Blockchain: The technology behind Bitcoin
This is a series of blog posts from assignments for a class I’m taking - “Leading Trends in Information Technology”. The content has been slightly modified for a blog post.
What is Blockchain?
One of the most succinct definitions that I have seen for Blockchain is : “Blockchain is the internet of value”. In essence, Blockchain is an open, peer-to-peer, decentralized, distributed digital ledger of every transaction involving value.
It uses cryptography to allow modifications to the ledger in a secure way, without the need for a central approving authority. There is a “consensus mechanism” that is in place, by which nodes agree on how to update the blockchain. If a transaction is approved, specialized nodes called miners bundle similar transactions to create a new “block”, which is then added to the ledger to form a chain of sorts (hence “blockchain”). The first miner to verify that a transaction is authentic is rewarded.
The cryptography that is involved in blockchain makes it immutable, and verifiable. Blockchain prevents double spending and keeps track of all transactions continuously. Privacy is ensured for both parties of the transaction by encrypting their identity.
Applications of Blockchain
Although Dr. Jeff’s talk mentioned that Blockchain would fundamentally change the world of financial services, many people think it is so much more. It can be used to transact anything of value.
There are 3 types of blockchain based offerings currently: asset transfer, use as a trust machine, and smart contracts. Asset transfer can be money, bonds, shares, etc. Blockchain allows for transactions of value between people without them having to worry about trust. It can be used to keep a record of anything that is worth tracking closely. This can be land registries, luxury goods, or even votes. This application of Blockchain to keep a track of votes is of particular interest to me, because in India, during elections, there exist many problems when it comes to voting. Another application that comes to mind, in the context of India, where there is huge amounts of black money, is the collection of taxes. There are so many ways in which Blockchain would help reduce the amount of black money and prevent corruption. Smart contracts is the newest Blockchain based offering — they execute themselves automatically under certain programmed conditions. Ethereum is a Blockchain app platform for smart contracts. A decentralized version of Uber, called Arcade City among others is one of the many startups using Ethereum. Some in the media industry think that Blockchain could be the solution to privacy. A huge opportunity might be in collecting data for the Internet of Things. The amount of data that is going to be generated is increasing exponentially and Blockchain is being proposed as one of the solutions.
Blockchain has huge potential to be used in various applications, some not thought of yet, some beyond our present imaginations (no one in the 90s thought of Snapchat as an application using the Internet). Blockchain as a concept, is extremely versatile, and can be used to exchange value in almost every sector you can think of. Its applications are seemingly limited only by your imagination!
Conclusions
There is a “buzz” around Blockchain as a technology. Despite the validity and soundness of Blockchain, it is yet to be truly adopted. No “killer app” has been created, that will make it as ubiquitous as the Internet is today. In its current form it has disadvantages but there is active research and investment to overcome them and improve the technology. However, the numerous advantages presented by Blockchain make it a valuable prospect for consumers and service providers alike. It will be interesting to see what the future holds for Blockchain. As has been said before, what a time to be alive!
Images used are from this amazing video: IFTF Blockchain
