Helping myself understand basics of Blockchain and its use cases
I’ve recently encountered a lot of hype and literature around Blockchain, especially in the last 2 months for some reason — most of it is focused on how Blockchain will revolutionize banking and financial industry. This is why I felt compelled to understand this topic in more detail and contribute to the hype by writing about it on Medium.
Here are some questions that I asked myself while trying to learn the basics about Blockchain architecture.
What is Blockchain?
Blockchain is the term used to define a relatively new form of database architecture which is decentralized and distributed. The most commonly used analogy when it comes to explaining Blockchain is the “ledger” analogy. A blockchain system as a publicly accessible ledger which records and stores all possible validated transactions since the beginning of its time. Each block of transaction is added to the chain of previous blogs connected since the beginning of the system’s implementation. Every system connected to the Blockchain system keeps with it a copy of this ledger which is updated in realtime whenever any new transaction takes place.
But isn’t that what tech giants already do — how Facebook keeps multiple instances of their database around the world?
In that case, the database and data flow is managed strictly by Facebook which makes it centralized. A decentralized database means that anyone in the world can manage and update the database as long as their transaction is validated by certain appointed authorities — a democratic flow of data.
How do you exactly conceptualize and manage a decentralized database?
Traditionally, in centralized database applications, the database is at the core with different users connecting to one central instance. In a decentralized application, there are multiple instances of a database throughout the network — it consists of multiple nodes seamlessly interconnected with each other and all synced with each other in realtime.
This removes all the major risks associated with a centralized database architecture —
- High network dependencies in case of heavy traffic connecting to one singular, central database. This can cause heavy network utilization and high bandwidth cost.
- All power lies in one person’s (or entity’s) hands. This is a big one considering the hype around net neutrality and push for a more open internet.
When it comes to decentralized databases, all the nodes connected to the application host their own database, which is synced with all the other databases in the network. The trust and responsibility of managing data is transferred from one entity to a network of validated authorities, who are compensated to ensure the authenticity of the new block of data added to the chain.
Doesn’t this sound a bit more inefficient in terms of network load and database interconnectivity?
Well since the databases are all scattered around the world, hosted with each user locally, it is a valid concern that all transactions will have to be transmitted in realtime to all the databases linked to the network which will put a huge load on the host network and ultimately make the system lot more inefficient. However, this inefficiency is the reason what makes Blockchain secure and more preferable.
Blockchain is popularly being considered as a revolutionary technology because its vast potential outweighs the possible inefficiencies it might create. Each record of every transaction is spread all across the world and these instances keeps on increasing as each user connects to the network with each additional node. With decentralized databases, we have to worry a lot less about hackers and data managers with malicious intents. Nonetheless, with each node connecting to the network, the inefficiency of the system would increase exponentially. This is a possible area blockchain lobbyists will have to tackle with high priority.
Why is blockchain gaining so much traction in Fintech?
When it comes to implementing blockchain across various verticals, we have to think in terms of the type of data involved and its accessibility. This is widely accepted in fintech because it keeps the record of each validated transaction since the beginning of time which cannot be erased or modified. This concept is the backbone of the banking sector — each validated transaction should be considered as final and there should be no modifications to it. Banking and finance world is highly prone to hacking and other malicious activities in general, which is why blockchain guarantees security by distributing copies of same data throughout the world and maintaining consistency across.
However, having said that, blockchain optimists still have a long way to go before this can become a popularly adopted standard in the banking & finance world. This is primarily because the systems that are already existing in place are there for a reason. These are structures and systems that were implemented after enormous financial failures. Hence, the idea to replace these structures with an entirely new system, still in its nascent phase, will be met with high resistance.
What could be other similar use-cases for blockchain?
Before implementing blockchain in other verticals, we have to first assess the kind of data we’re dealing with and if a decentralized database architecture will be beneficial in that case. For instance, there is a startup that has implemented blockchain for Real Estate industry — property sales & buyer verification. Blockchain is a perfect fit in this area — having distributed copies of property and owner records throughout the world will boost transparency and significantly reduce the chances of real estate frauds.
I’ve been looking into a lot of different use cases for blockchain in healthcare. Healthcare is one area where blockchain might just have a perfect application in storing patient medical records — especially after the ransomware cyberattack on NHS. I want to go over this in a more detailed manner so I will write another post focusing on this use-case.
Hit the green heart 💚 if this post helped you get more insight into what Blockchain is exactly. If I’ve made any errors in this post, please please leave a comment — I’m still relatively new to this and only writing this to make myself better understand this trend.