Many people know it as the technology behind Bitcoin, but blockchain’s potential extends far beyond digital currencies. Its admirers include industry titans Bill Gates and Richard Branson. Even banks and insurance companies are falling over one another to be among the first to implement blockchain.
So, what exactly is blockchain?
Blockchain is a robust platform that allows parties to interact in a safe and secure way, at lower costs than was ever possible.
It is a type of distributed ledger or decentralized database that keeps records of digital transactions. Rather than having a central administrator like a traditional database (think banks, governments, and accountants) a distributed ledger has a network of replicated databases synchronized via the Internet and visible to anyone within the network. Blockchain networks can be private with restricted membership similar to an intranet, or public, like the Internet, accessible to any person in the world.
In simple terms, think of it as list of permanent groups of transaction (“blocks”) connected together. Each block contains an unmodifiable record of a transaction happening, minus the details of the transaction. As transactions are carried out, another block is created and added to the chain. Once a block is in the chain, it is all but impossible to remove, making blockchain almost impervious to fraud or hacking attempts. Since blockchain is simply a verified record of all transactions that have happened, there is no need for a third party to oversee and reconcile the transactions.
What can blockchains do and how could they affect your business?
Digital records are grouped together into “blocks” then connected cryptographically and chronologically into a “chain” via complex mathematical algorithms. The encryption process is referred to as “hashing” and is carried out by many computers. They all agree on the answer and each block receives a unique digital signature. Details of the transaction are not stored in the ledger, only the fact that it happened and the “hash” of the transaction is stated. Once the ledger is updated it cannot be edited, only added to; it is updated for everyone in the network at the same time, therefore preventing errors.
In an era of disruption, it is absolutely crucial that business owners are constantly redefining business models as a whole. The financial industry is old fashioned in terms of technology, with some of the world’s biggest banks still using methods from the 1960s and 70ѕ. (I know, seriously.) Considering mobile and online banking as an example, most banks wait until technology reaches a certain level of maturity before risking any investments into it.
This enables modern fintech (financial technology) companies, who understand how to utilize technology, to make financial services more efficient and therefore disrupt the traditional financial services industry. Speeding up transactions and removing the middleman cuts out third party fees (brokerage fees, draft fees, etc.) and eliminates the associated costs for the customer.
What are Bitcoin and Ethereum and how do they work?
Like Bitcoin, Ethereum is a distributed public blockchain network. Although there are some significant technical differences between the two, the most important distinction to note is that Bitcoin and Ethereum differ substantially in purpose and capability. Bitcoin offers one particular application of blockchain technology, a peer-to-peer electronic cash system that enables online Bitcoin payments. Ethereum has a superset of Bitcoin capabilities, in addition to general financial ledger it allows for the creation of “smart contracts”. The most widely used type of smart contract currently in use are “tokens”, allowing for anyone to create coins that run on the Ethereum blockchain.
What are smart contracts?
Smart contract is a phrase used to describe computer code that can facilitate the exchange of money, content, property, shares, or anything of value. When running on the blockchain, a smart contract becomes like a self-operating computer program that automatically executes when specific conditions are met. Because smart contracts run on the blockchain, they run exactly as programmed without any possibility of censorship, downtime, fraud or third-party interference.
Benefits and weaknesses of Bitcoin and the blockchain
As a payment system, Bitcoin has certain benefits over existing electronic systems. These benefits are largely attributed to the recipient of a Bitcoin transaction, but certain benefits may be realized by senders of transactions (e.g. consumers or spenders) as well.
- Transparency
- Little risk of chargeback fraud
- Low or no transaction costs
- Nearly instantaneous transactions
- Network security
- Protection of financial information
Relative to these advantages, there are significant weaknesses relating to Bitcoin as a payment system and Bitcoin as an asset.
- Difficult to use
- Difficult to secure
- Lacks protections against mistakes
- Limited retail and institutional adoption
- Difficult to access
The potential impacts of blockchain technology on society and the global economy are hugely significant. With an ever-growing list of real-world uses, blockchain technology promises to have a massive impact. This is just the beginning. Many of the most exciting applications and platforms haven’t even been invented yet!
Rеfеrеnсеѕ
– Bіtсоіn Wіkі – https://en.bitcoin.it
– BlockChain copy for nеw есоnоmу –http://shop.oreilly.com/product/0636920037040.do
– Ethereum GіtHub – https://github.com/ethereum/wiki/wiki/White-Paper
– Slіdеѕhаrе оf Melania Swаn’ѕ Tаlk on BlockChain – www.slideshare.net/lablogga/blockchain-the-information-technology-of-the-future
– Blockchain Exрlоrеr – https://blockchain.info/
