What is Blockchain technology?

When we talk about the block and chain, it means blocks of digital information stored in the public database or chain. In other words, a blockchain comprises numerous blocks strung together digitally. The blockchain doesn’t incur any transaction cost. It is a simple way of passing information from one source to the other. One source initiates the process of a transaction by creating a block that is verified by millions of computers across the net. The verified block added to the database or chain, creating a unique record. 

For instance, suppose IRCTC(Indian Railway Catering and Tourism Corporation) moves their ticket booking app to a blockchain network. Through blockchain, IRCTC can save money on credit card transaction fees that it pays to the service provider (such as VISA). On a blockchain setup, the two parties in the transaction process will be the railway operator IRCTC and the passenger. The middle man is the service provider. Here the ticket is a block, and it is added to the ticket blockchain as a monetary transaction. The ticket blockchain can be a record for the passengers going to a particular route or all the train networks encompassing tickets sold for every possible train route. 

Here is the crux – the blockchain can replace all the processes and business models that rely on a nominal amount of fee for transactions.

What does a block consist of?

Let’s delve deeper into this topic through an example.

Suppose you purchased something on Flipkart. Based on this e-commerce site, a block (the digital piece of information about Flipkart) can consist of three parts:

• It stores transaction details such as date, time, amount of your most recent purchase.
• It stores information about the party involved in the transaction that means you. A block having details of your purchase would record your identity in the form of a unique digital signature that will work as a user name.
• It stores information that can distinguish one block from another in the way of an individual ‘hash’ code. However, a block doesn’t store data of just one transaction. Depending on the size of transactions, it can save thousands of them.

Why use Blockchain?

Eliminates middleman from a peer-to-peer network

The objective of blockchain is to cut the middleman from the transactions that charge some amount to facilitate it. With companies like Uber, the sharing economy (where people share a ride to save money) has been proven successful. However, the parties (riders) who want to share a cab or split fare have to depend on Uber to avail it. By enabling peer-to-peer payments, blockchain technology opens the doors of the direct transaction between parties (cab riders and the driver)- a decentralized structure based share economy.

Decentralization

Before bitcoin came, we were more used to centralized services, which means one entity connected to all the essential data, and you need to interact with this centralized entity to extract any information that you want. For instance, banks – it stores all your money, and you can’t transfer money to another person without going through banks. The problem with the centralized entity is all the data stored in one spot. Hence, if the server of this entity shuts down for any reason, no one can access the information. The blockchain system doesn’t store all the information at one place, and not one entity like the bank owns the entire data. Everyone, in the blockchain network, gets access to information.

If you want to send money to your friend, you don’t need to do it via banks if you use a blockchain system. That’s how the bitcoins evolved – you are the sole authority of your money, and you can send it to anyone without going through the bank.

Transparency and security

In the blockchain, while a person’s identity remains hidden through complex cryptography ( protecting information through usage of codes), you can still see the transactions happening through their public address if you know about it. That’s how big companies can stay honest to the investors, government and stakeholders. Also, distributing data throughout the network secure files from getting hacked. Once something enters the blockchain can’t be changed.

Real-life applications of Blockchain technology

Supply chain auditing

In today’s world, consumers want to ensure that the ethical claims made by the companies about the authenticity of the products are accurate. For instance, UK based Provenance provides supply chain auditing (sending products from seller to buyer) for a wide array of products. Through the usage of blockchain technology, a pilot project of Provenance ensured that fish sold in Sushi restaurants of Japan are harvested directly from the Indonesian suppliers without the involvement of any middleman.

Anti-money laundering

For example, a startup named Polycoin provides the anti-money laundering solution that analyses transactions. If any transaction is found suspicious, it is transferred to the compliance officer. 

How bitcoin, cryptocurrency and blockchain are connected?

A Blockchain is a digital ledger (a book of financial accounts or record) of not just economic transactions but virtually everything of value.  

A global network of computers utilizes blockchain technology to manage the database that records transactions of bitcoins altogether. Thus a bitcoin is operated by a decentralized network and not just one entity. Bitcoin is the name of a popular cryptocurrency for which the blockchain technology was invented. 

A cryptocurrency is a medium of exchanging money, created and stored in a blockchain, in digital form using codes to verify the transfer of funds. This cryptocurrency is not redeemable for any physical commodity such as gold. 

Through cryptocurrencies, the idea is to have a currency system in which everyone can be treated equally without having a governing body that can determine the value of a currency based on a whim.