce trust between unknown parties transacting.

  • Crypto Currency
    • Blockchain technology formed the platform behind the crypto currency, bitcoin.
    • It can also help central banks come out with virtual currency removing corruption altogether.
  • Smart Contracts
    • technology is effective in executing a contract.
  • Land title registrations
    • Eg: It is used in ‘land registrations’ where the transaction involving exchange of titles is recorded.
    • Since it is immutable it can remove the risk of fraud.
  • Trade settlements
  • Insurance claims processing
  • Agriculture
    • Blockchains can be effectively used in agriculture to remove intermediaries thereby ensuring fair price to farmer and low cost to consumer.
    • Eg: The blockchain-based coffee e-marketplace to be implemented by Ministry of commerce will integrate farmers with markets removing the intermediaries and associated cost.
  • Supply chain management in retail business
    • Blockchain technology is all set to revolutionize retail business models by:
      • Empowering every actor in the supply chain
      • Real time monitoring of stocks across supply chain
      • Enforcement of contracts between actors
  • Infrastructure projects
    • can be effective in real time monitoring of the infrastructure projects and thus elicit timely actions.

Note: The list is not exhaustive. Blockchain technology will have many more applications in healthcare, smart city projects, banking, food industry etc.

 

Section : Science & Tech

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