4 Key Features of Blockchain
“Blockchain solves the problem of manipulation. When I speak about it in the West, people say they trust Google, Facebook, or their banks. But the rest of the world doesn’t trust organizations and corporations that much — I mean Africa, India, the Eastern Europe, or Russia. It’s not about the places where people are really rich. Blockchain’s opportunities are the highest in the countries that haven’t reached that level yet.” Vitalik Buterin, inventor of Ethereum
Blockchain is just in its early stage. There are many things that the Blockchain is going to change. It is plausible that Blockchain can truly disrupt multiple industries and make the processes more democratic, secure, transparent, and efficient. It is an unassailable intelligent creation, it is the product of a person or group of people known by the moniker, Satoshi Nakamoto.
So, without further ado let’s begin and become familiarized with some of the key features of blockchain.
- The next phase: Decentralized systems
When put in the most straightforward terms, decentralized technology enables us to store assets in a network that can be accessed over the Internet. The assets can be anything ranging form a token, a contract, chain-of-evidence documents, or property registry documents. Through decentralized technology, the owner has direct control via their private key, which is directly linked to the asset. The owner can transfer the asset whenever desired and to anyone.
The Blockchain technology is being viewed as a powerful technology to decentralize the web. This technology has proven itself and has the potential to bring massive changes in the existing industries like in the field of banking and finance. As this technology lays ground in these fields the individuals will have the direct control of their assets, then they wouldn’t be needing the existing third party in the middle which is taking huge fee in terms of the transaction charges. The individual can directly indulge in transaction giving minimal fee. This has led banks to be ready for this upcoming crisis and they have started working to develop services.
The core powerful idea here is placing your trust not in a single entity like a government, a bank, or a multinational company rather in the network. The contracts, evidence documents, identity information, financial assets, to name only a few are the assets that can be stored.
Next, we try to analyze the various reason for decentralization:
(a) Empowered users: Decentralized systems allows the users to keep control of all their information and transactions.
(b)Fault tolerance: Decentralized systems are less likely to fail accidentally because they rely on many separate components that are not likely.
©Durability and attack resistance: Because blockchain does not have a central point of control and is better able to survive a malicious attacks, the decentralized systems are more expensive to attack and destroy or manipulate.
(d)Free from scams: It is much harder for users in decentralized systems to indulge in an ways that will benefit them by causing harm to other users.
(e)Removing third-party risks: This technology enables users to make an exchange without the intermediation of a third party, thus eliminating risk.
(f)Higher transaction rate: Blockchain transactions can reduce transaction times to minutes and they can be processed anytime as compared to the existing ways of transaction through banks which need much longer period to be processed.
(g)Lower transaction costs: By eliminating third-party intermediaries and overhead costs for exchanging assets, blockchains have the potential to greatly reduce transaction fees
(h)Transparency: Changes to public blockchains are publicly viewable by all parties creating transparency, and all transactions are immutable, meaning they cannot be altered or deleted.
(i)Authenticity: Because of the decentralized system the blockchain data is complete, consistent, timely, accurate, and widely available.
The Internet transformed our lives by decentralizing the access and flow of information. The next phase has now begun. Causing the paradigm shift, blockchain technology can truly influence industries and make the processes more democratic, secure, transparent, and efficient. The potential implications of the blockchain technology to our society and business are far reaching.
- A distributed ledger
A blockchain is a public ledger that provides information of all the participants and all digital transactions that have ever been executed. A block is the “prevailing” part of a blockchain which is supposed to keep the record of the recent transactions, and once they are completed, it goes into the blockchain. Blocks are added in sequential manner with the next block containing hash of the previous block. A new block is generated as soon as the previous block gets entered in the blockchain database.
This technology helps in recording of each transaction and shares it across the network. Every user in the network can validate transactions and has an identical copy of the ledger, to which the encrypted transactions can be added. Any changes to the ledger are reflected in all copies in minutes, or in some cases, seconds. Through the use of ‘keys’ and signatures the security and accuracy of assets is maintained cryptographically and are controlled by the participant.
The end result is a highly efficient and secure method of performing transactions and it serves as an online ledger keeping record of transactions that can’t be changed.
Blockchains, due to its property of distributed ledger can be used for a wide variety of applications, such as:
(a)tracking ownership or the provenance of documents,
©for financial services,
Decisive benefits of distributed ledger are:
(a)Fraud protection: This technology responds very well to the unauthorized changes or malicious tampering. The methods by which information is secured and updated, and as nothing can be changed and the ledger is present across multiple nodes, Blockchain is easier to track.
(b)Easing the management: With all transactions being added to a single public ledger, it reduces the clutter and complications of multiple ledgers.
©Assures ownership: Distributed ledgers can provide new ways of assuring ownership and provenance for goods and intellectual property.
(d)Removes mediator and speeds up the process: The blockchain removes the need of such an mediator and replaces the mediator with a network. Thus is this way Blockchain can decrease the settlement times of many payments transactions.
The key message is that, by fully understanding the technology, several spheres can choose this technology and overcome the issues by solving a particular purpose, balancing security and central control with the convenience and opportunity of sharing data between organizations and individuals.
- Leading to a safer and secure ecosystem by providing tamper free environment
“The blockchain is an incorruptible digital ledger of economic transactions that can be programmed to record not just financial transactions but virtually everything of value.”, Don & Alex Tapscott, authors Blockchain Revolution (2016)
From the above two features it can be easily seen how blockchain is providing a tamper free environment for the participants in the network. Blockchain network automatically checks and updates itself every few minutes, this helps in providing a self-reviewing system. It helps in providing a very robust system. Many important properties result from this:
(a)All data is embedded within the network which makes it public. Hence, it helps in providing transparency.
(b)If anyone tries to alter the block data on the blockchain, it would needing a huge amount of computing power to get ahead of the entire network. Hence, it proves that the system cannot be corrupted easily.
©All the data is linked and verified at every block and so has no single point of failure.
(d)A network of purported computing “nodes” together form the blockchain.
All the nodes together create a very powerful network. Every node is an “administrator” of the blockchain, and joins the network. Every node in the network has an incentive for participating in the network. The nodes compete in order to have the chance of winning the digital currencies by solving computational puzzles. This way, these specific nodes are said to me mining for the recent blocks which contain all the details of recent transaction.
Hash — Providing authenticity:
There are many cases where authenticity of data and documents is very important. Many organizations have very sensitive documents, assets, or contracts that need to be protected. When data, a file, or a document is stored, a hash is created for each file. A hash is like the fingerprint that through an algorithm, turns data into an output of fixed length which is unique for every single transaction.
Every block can be divided into two parts, namely the header and the transaction part. The header includes the previous block’s hash and it references the previous hash it is building upon. It also stores the hash of the current transaction which is meant to be connect the next block when added. The blockchain is distributed and updated with the new block added. Thus in this way other locations can continue to maintain it if any of the copy of blockchain is compromised. This makes the blockchain immutable. By comparing the hash of the data the authenticity of the data can be verified which helps in achieving an independently verifiable system.
There are many ways through which one can mint coin. The most observed method till date is mining, but other methods have also been proposed. Let’s go through some of them.
For example, in case of Bitcoin, the community uses mining. Proof of work is a protocol by which somebody can effectively prove that they have engaged in a significant amount of computational work. With respect to mining it requires solving a computational puzzle. The role of the miner is to create the block containing a number of latest transaction, it has to encrypt data by all the computational process and thus provide the proof of work. The miner gets rewarded financially by doing it. The miners compete with each other in order to be the first one to add the recent block on the top of the blockchain. The added block is then verified by other nodes when other blocks are added on top of it.
Now, when you have completely understood the proof of work. Let us try to understand proof of stake, which is the new consensus system that the developers want to start using. It does not involve any computational work at all. The motivation to this is that the mining seems to have an unnecessary step, the miners earn monetary rewards in the form of Bitcoin using which they have to spend money in order to buy power and equipments in order to operate their mining rigs which will again be used to solve puzzles and in turn the get earn reward. By using roof of stake, the process of achieving the same goal is quite different. With the proof of stake, depending on the wealth is chosen to be the creator of new block. Hence, this helps in removing the external step of having to use the real power and real hardware. It would help in lowering the overall cost of the mining process. This also creates an argument that those who are stakeholders in the currency have an incentive to be good steward of the system.
In addition to cryptocurrencies, the technology can prove itself to be of the best interest in other spheres by providing a transparent system, cutting transaction costs, decreasing the risk of deals with third parties, and reducing time for processing. As technology gradually approaches mass acceptance in the different spheres, everyone has started recognizing the potential of it.
Blockchain drives an important and disruptive trend in many fields. As the adoption grows, we see how various intermediaries decrease in number, the systems gets decentralized, and thus becomes more secure, lively and transparent.