What is Blockchain?
Blockchain is a special kind of database. Information is stored in blocks, and blocks are linked together in a chain.
Nodes
Blockchain exists on multiple computers, known as nodes. Each node has its own copy of the entire Blockchain.
Decentralized
Blockchain can be implemented in a decentralized way, where no single node has control (for example Bitcoin). There are also private centralized Blockchains.
Sequential
As each block is added to the chain it gets a unique hash code, which includes the code of the previous block. If the block is then altered the hash code will change. This will make any attempted change obvious to other nodes.
Immutable
When information is stored in a Blockchain it is considered immutable, or not easily changed. Each node has its own copy of the whole Blockchain so an altered copy will be disregarded by the other nodes who can cross reference with each other and easily identify the mismatched node.
Bitcoin
The most well known application for Blockchain is in cryptocurrencies such as Bitcoin. This Blockchain has thousands of nodes, as private individuals use their own computers to operate as nodes and participate in processing transactions. The cost to the contributors is an increased electric bill, but they are incentivised as they are paid in Bitcoin for the transactions they process.
Bitcoin might have somewhat of a lawless reputation because users don’t have to provide identification as they would for a bank account. However Bitcoin is also a way to “Bank the Unbanked”. Nearly 2 billion adults don’t have a bank account, with nearly all of these living in developing countries. In these countries economies depend on cash, therefore using Bitcoin is a much safer solution than hiding cash at home. In countries with unstable governments it might not be possible for individuals to get the identification they would need to open a bank account. Bitcoin also provides a stable currency in these countries.
Other applications
There are many other applications that can make use of Blockchain technology. One example is the food industry, who are increasingly using Blockchain to track the journey of food products from farms to shelves. This allows for greater traceability and in the event of contaminated food items the source can be more quickly identified.
Another example is the growing use of smart contracts. In a smart contract Blockchain replaces the traditional human third party. For example, a smart contract could be used by a landlord leasing their property. The smart contract will set out the terms for each party (landlord sends the code for the door, tenant sends deposit). If both parties send in their parts by the due date, the smart contract releases funds to the landlord and the door code to the tenant. If the tenant sent in their deposit but the landlord didn’t send the door code, the smart contract refunds the tenant and so on.
Challenges
Companies leveraging Blockchain will need an efficient algorithm. Bitcoin is estimated to be able to process just 7 transactions/second compared to Visa’s 24,000 (although Blockchain solutions in development have reached 30,000). Another challenge is how to incentivise users to become nodes (unless the Blockchain is privately held and managed).
Advantages
Using Blockchain can make processes cheaper, more accurate and more efficient. Without intermediaries there are no fees, no human error and processing can occur around the clock. It provides a secure record for legal documents and a means of storing wealth for those that can’t get a traditional bank account.
Finally
This year 2021 marks 30 years since the technology was first proposed in 1991. With all of the advantages in leveraging Blockchain we can anticipate it becoming much more widespread in years to come.
That’s it! I hope this is helpful, I’ve also linked a great article by Investopedia with more information.
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