The BlockChain Technology Disruption

"The blockchain does one thing: It replaces third-party trust with mathematical proof that something happened." 

– Adam Draper.

What is a Blockchain?

A Blockchain is basically a long chain of records which grows continuously. Each link in the chain contains a transaction data or digital record that is called as a Block, and hence a chain of blocks is referred to as the 'Blockchain'.  A blockchain has an open, distributed and decentralized database which is accessible to anyone. It is an anonymous and public electronic ledger which is open to all and can be modified by all. It is also referred to as the Digital Ledger Technology (DLT) and makes the data transparent, safe and auditable. 

Origin of Blockchain

In 1991, the blockchain was first proposed by a research team, including Stuart Haber and W. Scott Stornetta, to digitally timestamp the documents to avoid the tampering. It remained largely unused until 2008 when Satoshi Nakamoto proposed it as a core component of a new cryptocurrency called bitcoin. Bitcoin became the first digital currency and the most popular one to implement blockchain technology.

How does a Blockchain work?

Each block in a blockchain consists of three key components:

1) An encrypted or cryptographic hash of the previous block in the chain 

2) Transaction Data and 

3) Hash of the current block. 

Every block contains a hash of the previous block. The blockchain, thus has a complete information starting from the Genesis Block right down to the most recently completed block.  The hash is like a fingerprint for each block that is unique, thus making the block secure. In the case of a bitcoin block, the transaction data would have the details of the sender, receiver, and the bitcoin amount. The data in the blockchain can be distributed, but not copied.

The entire blockchain is stored on a large P2P network of computers, meaning that no single person has a control over its history or there is no central authority for a blockchain. However, the growing size of the blockchain is a problem by some, as it can create storage and synchronization issues.

How is the data secured and validated?

Everyone on the P2P network receives a copy of the blockchain. So, whenever a new block is attempted to be added to the blockchain, it is sent to all the nodes in the network for a validation. When a new transaction or an edit to an existing transaction comes into the blockchain, a majority of the nodes within the blockchain implementation execute mathematical algorithms to evaluate and verify the history of the proposed individual block. If most of the nodes agree that the history and signature is valid, the new block is accepted into the ledger and every node adds it to its blockchain. However, if a majority do not accept the addition or update to the ledger, it is rejected and not added to the chain. This is the Distributed Consensus Model which allows the blockchain to run as a distributed ledger without any need for a central, unifying authority.  The participants in a blockchain are called as Data Miners and they keep the blockchain valid and secure by using powerful computing hardware to provide ‘proof-of-work’ to verify each block and the transaction it contains. In the case of bitcoin, it takes an average of about 10 minutes for a new block to be created through mining after receiving sufficient number of confirmations for a consensus although the bitcoin transfer occurs instantaneously in reality.

Whenever the data in a block is edited, its hash value also changes and so the rest of blocks following it will become unchained. So, it would be extremely difficult for any individual to tamper with a data block and recalculate the hash value or the rest of the blocks, as it would require an enormous amount of computing power, which would make such manipulations impossible.

Benefits

The blockchain enables two entities who do not know each other to agree that something on the ledger is valid without the actual need for any third-party validation such as a bank in the case of financial transactions. We also have the concept of public blockchains, private blockchains, and consortium block chains depending on the access type.

The use of blockchain is not limited to the financial sector. It is being used in a variety of areas such as storing medical records, creating a digital notary, collecting taxes, and more. It also has potential uses in the field of voting systems, storage of land records, music, diamonds, insurance, IoT (Internet of Things) devices, and mobile phones where mining chips can be embedded. Fully automated DLT systems eliminate the need for several repetitive processes in traditional systems.

In a way, the blockchain technology goes against the logic behind cloud computing. Cloud computing moves toward a single database that multiple nodes can access. These nodes need not have a private copy of this database. It is reverse in the case of a blockchain.

Why is Blockchain so disruptive?

The greatest disruption of blockchain technology is that it can potentially eliminate the need for any financial institutions and banks. Although the Government of India and the other countries worldwide are against the use of cryptocurrencies such as bitcoin, as a matter of policy they actively encourage the use of the underlying blockchain technology and are very much interested in implementing the technology in several other fields.

Blockchain in Banking Industry

According to the estimates, the blockchain technology could reduce infrastructure costs for the world's 10 largest investment banks by an average of 30%, or $12 billion in annual cost savings.  So, all major banks are experimenting with it for doing money transfers, record keeping and other backend work. The blockchain application can replace the paper-intensive international trade finance process through its electronic decentralized ledger and can help in giving all the participating entities including banks, access to a single source of information. J.P. Morgan has already created the largest blockchain payments network in the world called the Interbank Information Network (IIN).

Conclusion

When the internet was just getting started, no one could envisage the incredible impact that it would have on our lives. Similarly, Blockchain could be the next great technology disruptor since the advent of internet and could shift us to a level where many intermediaries could be eliminated, and governments can implement their regulatory frameworks in a much better way.